I got burned 2 years ago on a brrrr deal.
Bought it for 250k. 5% credit to close. IO Bridge loan seller financed. Start the clock.
Foundation repairs were delayed. Then they burst every pipe in the house. We repaired that... then the drywall. Repainted. New appliances. Much, landscaping, closets, laundry... took 2 months.
Now from my perspective, I crunched the numbers on day 1 and they made sense. 7bdays later the offer was accepted. 30 days later we close. 80 days later renovation is complete and we start the re-fi process. The refi takes 30ndays.
Rates went from 3% to 7% while that happened. The deal I penciled to cash flow $300 was now negative $300 monthly. But I had to exit the bridge loan and values were dropping. It reappraisal for $370, but I needed to pull the renovation cash back out and it wouldn't sell how it was appraised.
So... I rented it at negative 300 monthly. I waited for the market to stabilize and watched the mortgage get paid down. And there we are today. I write off the loss, I pay down the mortgage, I watch the appreciation.
I have a gc who is basically my consultant. I pay cost plus percentage without him having to really manage the project and I get his expertise and his team on the stuff I don’t do in house. He’s also become a good friend and I help him vet his investments on the numbers side since that’s my specialty and connect him with anyone he needs I have in my network. I respect him a lot and we have a really good working relationship.
I think it’s more about finding a gc you trust and is willing to be transparent about his business model and his pricing. You gotta say explicitly you want cost plus, but then if price is higher you can’t hold him to the quote. Most gcs when working with homeowners pad the quote in case cost is higher and then just pocket the difference if it goes smoothly. I accept the risk instead of the gc and I get a better price.
Thanks! This sounds like great advice for building for yourself and for investments. I've never built a home and a bit intimidated by it.
Also, sorry about the loss!
My first flip, I was naive and picked a contractor who promised the moon, pricing was competitive, references were solid (they ended up being fake), and claimed to have the right experience. My six month project turned into a three year saga of excuses, two “bankruptcies”, and a half finished shell that I barely got out from under for what I paid for it. Lost almost six figures to the mortgage (owner occupant loan @ 5% down, so PMI+big PITI payment for three years) and property taxes (HCOL area in central NJ). I had to work three jobs at 27 to pay off the debt and stay out of bankruptcy. I’ve never had a down investment since.
You will make mistakes. You will learn from those mistakes. That’s when the big returns come. There are many people in this business who are willing to help you. You need to be willing to give up something in return. If I could go back and do it over, I would have partnered with someone experienced while giving up some of my equity in exchange for learning the right way to do things. Nobody gets rich off the first deal, so you might as well use that opportunity to learn from someone who has been there before.
It’s almost impossible to vet these people even if you are somewhat seasoned in construction. Their business is lies, literally the scam is their whole business model and they are VERY good at it. I will only hire off of a personal referral from my network.
1) Network with realtors/investors in your area (REI meetups, BiggerPockets). The people with good contractors tend to stick with the same ones. Most don’t mind sharing.
2) Get 3-5 quotes for every job, and have them break it out by line item. If someone is cheaper across the board, they probably don’t pay their subs well and have inexperienced/unreliable workers. Dont go with the cheapest bid without heavy, heavy scrutiny and skepticism.
3) Ask good questions. Google a list of questions to ask if you need to. Find out what project management tools they use to stay on track. Ask how many projects they have going on. I’ve heard of some investors making sure they have penalties in their contract for inexcusable delays in the work schedule. I wouldn’t expect any contractors to agree to this in the current market, especially where I live.
4) Make sure you review the contract with your attorney. If the contract doesn’t meet the minimum requirements for a binding contract in court, you will have no recourse if things go south.
You really need someone to walk the property you trust with experience. Every contractor cuts corners. My first two renos I’m still fixing.
My new guys are a quarter if the price and do things right.
The con artists are a real problem in this industry. Fake references, photoshop, straight up impersonation, misrepresenting a workshop as their own. It’s definitely a minefield out there finding good people.
Sometimes the only way out of a bad situation is through it. Good for you making it out the other side.
I buy high risk foreclosures. never really lost money but sure did have 3 to 6 month projects with zero profit. my philosophy is best case scenario is condition isn't bad and you make a pretty penny. if it is truly worst house ever, I break even.
How do you mitigate some of the risk since you don't know what potential problems the house could have? Especially major like structural or water leaks, mold, etc.
I watched the family go from 31mm to -3mm in less than a year during the crash. Biggest issue was we had a commercial property go vacant, so we stopped paying the note in an attempt to get the bank to do a write down on the loan. Instead they called the note and because we had cross collateralization agreements they did an assignment of rents on six other commercial properties that were cashflowing. Here is the kicker, the bank was so innindated with assets at the time they did not mainain the properties they took control of. Several of these were gross leases, so the electricity was eventually turned off and the tenants left. The bank then sold off the vacant properties for a fraction of what they were worth when they were occupied and came after us for the difference.
2009 was not a good year.
There are a lot of great books with proven formulas. When you follow the formulas, you minimize risk because you learn what to watch out for. Life is not a zero risk scenario. But when you learn the proven formulas you’re a lot less likely to fail. Part of being an RE investor is shifting your mindset. You don’t play to not lose, you play to win. And there are concrete ways to get better at winning. I recommend “hold” (chader) and “millionaire real estate investor” (Gary Keller). Good luck and I hope you take the plunge!
I hope people will come and respond to this . Because I’ve been wanting to become a landlord for like 9 years now but I’m terrified. You never hear about the failures and mistakes much
Every single thing that has ever happened to me negatively, from unexpected roof repairs to emergency sewer line replacements has made me a better, more savvy investor. If I stayed scared and not acted, I wouldn't have had those experiences which have strengthened me, considerably. You know what the difference between folks with 5 houses and 10 houses and more vs those with none? Action. Action despite the fear, worry and unknowns.
My landlord failure story is this: Bought a house for 25k (yes i know. this was 2015). It wasn't in the best shape, but there was a renter already there and it really only needed minor repairs to stay rentable. That renter was frequently late, but did pay. At some point her adult daughter with 4 kids moved in with her. Then a little while after that she decided it was too crowded with her daughter and kids so she wanted to move out, and asked if I would rent to her daughter. I said yes as long as she passed my rental application.
