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John figures that the people
featured in these shows are not all that bright and certainly he
could do as well. With a bit of nervousness John put a 10% down
payment on a home that needed repairs and begin the repair
process. Or did he?
The first thing John did was to
ponder what really needed to be fixed and if he needed a
contractor to do it. Two weeks went by.
After getting several bids, John
chose a contractor to come in and totally renovate the property
for $11,000. That included paint, carpet, appliances, and a new
wall to turn an open area into another bedroom. Once it was
agreed, the contactor was to start working. As luck would have
it, the contractor had some unfinished jobs and couldn’t start
for another two weeks. John was patient, after all it was going
to be a great flip and he was going to make money. It was just
another $800 for an extra month, no big deal.
Once the contractor started he
stared with a bang. Just like on the show “Flip this House” a
big yellow dumpster was deposited on the lawn and a crew started
ripping out wall paper and junk from the house. That demolition
lasted about two days.
The next thing this “go getter”
contractor did was to disappear for another two weeks. The
excuse: Men had quit and another job was pushing them behind.
To make a long story short, the
contract took 8 months to get nearly complete, and then John
pulled the plug and fired the contractor.
John paid others to come in a
finish what was started. He had now 9 months of house payments
into the project, 10% down, and construction costs.
After the house was ready, John
listed it with an agent, and it sat another month. John lowered
the price a bit with the prompting of the agent, but got cold
feet after two weeks and wanted to raise it again. Too late! The
house had a full price offer. Good news, sort of.
All said and done John made a
little money and got a whole lot of experience. It was a flop,
but at least he didn’t lose money.
Let’s review what
John, now wiser, could have done differently on his first flip.
Firstly, putting 10% is ok,
but not ideal. John should have used private money or have
financed the property at 100%. That money could have been used
for fix up rather than being tied up in the property.
Second. John waited too long
to decide what he was going to do. He should have known before
he bought the property what his plan was. This would have saved
two weeks at least.
Third. While John got a
referral for the contractor, he should have gotten more bids. A
deadline for the completion of the job, with penalties, should
have been written in the contract.
Fourth. John waited too long
to fire the contractor once he knew there was a problem. He was
afraid that he would still owe the full amount if he terminated
the contractor before the work was done. A proper contract would
have prevented that fear.
Sixth. John listed with a
realtor too early. The property should have been for sale by
owner from day one and John should have tried to market the
property himself.
Seventh. The price was set,
and then changed too quickly. Better marketing would have netted
John with a nicer profit. John should have known the selling
price even before buying the property.
A lot of mistakes were made, but
John still made a slim profit. All is well that ends well, but
you don’t need to make these same mistakes. Learn from John.
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