5 Lessons I Learned Flipping My First House

2. Plan for some things to go wrong

I’ll admit, this one seems obvious at first. Of course, something would go wrong. We were buying an abandoned property, nearly sight unseen, that was completely full of trash. It was practically screaming at us that something was superbly “off” beneath all that junk.  What I didn’t realize ahead of time is how important it would be to budget for these hiccups and bumps that would come up. Luckily, our partner for this deal is a lot more experienced than we are and advised us to keep this in mind. As a result, we set aside $8,000 of our budget as a contingency for these anticipated problems – and we used about $6,000 of that contingency! That would have been a lot of extra cash to find in the middle of the rehab and could have totally ruined our final numbers. Your best bet is to look at your unknowns and plan for a few of them to turn out poorly, then budget for what it would take to keep these things on track and build that in as a contingency. The more unknowns, the bigger the rainy-day fund. 

For those of you keeping score at home. Here are some of the bigger things that went wrong with our property: 

• There were stray animals living under the crawl space and those animals had fleas. Once we got the animals out, the fleas all came inside and were…hungry. It took 2 different exterminators, 4 separate treatments, almost 2 weeks of job time, and $500 to get the place bug free.

• The walls themselves had been so badly damaged by all the junk everywhere that several sections of drywall had to be removed, replaced, or patched. We even used paneling in several areas to try to cut down on wall rehab costs. Despite that, we were almost $4,000 over budget on walls! 

• Our rehab started in July and it was unseasonably hot this year. Without air conditioning, the crew couldn’t paint or work in the property past 10 or 11 am for almost two weeks. This added to our already delayed timeline and helped stretch a 4-week job into 7 weeks. 

3. It’s not like HGTV

There are two things that make everyone love watching house flipping shows on HGTV: Miraculous transformations and drama. Who wouldn’t want to see a rundown 1940’s bungalow become a modern, open-concept entertainer’s dream with a backyard fire pit and a chef’s kitchen? Oh and right as everything is chugging along smoothly – WHAM – a budget-breaking decision that the new homeowners must make during the commercial!  

Binge-worthy gold. Right?

In reality, neither of these things are actually what you’re looking for in a flip. A miraculous transformation often means extra dollars spent and might actually over-improve a property. And last-minute drama means unnecessary stress and the potential for a ruined deal.

We realized the truth about the transformations when we started really getting into the rehab. Our brains were defaulting to HGTV-mode with subway tile kitchens, walk-in showers, and perfect landscaping. But the truth was, making this house TV-ready would have completely crushed our budget and wouldn’t have brought us an equivalent amount in rental return. 

We constantly had to remind ourselves that the goal was to make the house one of the nicest rentals on the street, not necessarily the nicest in the whole city.  The reason this gets so important is that when it comes time for your refinance and your appraisal, you’re limited by the value of all the other homes nearby. Over-improving a home often just means over-spending and doesn’t translate to higher rents or higher market value. 

Our last-minute drama had to do with appliances. We had bought some great stainless steel appliances during the Fourth of July sales at Home Depot. We scheduled the deliveries for the end of July and happily checked that to-do off the list. Unfortunately, COVID-19 had other plans and many appliances are on severe backorder right now. Our end of July date continually was being pushed back by the manufacturer and there looked to be no end in sight. So we pivoted in the last week or so of the rehab and found some locally available white appliances to fill the kitchen. Not nearly as eye-catching, but better than letting your groceries get warm or not having a way to cook dinner. 

I fear Chip and Jo would not approve. 

4. Prepare multiple exit strategies

Something I picked up from listening to a lot of Bigger Pockets podcast episodes was to always have multiple exit strategies for a given investment. For example, if you were buying a house as a flip, the advice was to make sure the numbers still worked as a long-term rental or as an Air BnB property. Something you could fall back on if the original plan didn’t quite pan out.

Even though we went into this house with the goal of turning it into a rental, we actually had three exit strategies during the first month or so of the flip and two as it stands today. This became increasingly important as things started to change with COVID-19. Between bans on evictions, unemployment bonuses, and a roller coaster of unemployment, we needed to have options depending on where things were headed.

During the first phase of our rehab, we had a contingency plan where we considered “pre-habbing” the property for the purposes of selling it to another investor. The idea with a pre-hab is to take care of all the scary and expensive stuff (roof, HVAC, garbage clean out, etc) and then quickly sell the property to someone who wants to finish the rest of the renovation. Done right. this can limit your risk and expenses while still turning a worthwhile profit. While we ultimately decided the risk of the full renovation was worth the reward, it was nice having a built-in option for getting out if things got too overwhelming. 

5. Trust your team

Building a good real estate team is absolutely essential for success. From our partner to our contractors and everyone in between, having a team we could rely on made the entire process so much easier. I can’t imagine working my full-time pharmacist job and trying to manage painters, pest control, electricians, and plumbers. My advice, build out your team before you get started. It will save on money and save on headaches.