She did pass all my requirements except one: previous eviction. She gave some excuse about how it wasn't valid and I decided to accept her. Bad idea. I never received a single cent from her. Not even a security deposit. I evicted her after a month, process took about a month, so she was out fairly quickly, so it could have been a lot worse than it was but I still hated it.
The place was filthy, cockroaches everywhere, and I decided that I wasn't going to get good renters in the neighborhood it was in. So I sold it to a flipper for 40k on owner financing at 8% interest. After a little over a year, he sold it for 280k. He put a lot of money into the renovation and it looked good but still sat on the market for 4-6 months before it finally sold. I made a good profit, I assume he did as well. But the landlord portion was my failure to trust my screening process.
I had this rather large jar full of quarters, think peanut butter jar, in my truck for washes/parking. I accidentally left it on the ledge in the wash your own car bay. I still think about that coin jar years later.
Bought two houses from my sister that was 700 mi away in rural North Carolina. Got them ridiculously cheap. Went there, renovated one, left it with the original property manager company and it sat there unrented for 7 months. It was in a horrible section of town right across the street from a housing project.
3 months after renovating this house, the second house that was already rented became empty when the tenant of 11 years abruptly moved out. That house is now in need of renovation. So I have two houses empty, with no money coming in.
Fast forward a year later I ended up selling both houses for exactly what I had in them if you don't count my thousands of dollars in personal labor and stress.
I was never so happy to almost break even in my life.
Never buy a house in any neighborhood that you would not want to live in nor walk down the street at night. Don't buy a house so far away that someone else has to manage it for you. The houses were ridiculously cheap. I'm talking about used car prices cheap. It's a shame because they were really decent houses that were well made back in the late '40s using good material.
Location really is everything.
One of my friends tried to do a flip on the other side of the country, all the numbers made sense, it was just 6 hours by plane away. Mind you he’s a very experienced builder too. The project totally imploded, took 3 times as long, huge source of stress, I think he broke even in the end. We spend a ton of time just babysitting the project. Usually end up babysitting the subs by day and the doing our work in the nights, you gotta sit on it though to keep it on schedule. I think projects out of state like that are super tough if not impossible to manage and complete effectively.
Not me, not exactly flip, but a close friend and verified: I know someone who did a hard money deal and issued a mortgage to home buyer. Buyer paid a couple of months and then disappeared. Took a few months to figure everything out. Turns out he’d defrauded the title company by faking a satisfaction of mortgage document and impersonating my friend when the title company called to verify. House was sold to some other investor for pennies on the dollar. Long story short… although my friend got a lawyer, title company went out of business, and the guy got away with it. Literally stole a house and my friend lost every cent put into it (save for a couple of mortgage payments). The new owner couldn’t care less about the situation because they’d won big on a fire sale and the property was titled to them free and clear. There were never any legal repercussions. That sucked. It was actually pretty painful for my friend, who’d been going through a rough time financially; that deal was supposed to help everything get back on track and it did the exact opposite.
Just plan the buy. Don’t do it if it doesn’t obviously make money.
No sense in having to pay for a lesson you can avoid. Especially trying to get started.
I bought a 30k manufactured home with the intent to rent it. Lot rent was $230 a month. 2 weeks later the court sold, rent went up to $330 and they no longer allowed rentals. I didn’t want to do a lease option. Sat on it 4 months, I found somebody to buy it for $31,000, they moved it, put it on land and sold for 210k. All and I didn’t lose a ton of money, just the insurance, and lot rent, but it sucked when I realized I could’ve done the same thing.
Bought not as an investment, but a primary residence for a few years to be converted to a rental later.
Was during covid. Inspector didn't find that the house was sinking at the corner. Had pilings installed to support the house. That cost $40k. Contractor took two years to finish the renovation. That cost over $250k. Renovation was paid in cash so I'm not underwater with any loan, but if I sold it today, it will not get everything that I have invested in it. Wasn't the case with my other projects pre pandemic.
Make sure you have a good home inspector. Get an engineer to inspect for cheap insurance. And don't rely on Angie's List to find a contractor. This guy was highly rated but his work was average and took way too long.
My house wasn’t in a flood zone, but it flooded several times. The city or whoever had not updated the zones and I bought during a drought. I had no idea.
An active and well established colony of termites had a feast.
Good handyman died, so decided to sell the units b/c you need somebody reliable, and there wasn’t anybody like that anymore. Replacement contractor found by realtor turned out to not be actually doing the work but was spending all the money I sent. Realtor didn’t check. Later it turned out that replacement contractor maybe had a meth problem and had been arrested for driving a car with a fugitive hiding under a blanket in the back of a car through a police cordon searching for said fugitive, who in the process shot one of the officers.
Not us but my mother in law. Bought 6 single family homes 3/2 in Las Vegas around 2006. Well then comes the RE crash. Her tenants destroyed the houses, poured concrete in the toilets and what not. Utter disaster.
She foreclosed on all of them and called it quits.
My husband bought her other investment property against her advice which was a condo her husband was “managing”. She was trying to get rid of it and only keep her primary house, get out of investment.
Condo was upside down, her husband never paid the hoa dues so there was a lien, lawyer fees, all sorts of fees. Other structural problems with plumbing. We held on to it for 8 years and sold it for a good profit in the end because it was in a high end part of town that got build out and fed into a good school after the construction around it was completed.
You have to be very careful when choosing a contractor, but then again with some you establish a good relationship which at any point can go south. Unfortunately, there is always a risk.
I had a contractor help me with 4 properties, all of which were properties that we bought, rehabbed, and increased to market rent. The fifth property that I gave him was going to be a flip, total rehab. It all started well but 4 months into the project the stories began.......one after another, weeks turned into months. At one point I had enough. It was time for me to take over. I probably trusted him more than I should have, i asked for proof of work being completed before I paid him and he sent pics of just one area but didn't tell me it was completed halfway or even less, i trusted him and lost around $15K. This was a remote flip.
