Lessons Learned From My First Flip

Lessons Learned from my first flip!

I decided to become a real estate investor after watching a late night Ron LeGrand infomercial from my hotel room while on a business trip in November of 2001.  After attending a couple boot camps, I found a realtor in the sunset of her career who didn’t like to drive, didn’t like computers (she carried the MLS in book form), but she had a lot of time to spend with me looking at ugly (and smelly) houses on the North side of Pittsburgh.  She usually waited in my car because she didn’t like to climb steps either.

After making more than 30 offers, one offer was accepted in June 2002, proving once again that occasionally even a blind squirrel finds a nut.  It was a 3/2 in Observatory Hill for $39,000, estimated ARV was $120,000.  

I was excited and anxious to get started and then I made my first mistake. I didn’t know any contractors nor had I been looking and so my realtor introduced me to some guys she knew, a roofer, an Electrician / HVAC guy, and a general contractor to do everything else. She recommended them and that was good enough for me. Project scope included new roof, windows, exterior paint, new furnace, kitchen, baths, refinish hardwood floors, new carpet and paint throughout.

The rehab took longer than planned, there were quality issues with the contractor, unforeseen issues from a house that was vacant for 9 months, and there were disputes that I had to referee between the GC and the roofer. Much more drama than I expected.   

After the project was completed I generated the following list of lessons learned:

  • Vet all contractors and subs thoroughly – visit a current job site and check references.
  • Be very specific and detailed on work lists for estimates.
  • Complete the outside first (roof, paint, landscaping).                                                
  • Document all change orders in writing, including any conversations giving specific instructions.   
  • Inspect all plumbing and drains before rehab starts.                                       
  • Inspect all outlets, make sure electric is good before beginning rehab.                                                  
  • Get a pest inspection before the rehab starts and address any insect damage.                  
  • Find a contractor who has the same standards of quality that you have.

You can tell from the list, what things bit me during the project.  The total rehab ended up costing $44,800 (not including some labor that I contributed to get the project over the finish line).  The house sold in January 2003 for $116,900.  So it wasn’t a big money maker, but I learned a lot and benefited from those lessons on subsequent projects. It’s a good idea to do a post mortem after each project and document the lessons learned.

So you are probably wondering if I used hard money on this deal?  At the time I didn’t know hard money loans existed and if so, was a hard money loan for a beginner even possible? If I were looking at this same deal today, as a lender, I would tell a first time investor that this was a very aggressive initial project, based on the size of the rehab budget compared to the ARV of the property. A good rule of thumb on a first deal is repairs should not exceed 25% of the ARV. I fund a lot of first deals for new investors.  As long as the new investor can convince me that they have done their due diligence on the project and the contactor, and allocated a sufficient contingency, we are good to go.  

If you would like to discuss a real estate project, even if you don’t require a hard money loan at this time, I am always happy to share my experiences with another investor. You can reach me at https://g.page/r/CTcMtkHdqQHYEBA    

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