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Our First Flip: What We've Learned

We did it! We finished up our first “flip”. It was a roller coaster ride from the very beginning. Brady had been looking for houses every day until finding one. Immediately we found a deal with potential, but, in the end, it didn't turn out how we planned.

Originally, we were planning on flipping the house with only a little bit of work. The house was originally listed below market value. We could have potentially turned around and sold it for more money without doing any work to it at all.

We still wanted to flip it, so we began designing and planning what we were going to do to the house to update it. The more that we analyzed the deal the more we realized that it was too much of a risk for our first flip. Margins were tight. Had anything gone wrong (change in the economy, problems with the house) then we would be losing money. One big mistake that beginning flippers make is not realizing and planning for all costs. This includes closing costs, hard-money lender fees (“holding costs”), realtor expenses etc. We had accounted for those fees, but we didn’t account for any potential problems. Problems that when (not if) they arose then we would be barely making a return. Learn from our mistakes.

Here are some things that we learned:

Analyze, Analyze, Analyze. As we mentioned before, we found a house that was below market value. We had even gone under contract for above asking price, and it was still under value. However, when you are analyzing any deal you should account for all costs. When you do account for all costs you should also account for when problems arise. What happens if you can’t sell the house for what you think it will be worth? What if construction takes a few months longer? What happens when renovation costs are more than you budget? These are the types of questions you should account for, and plan for, when analyzing a deal.

In your contract make sure that the is assignable. This allows you to wholesale the property. Be aware, some homeowners might be discouraged from accepting your offer because of this assignable clause. When you have a deal, like we know we did, you can “sell” or assign that contract to another party who would be better suited to actually flip it. Our contract didn’t include this clause so we weren't able to wholesale the house. What we ended up doing was have another party join our contract and then at closing we released our interest in the property. This isn’t exactly wholesaling. It’ll actually record that we own the house (even if for a minute). Wholesalers don’t like to show that they ever owned the home.

Measure everything when you do the walk through. We took some quick measurements of the rooms. However, if you are considering flipping a house then you should spend a lot of time mapping out the home and measuring it out in detail. One of the things that we were thinking of doing if we had extra money in the budget was replacing the windows. We didn't get measurements of the windows so we weren't able to price out how much that would be. We also needed to replace a couple of doors and we weren't able to measure those either. It just makes the budgeting process more accurate and easier to measure how much of a risk you can take. With as tight as margins as this house was, you need to be diligent in the process. Down to the penny. For example, if you are going to replace the outlets in the house then count the number of outlets in the house. Be extremely specific and diligent to your budget. This can also better help estimate how much of a return you can get on the property too.

With this one done, we are on the search for our next project. Hopefully, the next one goes a little bit better.

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