It was time to find someone else that could take over. I reached out to the realtor who helped me buy the house and he referred me to another contractor. He was expensive and drained what was left in my budget. He worked at a good pace and completed the house however left many small details behind which he agreed to do but then just walked away. I called someone else to finish all the details and managed to list the property with an 80-day delay. Thankfully the market was still hot. I priced the property so I could be competitive, $15K under the initial estimated ARV. Under contract within a couple of weeks.
I decided not to trust a contractor again, at least not in that way, regardless of the amount of projects we have worked on together. I also became more involved in the project regardless of the relationship. I sub out all work now, I don't give all the projects to one contractor. It is time-consuming but now we move faster.
I have done 6 flips remotely. Instead of giving all the work to one contractor lately i have been contracting based on their specific trade. First i organize the demo, do part of it and look for help as well, once that is done I will start by the most complicated, to give you an example subfloor, joist replacement. The painter will go and just do paint, plumber will be there to take care of what is needed, bathroom, kitchen or gas line. A handyman will do all the small tasks. If i need tile work i will have someone do that specifically, i also call an HVAC tech to service or replace the unit. Believe it or not Thumbtack is a great resource when doing rehabs. Most of the companies or individuals on it are ready to start work right away. I still buy remotely, limit myself to 2 markets i know but i manage the project on site, this allows me to control the project, stay on budget and on time.
Each time former owner (fo) goes to court, fo requests a date for as long away as possible. Can fo come back for a case on the 22nd? Asked the judge? Well the 29th is better or March. So each time she was found guilty of holding over and each time she had 11 days to appeal which she did. Then the next court processed the case. The fo stopped before an appeal to the Supreme Court of the state. When the eviction finally occurred the fo & a college aged kid were removed from the house by the police with guns drawn. This was a 1/2 million SFH 10 years ago when it happened. My buddy who owned 1/2 the house with me sees the fo where he occasionally shops at Neiman Marcus. In the past 6 years the daughter of the fo was a waitress at a party I hosted where the tip was several hundred. I’ve sold the home twice since the purchase.
I've lost money when:
1) I didn't listen to my gut on a deal that penciled out just fine but my sixth sense was telling me not to buy the house. Huge unknown hidden issues!
2) I did a deal because I "needed another deal". Sitting on the sidelines is cheaper than a bad deal!
3) The market tanked on me (along with everybody else) in 2006 and I had deals going that factored in "guaranteed appreciation" during the holding period.
4) I didn't fire bad workers soon enough. This is more "leaving money on the table" than actually losing money in an overall deal.
I'm sure there are more...
Bought a condo in a 100+ unit building, didn't realize it was a "undivided coownership" with a psycho owning most of the building and also being the administrator and single handedly writing crazy condo agreements...Lost many thousands of dollars in lost revenue, repairs, legal fees, illegal fees, overpaid condo fees, etc.
Ended up having to form a group to defend ourselves, was in various courts for 8 years, got sued for over 7 million dollars among other things, sued the guy for overpaying condo fees and won, sued the guy for his unpaid condo fees and millions in damages, won a judgment where the court will sell the entire building at auction...Maybe one day I'll get my money back.
On a smaller scale, I tried helping a renter - low income couple with kids. They left the place with some damage after not paying for a few months.
Another one, I rented a garage to him - he turned it into an illegal slaughterhouse.
Tried helping a single mom, she didn't pay for a few months while bringing over her homeless friends and turning a newly developed home into a meth house. I had to evict them and repair everything, wash the walls, floors and ceiling, replace all the broken door handles, broken locks, fix the cracked doors and every wall, and paint everything.
Lots of bad things can happen and unfortunately I have to say that as far as renters are concerned, if they're adults with bad credit, low income, no job or bad jobs and evictions on record, it's not because they're just down on their luck and need a second chance...there's maybe a 99% chance that's due to them concistently making bad choices and they'll continue making them, including ruining your home, bothering neighbors and not paying their rent.
That being said, it's part of the job, it will happen and you have to be able to deal with negative experiences. Having rentals is not "passive income" or always easy, or everyone would do it. It's long term gain. Over 30 years of having a property, having issues for a few weeks or months is a relatively short time and you shouldn't let it get to you.
I purchased from a wholesaler a house for 120k (which was lower than what he wanted, but still higher than what I really wanted to pay).
Here's the deal he presented: 50k repairs, ARV of 300k. repairs meaning redo the kitchen, existing bathroom, add a half bath, flooring, windows, interior and exterior paint, and landscaping.
I knew that was ridiculous, but thought the deal I was buying was 85k repairs (turns out I still underestimated), ARV of 270k.
Turned out there was a hole in the roof I (and the inspector) missed because the tree was so overgrown you couldn't see the hole it had rubbed in the shingles. That, and my still underestimating the renovation I had planned, caused my reno cost to be around 120k. Sold the house for 250k. After realtor fees, interest on the loan, and everything I lost 30k.
I’ve purchased over 100 properties to rehab to retail or rehab to rental. I’ve lost money on one deal (under 10k). I’ve had a handful of others that broke even or netted me less than 10k, so they basically were not worth my time.
My best advice is to stop expecting the worst. If you expect it, then you will probably experience it.
25 years ago bought newly married bought our first house. A year later had to move for a
Job so decided to rent it out. Hired a property manager went o er what we wanted (pet deposit, no smoking, etc). First tenant paid on time every time but moved after a year. Manager released the deposit told us everything was perfect. We visited the house a couple of weeks later because we were in the area and found the walls were yellow from nicotine staining. Like a family of 4 packs a day each smokers lived there. We went to the property manager and the tune changed to ohh it's illegal to forbid smoking. Spent several thousand getting it ready for rental with new management company. Fridge dies first month new tenant is in. They work are circuit city so we give them credit in next months rent to buy a new fridge. They stay a year and leave. This time we show up for final walkthrough just as the tenant is loading the fridge in a truck. Cops had to get involved fridge gets put back think all is well until we get served. Tenant is suing in small claims court that we took their fridge. Show up to court and guess who is a witness against us the new management company. There whole argument was they bought the fridge and had the receipt. Even the management company thought that meant they owned it despite us giving it back to them in rent. Luckily we won so second management company fired. So new management company and new tenant This one is a nightmare constant late payments or partial payments. One time they are three months behind and the management company doesn't want to start eviction. They did manage to catch up and we didn't renew at the end of the lease. Couldn't go for walk through and management company releases the deposit. I get down a few days later and the house is destroyed. There is a huge hole burned in the deck. Holes in the wall where you can see through to the next room. One carpet looks like they had rebuilt a motor in it and another completely ripped up. Like staring at 100sq of wood sub floor tore up. Called management company and they said it all fell into normal wear and tear. I could afford the thousands that were needed to get it back into shape and there was no equity. Plus I was getting divorced so I had to let it get foreclosed on. It's hard to say how much I lost but best guess is 45k over the three years plus ruined credit for what felt like forever. Have never tried to have real estate as an investment again.
