What's the Longest It's Taken You on a Flip?

Question

Hi fellow BPers, I am a local rental property investor and fix-and-flipper here in New Jersey. I have a project in Englewood, NJ, that has taken a lot of time and work thus far to get sold. We bought the property end of January 2018, and thought it would be 6 months to get in-and-out. Rehab took about 2 months, and we had it listed by April. The property had multiple full offers first day and was under signed contract by May. We thought all was gravy, but you all know how you should never count your eggs before they hatch, especially in this business. After multiple appraisal disputes, and inspections, where we fixed up all the "issues" the buyer said were with the house, we thought we would close by June, latest July, and took the lower appraisal value after all, knowing we would still profit from it. Low and behold, a week before closing, the buyer said they couldn't secure the mortgage afterall, and would have to back out of the contract. Since this was FHA, their deposit was refundable, and we were back to square one.

After re-listing it in August, we had a few offers shortly after a few weeks and eventually got it under contract with another buyer, at the same price as we agreed with the first buyer on. This guy really wanted the house, and even though he was also FHA, we thought that everything would go fast and smoothly with this guy, especially since he said he didn't care about the appraisal or inspection, he just wanted the house. Of course, with the bank, they order both anyways, but we had no issues this time around, as we already priced it at the appraisal price and didn't have to worry about it renegotiating. All the points on the inspection were minor and were fixed. But the issue resides in getting this C.O. from this town. This town is notorious for being corrupt and not easy to work with, and we found out the hard way. The first time the inspector came, he said we didn't pull permits on certain work we did in the attic; when my GC when originally for the project to get permits for everything else, they said he didn't need it b/c he wasn't moving sheetrock. Then the second time the inspector came, he found a different problem, with the electrical wiring outside. Now today the inspector came there again and said all the smoke detectors have to be wired in, even though we found out from a buddy of mine that's a fire marshall in another town that that's not the case since this is a 1920's house that has been grandfathered in. I told my guys just to do whatever they have to do to make them happy so we can get the C.O. in-hand and finally close on this sale. I feel bad as the buyer has been waiting on us to move-in, and we have been just keeping him happy, as the last thing we need is another buyer to back-out and start from square 1. Hopefully we can get everything wired and fixed in the next day or so and have the inspector come out for the final (and hopefully last time) by Friday.

Long story short, do you other BPers have other similar situations and experiences you would like to share? Any regretful (but knowledgeable) flipping experiences that took way longer, more time & money than you thought? Thanks a bunch and I appreciate all the insight and knowledge I have learned on this site alone from fellow investors!

Frank Chin · Answer

Well, here's my story. I'm normally a buy and hold guy, but a realtor I partnered up with found a pre-foreclosure deal suitable for a flip.

What's unusual about this deal? The owner ripped the whole house apart to do a gut rehab, it's his own home, bought all the materials, then fell behind on the mortgage and SBA loan. Got depressed and left it like that. Someone has to take over complete the rehab, sell it. The bank and SBA realize the house cannot be sold in it's current condition. For me, I got it for $70K, spend another $10K labor to finish up the rehab, and the house ARV is $130K.

What happened? I took over on 12-83. Rehab took till 03-84. A few things had to be bought up to code which didn't realize to me to a bit longer, such as I had to hook up to city sewer. With this, and a few months on the market, I didn't find a buyer till the end of 06-84. I was relieved we had a P&S contract for $127K, collecting a 10% deposit.

What happened next? It took two months for the buyer to come up with mortgages and fulfill is requirements, and got a closing date, sometime the end of 08-84. I was relieved. Then a few days before the closing, he informed us he lost his job, and the closing was cancelled.

End of story? Not by a long shot. I kept the deposit and spent the next few months fighting with the buyer's attorney trying to get it back. Long story, but we finally agreed to give him half back.

After that, the SBA and bank was not going to wait any longer, so I executed the backup plan, holding it as a rental. I had to get a mortgage. Problem? Banks will not consider the $130K ARV of the property, nor the $127K purchase contract I had. The only thing they would consider is the $70K original contract. What about the cost of rehab? It's NO NO NO. I was running out of time, the SBA breathing down my neck, so I got a mortgage of around $70K.

Now, this is a long story. I was holding as a rental, but cash flowed a little because of the small mortgage thankfully. In 2001, I put new siding and roof on in preparation for sale. By then, the ARV doubled to $250K. The rehab was done in Aug 2001, got a realtor and began showing it. Gave the realtor a 90 day exclusive.

And it happened, 9-11-01 came. Spoke to the realtor and she said people just stopped looking a houses, and it went on for a few weeks. By Oct, it was decided that the time is not right, I'll take it off the market and continue renting it.

It turned out the realtor was a step ahead of me, included a provision in the exclusive that if I rent the place up within 6 months of the contract, they get a rental commission, a months rent regardless. This they sneakily stuck in. But I had a good tenant there of 12 years, ready to move, because I'm selling the house. When we discussed this, it was decided that he'll move 01-2002, beyond the 6 month of the contract.

What's the status now? I still have it, after 35 years,  the mortgage is all paid off. Market rent is now $2,700/month, and ARV close to $400K. Sounds like I had no luck with the place, every time I try something, it goes wrong. But at these prices, guess looks like I done OK after all.

Thinking back, it all started from a flip gone wrong.

Brian Pulaski · Answer

@Vishesh Shah there are a few lessons learned in this deal you have.

The first one I see and it is one that I had a similar thing happen on, get your C.O. Or town sign offs before your signing contracts. I had a house I was selling go under contract. My electrician calls for his final inspection after... well when he pulled the permit he didn't spell out exactly what was being done (he said a new service and adding a few circuits). The inspector walks in, sees new can lights, and a good 5-6 more circuit runs. He goes into "inspector mode" and explains how he can have us rip the house to the studs if he wants. Luckily my electrician and the inspector got it addressed.

Another thing, I always ask about the hardwired smokes verse battery. Usually when you are doing a good amount of electrical work, a town is going to require them to be hardwired. Best to find this out during renovation, no after.

I just had a deal fall apart. They made an offer and we went under contract. Over two months of them getting their commitment, appraisal was good, inspection good, municiple and title search all set... they decide to accept a job offer 1000 miles away and back out of the deal. They also fought for their EMD, claiming they didn't qualify for the mortgage anymore, because of a job change.

It is always a different experience with each house. The best thing to do is be ready for literally anything that can happen.

Odie Ayaga · Answer

12 months and counting here. Everything from Hurricane Maria, ill and disappearing contractors, our GC going out of business and neglecting to keep things moving along at a steady pace on our part to blame.

What's the Longest It's Taken You on a Flip?

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