We Flipped a House!-Part 2, Renovating a Distressed Property

House for saleThanks for checking back in for Part 2 in my series about flipping a house. If you missed the first post you can go back and catch up. Basically I left you with the reasons why we decided it would be a good idea to flip a house and how we decided to use a home equity line of credit to finance it. Our timeline was 6 months, and we planned on investing a maximum of $100,000 to renovate the house. Today, I’ll tell you what happened and if I would do another flip in the future.

Plans for Renovations

While our original time estimate to complete this project was 6 months, remember that this house was very distressed and needed major renovations. Our partners in this project were going to supply most of the labor other than jobs that had to be sub-contracted, like the roof, electrical, and plumbing.  The project started off great. Our contractor, let’s call him Abe, got his crew together. It consisted of a big, Viking like fellow,  we’ll call him Thor. Thor was full time, skilled labor, and we also had several wage type workers that varied from day to day, depending on the job at hand. Demolition was pretty cool since most of the interior of the house was completely gutted. Thor was really impressive with a sledge hammer. Honestly he could have had his own reality show.

After the initial demolition phase, we decided to revamp the floor plan. As it stood, there were three tiny bedrooms with small closets, and two cramped bathrooms. To make the floor plan more modern, we decided to knock out a wall between two of the bedrooms and make this the master. We also added an en suite bath. We took a portion of the large family room and turned that into a third bedroom with a walk-in closet. A wall was taken out of the kitchen to open it up and a laundry closet was built at the far end of the dining room to get the washer and dryer out of the cooking area. The hall bathroom was enlarged and a soaking tub was included. We also reinforced the walls to the detached garage and added a new roof along with the main house. It will make a huge garage or workshop/office space for the right buyer. .

It is Like a Reality Show!

Everything was going really well until Thor started missing work. He then broke his hand after having an altercation with a tree. His performance was pretty spotty after that, so he was let go. Without a trusty second in command, the project hit a huge slow down. On top of that the roof took much longer than anticipated, and then Abe fell down some steps and broke a few ribs. Since we had a pretty small crew to begin with, things pretty much ground to a hault. By this time, winter was coming on, and while they claim to work year round, it appears construction type people don’t seem to be so motivated in the winter. Nothing gets done during the month of December. I was beginning to wonder if we’d hired Pauline’s handyman. While it was extremely frustrating for my husband and I to see nada happening, our hands were pretty much tied. We are only investors and have little say in the labor process other than to voice our opinions. It seems we hit a huge snag like all the reality shows about flipping seem to have!

Back on Track

Warmer weather seems to have Abe pumped up. It appears that we are now on track to have the house finished and up for sale by May 1st. I won’t hold my breath on that one, but I’m hoping we can be pretty close to that timeline. I know our partners want to get it listed for the summer market, as that is the time when property seems to move the fastest.

Silver Lining

Although the renovations have taken much longer than planned, when you are doing anything that requires construction, you need to expect that there will be delays. Those shows on TV where they completely gut a house and have it up for market in two weeks don’t often happen in reality. While I’m a bit disappointed with the speed of the whole process, there are some positives.

  • We’ve managed to stay on budget, even though the timeline was way off, and we are going to come in right at our $100,000 estimate.

  • Any profits we make will be taxed as long term capital gains instead of short term since this project is going to take over a year when all is said and done.

  • We are still on speaking terms with our partners. My husband and I have certainly said a number of times how it’s easy for them do sit back when we are fronting all the money. I’m also sure that our partners have said it’s easy for us to criticize when we aren’t doing any of the work. I try to keep it all in perspective and see both sides.

  • We have used this as a learning experience. Even if it took a long time, we are still on track to make $20,000-$30,000 in profit with really only about $2400 out of pocket for interest payments. Barring complete negligence from our partners over the next month or so, it will be really hard to lose money on this deal, unless, of course, no one buys the house.

Would We Do It Again?