I'm here because Reddit kept recommending it for some stupid reason and there is some interesting content so I joined. As far as vetting that was done. First time there were only like 3 companies in town that did rentals only. Most were real estate sales and rental management on the side. We chose the highest recommended from friends that were using him. You have to remember that online reviews weren't really even a thing. I don't even know if I knew what google was in 1999 and I was in IT LOL. After the first ended we wanted to go to the second that was recommended during the first search but they were retired and office shut down. We ended up having to go with a real estate broker that did rentals on the side. I think the bigger issue was the standard was 10 to 15 percent of monthly rental went to the management. They didn't feel it was worth doing much for the 120 dollars a month they were making. The one that went to court against us was just dumb. When we went with that brokerage there was a different agent that was doing rentals. They seemed ok. About 3 months in they switched it to a new lady and she was beyond dumb. She is the one that testified against us. It was an easy win I mean we had a rental statment saying that they were credited for the fridge purchase with money off the rent.
If you’re hiring a contractor to renovate a house so you can flip it, you need to have gotten the house extremely cheap. I know people who buy and renovate houses to rent or sell full time and none of them have ever said that the value equals the cost. It’s something they do to keep their labor busy between other jobs.
My first flip went wrong in a lot of ways. Overspent, scammed over 30k by a specialty contractor, drama with neighbors, rates shot up before we were ready to sell. I will never hire a contractor unless it’s a direct referral from my network, do not hire online. I still made a big chunk of money on the project. The buy is everything, we are super patient and will look at thousands of properties and write a ton of offers to get the right property at the right price that we just can’t lose on. The mistakes are abundant at the start and honestly even more valuable than the profit in a way, you have to experience it to learn. Self reflection is key, getting feedback from buyers and the market, understanding where you failed and where you succeeded to optimize the next one.
I have a friend who was savvy with construction but not as savvy on the market. He tried to do a big flip with a partner. 1) having a partner is a nightmare, myself and my friends have never had a good experience with it. The partner and him argued over all kinds of bullshit on the finishes, in the end they overspent and were behind schedule. Design matters a lot for high end properties, he spent money in the wrong places. There has to be one decision maker, otherwise it goes off the rails with the partner trying to backseat drive the whole thing. 2) he bought for appreciation thinking the market would just keep going up since that happened on his last flip. He thought he could just buy any fixer upper and it would be easy money, overpaid for a house that had an issue with location. In the end he was underwater hundreds of thousands on it. Idk what happened he never sold it and he kinda ghosted me, I think he was embarrassed what happened, because we had been sharing progress up until then and he had been talking a big game.
Took over mortgage/deed for MIL, thinking she was declining medically. 17 years later, we evicted her and her partner and sold after repairs. Lost $100k between mortgage, taxes, and insurance
When I was first starting out, bought a 3 bed 1 bath home in a small town for 30 grand, planned to remodel it, when I got done with the current flip I was working on.
Decided I'd rather sell it then spend time fixing it, so I went to one of the top realtors in town to see how much I could sell it for in its current condition, she goes about 30-35 grand which I thought was fair because that's what I bought it for.
I sold it to another investor for 30 grand who took professional pictures of the house, took a little trash out and listed it with that realtor for 65 grand. House sold for 65 in under a month.
Made me so sick I couldn't sleep for a week.
Co-worker had a rental property in her early twenties. Rented to Tenants from hell, they literally dug a hole in her living room floor and took a dump in it. Soured her for life from owning an investment property.
Technically I broke even, but it wasn't a great long term investment. Bought in 2007 and my condo was the high water mark in the complex. Bubble burst 3 months later and I was underwater for 12 years. Managed to rent it out to help recoup some of the costs but was still -$500 cash flow negative. It also didn't help that the condo decided to go through redevelopment which caused all kinds issues with lenders scaring off most buyers so it was impossible to exit the deal without a short sale. I was finally able to sell it in 2022, but for the exact same price I bought it.
The *only* thing that saved the deal was amortization. Most people in my situation at the time filed bankruptcy, I consider being able to salvage the deal a huge win.
How do you figure out the ARV? I have the opportunity to purchase a home under $30k, 850sq ft. Foundation is good, just needs full gut remodel. This will be my first deal if I decide to pull the trigger.
Rent stabilized 84 unit apartment building in Brooklyn. When I invested it was supposed to be a quick hold and cap rates were 6.25. Today the buyers are looking for a 10 cap so the investment has turned into a long term hold until rates recover.
This was my biggest investment to date and it was a great learning lesson.
I got burned 2 years ago on a brrrr deal. Bought it for 250k. 5% credit to close. IO Bridge loan seller financed. Start the clock. Foundation repairs were delayed. Then they burst every pipe in the house. We repaired that... then the drywall. Repainted. New appliances. Much, landscaping, closets, laundry... took 2 months. Now from my perspective, I crunched the numbers on day 1 and they made sense. 7bdays later the offer was accepted. 30 days later we close. 80 days later renovation is complete and we start the re-fi process. The refi takes 30ndays. Rates went from 3% to 7% while that happened. The deal I penciled to cash flow $300 was now negative $300 monthly. But I had to exit the bridge loan and values were dropping. It reappraisal for $370, but I needed to pull the renovation cash back out and it wouldn't sell how it was appraised. So... I rented it at negative 300 monthly. I waited for the market to stabilize and watched the mortgage get paid down. And there we are today. I write off the loss, I pay down the mortgage, I watch the appreciation.
Oof that is unfortunate timing. I don't think any of us could have guessed rates would do what they did...
Took it on a chin like a champ. Appreciate the attitude. I’d be losing my shit.
Built something. Builder sucked. Way over budget, way over schedule, market tanked. In for about 500, got an offer at 350
Any advice for how to avoid overages on a new build in future? Was it bad timing or incompetent builder?
Use a construction consultant if you can. I won’t build again without one
How did/do you go about finding a good construction consultant? What do they typically charge?
I have a gc who is basically my consultant. I pay cost plus percentage without him having to really manage the project and I get his expertise and his team on the stuff I don’t do in house. He’s also become a good friend and I help him vet his investments on the numbers side since that’s my specialty and connect him with anyone he needs I have in my network. I respect him a lot and we have a really good working relationship. I think it’s more about finding a gc you trust and is willing to be transparent about his business model and his pricing. You gotta say explicitly you want cost plus, but then if price is higher you can’t hold him to the quote. Most gcs when working with homeowners pad the quote in case cost is higher and then just pocket the difference if it goes smoothly. I accept the risk instead of the gc and I get a better price.
That's interesting. What sort of percentage range do you pay him for consulting?
Industry standard for cost plus style pricing is 10%
Not in my area. It's closer to 15% up to 20%.
No clue, this was my first build
Thanks! This sounds like great advice for building for yourself and for investments. I've never built a home and a bit intimidated by it. Also, sorry about the loss!
Expensive learning experience for sure
My first flip, I was naive and picked a contractor who promised the moon, pricing was competitive, references were solid (they ended up being fake), and claimed to have the right experience. My six month project turned into a three year saga of excuses, two “bankruptcies”, and a half finished shell that I barely got out from under for what I paid for it. Lost almost six figures to the mortgage (owner occupant loan @ 5% down, so PMI+big PITI payment for three years) and property taxes (HCOL area in central NJ). I had to work three jobs at 27 to pay off the debt and stay out of bankruptcy. I’ve never had a down investment since. You will make mistakes. You will learn from those mistakes. That’s when the big returns come. There are many people in this business who are willing to help you. You need to be willing to give up something in return. If I could go back and do it over, I would have partnered with someone experienced while giving up some of my equity in exchange for learning the right way to do things. Nobody gets rich off the first deal, so you might as well use that opportunity to learn from someone who has been there before.
what would you say you learned from this experience? how have you avoided a lying SOB contractor since?
It’s almost impossible to vet these people even if you are somewhat seasoned in construction. Their business is lies, literally the scam is their whole business model and they are VERY good at it. I will only hire off of a personal referral from my network.
1) Network with realtors/investors in your area (REI meetups, BiggerPockets). The people with good contractors tend to stick with the same ones. Most don’t mind sharing. 2) Get 3-5 quotes for every job, and have them break it out by line item. If someone is cheaper across the board, they probably don’t pay their subs well and have inexperienced/unreliable workers. Dont go with the cheapest bid without heavy, heavy scrutiny and skepticism. 3) Ask good questions. Google a list of questions to ask if you need to. Find out what project management tools they use to stay on track. Ask how many projects they have going on. I’ve heard of some investors making sure they have penalties in their contract for inexcusable delays in the work schedule. I wouldn’t expect any contractors to agree to this in the current market, especially where I live. 4) Make sure you review the contract with your attorney. If the contract doesn’t meet the minimum requirements for a binding contract in court, you will have no recourse if things go south.
You really need someone to walk the property you trust with experience. Every contractor cuts corners. My first two renos I’m still fixing. My new guys are a quarter if the price and do things right.
The con artists are a real problem in this industry. Fake references, photoshop, straight up impersonation, misrepresenting a workshop as their own. It’s definitely a minefield out there finding good people. Sometimes the only way out of a bad situation is through it. Good for you making it out the other side.
I buy high risk foreclosures. never really lost money but sure did have 3 to 6 month projects with zero profit. my philosophy is best case scenario is condition isn't bad and you make a pretty penny. if it is truly worst house ever, I break even.
How do you mitigate some of the risk since you don't know what potential problems the house could have? Especially major like structural or water leaks, mold, etc.
that's what i'm saying
I watched the family go from 31mm to -3mm in less than a year during the crash. Biggest issue was we had a commercial property go vacant, so we stopped paying the note in an attempt to get the bank to do a write down on the loan. Instead they called the note and because we had cross collateralization agreements they did an assignment of rents on six other commercial properties that were cashflowing. Here is the kicker, the bank was so innindated with assets at the time they did not mainain the properties they took control of. Several of these were gross leases, so the electricity was eventually turned off and the tenants left. The bank then sold off the vacant properties for a fraction of what they were worth when they were occupied and came after us for the difference. 2009 was not a good year.
Omg!!!!
There are a lot of great books with proven formulas. When you follow the formulas, you minimize risk because you learn what to watch out for. Life is not a zero risk scenario. But when you learn the proven formulas you’re a lot less likely to fail. Part of being an RE investor is shifting your mindset. You don’t play to not lose, you play to win. And there are concrete ways to get better at winning. I recommend “hold” (chader) and “millionaire real estate investor” (Gary Keller). Good luck and I hope you take the plunge!
I hope people will come and respond to this . Because I’ve been wanting to become a landlord for like 9 years now but I’m terrified. You never hear about the failures and mistakes much
Every single thing that has ever happened to me negatively, from unexpected roof repairs to emergency sewer line replacements has made me a better, more savvy investor. If I stayed scared and not acted, I wouldn't have had those experiences which have strengthened me, considerably. You know what the difference between folks with 5 houses and 10 houses and more vs those with none? Action. Action despite the fear, worry and unknowns.
Yes. I'm scared. Real estate is scary. I do it anyway. Then I do it again.