In conclusion, I guess the question is would we ever consider flipping a house again? Although I  never say never, flipping doesn’t seem to be high on our priority list. We haven’t liked the partnership part where we aren’t in control, and we don’t really have the skills at this point to take on a flip by ourselves. It’s much riskier than investing in a rental property over the long haul.

However, our lack of love for flipping hasn’t changed our take on real estate in general. We plan on using any profit from this deal as a down payment on a second residential rental property with a 1031 exchange. I will certainly talk more about when it happens, and I hope to have updated pictures when everything is done.

Could we have saved  enough on our own for a down payment and not bothered with a risky flip? Yes, but now we still have our savings to invest elsewhere, and this project should fund the down payment. You can certainly fault me for saying I never wanted to take on more debt, but then used a HELOC to finance this project. What I’ve always said is that I won’t take on debt that does’t make money for my family. We would never take equity out of our home for a car or vacation, but we though it was a good financial decision to buy and flip this property. I think if you aren’t strapped for cash and can find the right deal, flipping houses can be extremely rewarding, but I don’t think you’ll see us on reality TV anytime soon!

Do you have any real estate plans in your future? Would you ever consider flipping a house?

Image: Freedigitalphoto.net/renjith krishnan

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Written By
Sydney White is a Texas-born stay at home mom who enjoys spending time with her family, bargain hunting and, of course, writing. She is currently the editor-in-chief of Snipon.com.

73 Comments

  1. Thanks Kim, that was an interesting read. I’m not sure I would ever have the time to even try to flip a house. the ironic thing is that I have the skills and the tools to do a lot of it myself but time? there’s never enough time!

  2. Mr. 1500 and I flipped a few houses before we had kids, and one afterwards. We did all the work (read Mr. 1500 did 99% of the work) and lived in them while renovating, to take care of the capital gains issues. THAT was a nightmare sometimes.

    You said in the first post that this was on the second best street in your city – could you just rent it out? Buy out your partners, keep it and rent. What can you get for rent vs. what profit can you turn?

    Just a thought.

    1. Good thought, but I think we’ve gone too nice for a rental. Most long term renters that could afford what we’d need to charge for rent would go ahead and buy. I think I just want to let this one be over and find the next one.

  3. I’ve considered doing a flip in exactly the same fashion as you are doing – fronting the money and partnering with somebody else to do all the work. Mostly due to my lack of time to take on something like this. The whole partnership thing scares me though. It would be difficult to decide how to fairly divvy up the profits.

    Previously, real estate was my only goal for future passive income. Now that I am into the internet marketing scene, real estate isn’t in my plans at all. Maybe one day when I have enough cash laying around to make a 100% down payment on a rental property.

    1. Sadly, I don’t have the savvy internet savvy skills to do that. As long as we can find pretty low cost properties that will rent well, I think that’s still going to be a big part of our plan.

  4. Partnerships can put people in a tough position especially if someone is not pulling their weight. Sounds like you had some ups and downs with this project but if you sell then at least you will reap the rewards. Great experience I bet! I’ve never flipped a house before but I would consider it.

    1. It was a great learning experience, but not one I’m likely to repeat. I bet you and Mrs. CBB would be good with a flip, but I’m sure houses are much more expensive where you live.

  5. haha so the construction world is always an interesting place… what we are doing now is pay per project so we don’t care if the guys do it in one day or two weeks. For the things we sub contract we ask for an ETA and put penalties if they don’t respect that. I would go for house flipping if I was sure there was some renting potential in case the sale doesn’t come through quickly.

  6. Sounds like quite the adventure! Also, on the 1031 exchange, make sure to meet with your accountant before making any moves. There are specific timelines you need to hit for this to be a tax-free event 🙂

    1. I have tons to learn about that before it happens. I also know you need to find an intermediary to handle the money. I am a bit nervous about it, but hopefully we can pull it off correctly, assuming the place does sell.

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