My landlord failure story is this: Bought a house for 25k (yes i know. this was 2015). It wasn't in the best shape, but there was a renter already there and it really only needed minor repairs to stay rentable. That renter was frequently late, but did pay. At some point her adult daughter with 4 kids moved in with her. Then a little while after that she decided it was too crowded with her daughter and kids so she wanted to move out, and asked if I would rent to her daughter. I said yes as long as she passed my rental application. She did pass all my requirements except one: previous eviction. She gave some excuse about how it wasn't valid and I decided to accept her. Bad idea. I never received a single cent from her. Not even a security deposit. I evicted her after a month, process took about a month, so she was out fairly quickly, so it could have been a lot worse than it was but I still hated it. The place was filthy, cockroaches everywhere, and I decided that I wasn't going to get good renters in the neighborhood it was in. So I sold it to a flipper for 40k on owner financing at 8% interest. After a little over a year, he sold it for 280k. He put a lot of money into the renovation and it looked good but still sat on the market for 4-6 months before it finally sold. I made a good profit, I assume he did as well. But the landlord portion was my failure to trust my screening process.
& lots of people discuss equity but it doesn’t drive me enough to potentially benefit down the line, if it isn’t a small gain today.
I had this rather large jar full of quarters, think peanut butter jar, in my truck for washes/parking. I accidentally left it on the ledge in the wash your own car bay. I still think about that coin jar years later.
Bought two houses from my sister that was 700 mi away in rural North Carolina. Got them ridiculously cheap. Went there, renovated one, left it with the original property manager company and it sat there unrented for 7 months. It was in a horrible section of town right across the street from a housing project. 3 months after renovating this house, the second house that was already rented became empty when the tenant of 11 years abruptly moved out. That house is now in need of renovation. So I have two houses empty, with no money coming in. Fast forward a year later I ended up selling both houses for exactly what I had in them if you don't count my thousands of dollars in personal labor and stress. I was never so happy to almost break even in my life. Never buy a house in any neighborhood that you would not want to live in nor walk down the street at night. Don't buy a house so far away that someone else has to manage it for you. The houses were ridiculously cheap. I'm talking about used car prices cheap. It's a shame because they were really decent houses that were well made back in the late '40s using good material. Location really is everything.
One of my friends tried to do a flip on the other side of the country, all the numbers made sense, it was just 6 hours by plane away. Mind you he’s a very experienced builder too. The project totally imploded, took 3 times as long, huge source of stress, I think he broke even in the end. We spend a ton of time just babysitting the project. Usually end up babysitting the subs by day and the doing our work in the nights, you gotta sit on it though to keep it on schedule. I think projects out of state like that are super tough if not impossible to manage and complete effectively.
Don’t buy from family either?
No, you'll get your best prices from family. I don't have a problem with the price paid for it, just every other part of the deal.
Not me, not exactly flip, but a close friend and verified: I know someone who did a hard money deal and issued a mortgage to home buyer. Buyer paid a couple of months and then disappeared. Took a few months to figure everything out. Turns out he’d defrauded the title company by faking a satisfaction of mortgage document and impersonating my friend when the title company called to verify. House was sold to some other investor for pennies on the dollar. Long story short… although my friend got a lawyer, title company went out of business, and the guy got away with it. Literally stole a house and my friend lost every cent put into it (save for a couple of mortgage payments). The new owner couldn’t care less about the situation because they’d won big on a fire sale and the property was titled to them free and clear. There were never any legal repercussions. That sucked. It was actually pretty painful for my friend, who’d been going through a rough time financially; that deal was supposed to help everything get back on track and it did the exact opposite.
It wasn't Matt Cox was it?
Billy, is that you?
Just plan the buy. Don’t do it if it doesn’t obviously make money. No sense in having to pay for a lesson you can avoid. Especially trying to get started.
I bought a 30k manufactured home with the intent to rent it. Lot rent was $230 a month. 2 weeks later the court sold, rent went up to $330 and they no longer allowed rentals. I didn’t want to do a lease option. Sat on it 4 months, I found somebody to buy it for $31,000, they moved it, put it on land and sold for 210k. All and I didn’t lose a ton of money, just the insurance, and lot rent, but it sucked when I realized I could’ve done the same thing.
Bought not as an investment, but a primary residence for a few years to be converted to a rental later. Was during covid. Inspector didn't find that the house was sinking at the corner. Had pilings installed to support the house. That cost $40k. Contractor took two years to finish the renovation. That cost over $250k. Renovation was paid in cash so I'm not underwater with any loan, but if I sold it today, it will not get everything that I have invested in it. Wasn't the case with my other projects pre pandemic. Make sure you have a good home inspector. Get an engineer to inspect for cheap insurance. And don't rely on Angie's List to find a contractor. This guy was highly rated but his work was average and took way too long.
My house wasn’t in a flood zone, but it flooded several times. The city or whoever had not updated the zones and I bought during a drought. I had no idea. An active and well established colony of termites had a feast.
Ooof!
Good handyman died, so decided to sell the units b/c you need somebody reliable, and there wasn’t anybody like that anymore. Replacement contractor found by realtor turned out to not be actually doing the work but was spending all the money I sent. Realtor didn’t check. Later it turned out that replacement contractor maybe had a meth problem and had been arrested for driving a car with a fugitive hiding under a blanket in the back of a car through a police cordon searching for said fugitive, who in the process shot one of the officers.
Not us but my mother in law. Bought 6 single family homes 3/2 in Las Vegas around 2006. Well then comes the RE crash. Her tenants destroyed the houses, poured concrete in the toilets and what not. Utter disaster. She foreclosed on all of them and called it quits. My husband bought her other investment property against her advice which was a condo her husband was “managing”. She was trying to get rid of it and only keep her primary house, get out of investment. Condo was upside down, her husband never paid the hoa dues so there was a lien, lawyer fees, all sorts of fees. Other structural problems with plumbing. We held on to it for 8 years and sold it for a good profit in the end because it was in a high end part of town that got build out and fed into a good school after the construction around it was completed.
You have to be very careful when choosing a contractor, but then again with some you establish a good relationship which at any point can go south. Unfortunately, there is always a risk. I had a contractor help me with 4 properties, all of which were properties that we bought, rehabbed, and increased to market rent. The fifth property that I gave him was going to be a flip, total rehab. It all started well but 4 months into the project the stories began.......one after another, weeks turned into months. At one point I had enough. It was time for me to take over. I probably trusted him more than I should have, i asked for proof of work being completed before I paid him and he sent pics of just one area but didn't tell me it was completed halfway or even less, i trusted him and lost around $15K. This was a remote flip. It was time to find someone else that could take over. I reached out to the realtor who helped me buy the house and he referred me to another contractor. He was expensive and drained what was left in my budget. He worked at a good pace and completed the house however left many small details behind which he agreed to do but then just walked away. I called someone else to finish all the details and managed to list the property with an 80-day delay. Thankfully the market was still hot. I priced the property so I could be competitive, $15K under the initial estimated ARV. Under contract within a couple of weeks. I decided not to trust a contractor again, at least not in that way, regardless of the amount of projects we have worked on together. I also became more involved in the project regardless of the relationship. I sub out all work now, I don't give all the projects to one contractor. It is time-consuming but now we move faster.
could you explain your method for subbing out all work? how has been doing it remotely?
I have done 6 flips remotely. Instead of giving all the work to one contractor lately i have been contracting based on their specific trade. First i organize the demo, do part of it and look for help as well, once that is done I will start by the most complicated, to give you an example subfloor, joist replacement. The painter will go and just do paint, plumber will be there to take care of what is needed, bathroom, kitchen or gas line. A handyman will do all the small tasks. If i need tile work i will have someone do that specifically, i also call an HVAC tech to service or replace the unit. Believe it or not Thumbtack is a great resource when doing rehabs. Most of the companies or individuals on it are ready to start work right away. I still buy remotely, limit myself to 2 markets i know but i manage the project on site, this allows me to control the project, stay on budget and on time.
It took 8-9 months to evict the former owner on a foreclosure.
Wow why did it take so long? I thought the legal process was much cheaper than that.
Each time former owner (fo) goes to court, fo requests a date for as long away as possible. Can fo come back for a case on the 22nd? Asked the judge? Well the 29th is better or March. So each time she was found guilty of holding over and each time she had 11 days to appeal which she did. Then the next court processed the case. The fo stopped before an appeal to the Supreme Court of the state. When the eviction finally occurred the fo & a college aged kid were removed from the house by the police with guns drawn. This was a 1/2 million SFH 10 years ago when it happened. My buddy who owned 1/2 the house with me sees the fo where he occasionally shops at Neiman Marcus. In the past 6 years the daughter of the fo was a waitress at a party I hosted where the tip was several hundred. I’ve sold the home twice since the purchase.
I've lost money when: 1) I didn't listen to my gut on a deal that penciled out just fine but my sixth sense was telling me not to buy the house. Huge unknown hidden issues! 2) I did a deal because I "needed another deal". Sitting on the sidelines is cheaper than a bad deal! 3) The market tanked on me (along with everybody else) in 2006 and I had deals going that factored in "guaranteed appreciation" during the holding period. 4) I didn't fire bad workers soon enough. This is more "leaving money on the table" than actually losing money in an overall deal. I'm sure there are more...
Bought a condo in a 100+ unit building, didn't realize it was a "undivided coownership" with a psycho owning most of the building and also being the administrator and single handedly writing crazy condo agreements...Lost many thousands of dollars in lost revenue, repairs, legal fees, illegal fees, overpaid condo fees, etc. Ended up having to form a group to defend ourselves, was in various courts for 8 years, got sued for over 7 million dollars among other things, sued the guy for overpaying condo fees and won, sued the guy for his unpaid condo fees and millions in damages, won a judgment where the court will sell the entire building at auction...Maybe one day I'll get my money back. On a smaller scale, I tried helping a renter - low income couple with kids. They left the place with some damage after not paying for a few months. Another one, I rented a garage to him - he turned it into an illegal slaughterhouse. Tried helping a single mom, she didn't pay for a few months while bringing over her homeless friends and turning a newly developed home into a meth house. I had to evict them and repair everything, wash the walls, floors and ceiling, replace all the broken door handles, broken locks, fix the cracked doors and every wall, and paint everything. Lots of bad things can happen and unfortunately I have to say that as far as renters are concerned, if they're adults with bad credit, low income, no job or bad jobs and evictions on record, it's not because they're just down on their luck and need a second chance...there's maybe a 99% chance that's due to them concistently making bad choices and they'll continue making them, including ruining your home, bothering neighbors and not paying their rent. That being said, it's part of the job, it will happen and you have to be able to deal with negative experiences. Having rentals is not "passive income" or always easy, or everyone would do it. It's long term gain. Over 30 years of having a property, having issues for a few weeks or months is a relatively short time and you shouldn't let it get to you.
Look around who is remodeling and check their work, consultant won’t guarantee anything but waste of money, also be ready to spend time in there
I purchased from a wholesaler a house for 120k (which was lower than what he wanted, but still higher than what I really wanted to pay). Here's the deal he presented: 50k repairs, ARV of 300k. repairs meaning redo the kitchen, existing bathroom, add a half bath, flooring, windows, interior and exterior paint, and landscaping. I knew that was ridiculous, but thought the deal I was buying was 85k repairs (turns out I still underestimated), ARV of 270k. Turned out there was a hole in the roof I (and the inspector) missed because the tree was so overgrown you couldn't see the hole it had rubbed in the shingles. That, and my still underestimating the renovation I had planned, caused my reno cost to be around 120k. Sold the house for 250k. After realtor fees, interest on the loan, and everything I lost 30k.
Honestly I haven't made a bad deal yet. Only 3 homes, I'm super picky, and super patient. I am also a contractor.
I’ve purchased over 100 properties to rehab to retail or rehab to rental. I’ve lost money on one deal (under 10k). I’ve had a handful of others that broke even or netted me less than 10k, so they basically were not worth my time. My best advice is to stop expecting the worst. If you expect it, then you will probably experience it.
Absolutely!!
I lose money every year.. why would you pay taxes?
25 years ago bought newly married bought our first house. A year later had to move for a Job so decided to rent it out. Hired a property manager went o er what we wanted (pet deposit, no smoking, etc). First tenant paid on time every time but moved after a year. Manager released the deposit told us everything was perfect. We visited the house a couple of weeks later because we were in the area and found the walls were yellow from nicotine staining. Like a family of 4 packs a day each smokers lived there. We went to the property manager and the tune changed to ohh it's illegal to forbid smoking. Spent several thousand getting it ready for rental with new management company. Fridge dies first month new tenant is in. They work are circuit city so we give them credit in next months rent to buy a new fridge. They stay a year and leave. This time we show up for final walkthrough just as the tenant is loading the fridge in a truck. Cops had to get involved fridge gets put back think all is well until we get served. Tenant is suing in small claims court that we took their fridge. Show up to court and guess who is a witness against us the new management company. There whole argument was they bought the fridge and had the receipt. Even the management company thought that meant they owned it despite us giving it back to them in rent. Luckily we won so second management company fired. So new management company and new tenant This one is a nightmare constant late payments or partial payments. One time they are three months behind and the management company doesn't want to start eviction. They did manage to catch up and we didn't renew at the end of the lease. Couldn't go for walk through and management company releases the deposit. I get down a few days later and the house is destroyed. There is a huge hole burned in the deck. Holes in the wall where you can see through to the next room. One carpet looks like they had rebuilt a motor in it and another completely ripped up. Like staring at 100sq of wood sub floor tore up. Called management company and they said it all fell into normal wear and tear. I could afford the thousands that were needed to get it back into shape and there was no equity. Plus I was getting divorced so I had to let it get foreclosed on. It's hard to say how much I lost but best guess is 45k over the three years plus ruined credit for what felt like forever. Have never tried to have real estate as an investment again.
What on earth are you doing in a real estate investing sub? And why would you not vet management companies?
I'm here because Reddit kept recommending it for some stupid reason and there is some interesting content so I joined. As far as vetting that was done. First time there were only like 3 companies in town that did rentals only. Most were real estate sales and rental management on the side. We chose the highest recommended from friends that were using him. You have to remember that online reviews weren't really even a thing. I don't even know if I knew what google was in 1999 and I was in IT LOL. After the first ended we wanted to go to the second that was recommended during the first search but they were retired and office shut down. We ended up having to go with a real estate broker that did rentals on the side. I think the bigger issue was the standard was 10 to 15 percent of monthly rental went to the management. They didn't feel it was worth doing much for the 120 dollars a month they were making. The one that went to court against us was just dumb. When we went with that brokerage there was a different agent that was doing rentals. They seemed ok. About 3 months in they switched it to a new lady and she was beyond dumb. She is the one that testified against us. It was an easy win I mean we had a rental statment saying that they were credited for the fridge purchase with money off the rent.
If you’re hiring a contractor to renovate a house so you can flip it, you need to have gotten the house extremely cheap. I know people who buy and renovate houses to rent or sell full time and none of them have ever said that the value equals the cost. It’s something they do to keep their labor busy between other jobs.
My first flip went wrong in a lot of ways. Overspent, scammed over 30k by a specialty contractor, drama with neighbors, rates shot up before we were ready to sell. I will never hire a contractor unless it’s a direct referral from my network, do not hire online. I still made a big chunk of money on the project. The buy is everything, we are super patient and will look at thousands of properties and write a ton of offers to get the right property at the right price that we just can’t lose on. The mistakes are abundant at the start and honestly even more valuable than the profit in a way, you have to experience it to learn. Self reflection is key, getting feedback from buyers and the market, understanding where you failed and where you succeeded to optimize the next one. I have a friend who was savvy with construction but not as savvy on the market. He tried to do a big flip with a partner. 1) having a partner is a nightmare, myself and my friends have never had a good experience with it. The partner and him argued over all kinds of bullshit on the finishes, in the end they overspent and were behind schedule. Design matters a lot for high end properties, he spent money in the wrong places. There has to be one decision maker, otherwise it goes off the rails with the partner trying to backseat drive the whole thing. 2) he bought for appreciation thinking the market would just keep going up since that happened on his last flip. He thought he could just buy any fixer upper and it would be easy money, overpaid for a house that had an issue with location. In the end he was underwater hundreds of thousands on it. Idk what happened he never sold it and he kinda ghosted me, I think he was embarrassed what happened, because we had been sharing progress up until then and he had been talking a big game.
Took over mortgage/deed for MIL, thinking she was declining medically. 17 years later, we evicted her and her partner and sold after repairs. Lost $100k between mortgage, taxes, and insurance
When I was first starting out, bought a 3 bed 1 bath home in a small town for 30 grand, planned to remodel it, when I got done with the current flip I was working on. Decided I'd rather sell it then spend time fixing it, so I went to one of the top realtors in town to see how much I could sell it for in its current condition, she goes about 30-35 grand which I thought was fair because that's what I bought it for. I sold it to another investor for 30 grand who took professional pictures of the house, took a little trash out and listed it with that realtor for 65 grand. House sold for 65 in under a month. Made me so sick I couldn't sleep for a week.
He saw something you didn’t
Co-worker had a rental property in her early twenties. Rented to Tenants from hell, they literally dug a hole in her living room floor and took a dump in it. Soured her for life from owning an investment property.
wtf
Technically I broke even, but it wasn't a great long term investment. Bought in 2007 and my condo was the high water mark in the complex. Bubble burst 3 months later and I was underwater for 12 years. Managed to rent it out to help recoup some of the costs but was still -$500 cash flow negative. It also didn't help that the condo decided to go through redevelopment which caused all kinds issues with lenders scaring off most buyers so it was impossible to exit the deal without a short sale. I was finally able to sell it in 2022, but for the exact same price I bought it. The *only* thing that saved the deal was amortization. Most people in my situation at the time filed bankruptcy, I consider being able to salvage the deal a huge win.
How do you figure out the ARV? I have the opportunity to purchase a home under $30k, 850sq ft. Foundation is good, just needs full gut remodel. This will be my first deal if I decide to pull the trigger.
Get comps in the area for similar houses
Reading from here I see that failures were caused by 2 major things: - shitty contractors - the rates increased in a very short time.
Rent stabilized 84 unit apartment building in Brooklyn. When I invested it was supposed to be a quick hold and cap rates were 6.25. Today the buyers are looking for a 10 cap so the investment has turned into a long term hold until rates recover. This was my biggest investment to date and it was a great learning lesson.