My first fix and flip.. what to watch out for?

Question

So I was offered a new western deal .. and before anyone says anything. I have read all the reviews about new western so I am aware that I should have avoided them but they made it really easy for me to understand everything and after running the numbers, the deal really made sense to me. Now I never saw this house in person, and I've never done a fix and flip before so I am quite unaware of what to look out for. I've had a contractor give me their estimate and I've worked out the lender fees. Is there anything that I need to look out for that could potentially ruin this deal? I've been saving up for a long time for this and want to minimize as much risk as possible so I would like to be prepared. From past experiences, please let me know what I need to look out for when it comes to flipping a home.

Kyle Ebersole · Answer

Surprises come up in every flip, the magnitude of the surprises just change. When a house is 20 minutes away, I can just hop in my car and check it out. When its an hour and a half way, its a little harder to go and check.

Simple things on why it takes longer. A drywaller says he will be done on Monday. Painters show up on Tuesday and the drywall isn't done so they leave. Drywaller can't come back till Friday, which pushes the paint back a week. A contractor wasn't at the house to let the flooring delivery company into the house so the flooring company leaves the flooring on the porch. It rains overnight and the flooring gets ruined, pushes back flooring for another week until the delivery comes again. These are just a couple quick examples from one of my experiences on a property that was two hours away from me. If it was closer, I could've gone and checked on the contractors to see their progress, open the door for the delivery company etc.

Hence, this is the reason why having a trusted AND good contractor is key for a project that is farther away. They can be your boots and eyes on the ground that fix all the problems instead of you going to the property. I hope that helps!

Alex Hileman · Answer

I would reach out to the real estate agent you're working with and ask for contractor recommendations. Your agent likely wants you to succeed and make a profit in hopes that you will continue to do business with them. Of course, do your own due diligence for any contractors referred to you, but I would start with asking for referrals.

Kyle Ebersole · Answer

First off, congrats on your first flip! It will be an adventure, but you will love it.

How far away are you from the house? I have personally found out that doing a flip more than an hour and a half away involves a ton of learning curves, they take longer than my other projects, and I normally make less. Reason being is dealing with new contractors, learning a new area, etc, can be difficult. Since this is your first one, I would tread carefully if it is super far away.

Your biggest thing is going to be your contractors. I would vet them.. a lot. Ask for references of other work they have done, other investors they have worked for, pictures of projects, etc. I would get multiple estimates and make sure you go over the top with details and communication. Set up payment plans and all expectations up front. Timeline, who's buying materials, design selections, etc. When you run numbers, put a good amount in for a contingency. There will be surprises. Plan for them instead by putting it into your budget instead of them coming out of your bottom line.

Big ticket items that will ruin the deal? Foundation issues, really bad mechanicals that you have to replace, city permits (some can be an absolute bear to work with), and septic systems (if it's not public).

Other things to check into.. are you accounting for all your closing costs on both sides of the transaction? Did you double check your ARV with a local realtor who knows the market? Are you a normal house in a neighborhood or a one off house that doesn't fit into its surroundings?

Best of luck with this one and I hope it goes well for you!

Prashant P. · Answer

You should check for which permits are required for the work you are doing.  If you are doing major renovations, you may need an engineer which will add extra costs.

I would recommend you invest in Simplisafe alarm system.  It serves to purposes.  Protects your home during construction and also gives you a way to see when contractors are coming and going.

Travis Timmons · Answer

I've taken on 2 major projects (that we have held and intend to hold for a long time) from about 2200 miles away (Houston to Downeast Maine). I traveled to the first house almost once a month as it was being renovated. Now that I have a few folks that I trust, I went once after closing on the 2nd house and have not been back since. Your relationships on the ground are as important as the property that you bought. You need to get on a plane, look people in the eye, and walk the property with them.

I did demo, paint, basic electrical, etc. myself on the first property. Side note - I am not handy. I can paint and watch youtube clips. That went a long way to earning the respect of locals. I wasn't some rich guy from Texas. I was a guy who ripped up old, dusty carpet and pulled 2000+ staples out of original hardwood floors, snaked drains, cleaned up a gross house, painted the whole place myself, got my hands dirty, and needed some help. I found that a couple of the guys that I worked with started saying we as the project went along. As we would talk on the phone, I'd get the, "Yeah, we're almost there. We just gotta finish out..." It's a different dynamic when you get people that feel like they are in it with you. There's no shortcut to get there. Trust has to be built; you have to earn their respect (I'd go so far as to say earn their friendship as well). It's really hard to do that with people you never actually meet.

Bill J Fay · Answer

All great points here! I would like to add, NW's marketed reno budgets are very subjective. With this being your 1st deal, make sure you get bid/bids from contractors before you make an offer.

Alan F. · Answer

I would highly recommend reading J.Scotts book on flipping, there are alot of moving parts in flips. There's lots of information here on BP, use the search function.

Most States have a licensing board for contractors and hopefully have a business and professions code. This outlines down payments, rights of recencion and various other requirements. Here in CA it outlines how contractors must do business. Its about protecting customers

Get multiple estimates, multiple.

FWIW as a business owner ALL aspects have to be managed and dare I say micromanaged at least until a trustworthy team is built.

Run your comps really tight and underwrite conservatively.

Trust but VERIFY everything.

Really know your market.

Flipping can be lucrative but drought with pitfalls.

I wish you all the best!

Josh Stout · Answer

Hey Gabriella, congrats on the new project! Skimmed through the comments so far and lots of good stuff here. I'll add my two cents and if anything is a repeat, it's probably worth the repeat 😂Multiple quotes to compare bids for contractorsLock in work with a solid pre-screen and contract that lays out payment terms and milestones/benchmarks for workModel the financials in as much detail as possible, including overrun for time/change orders and then stick to the planDon't over flip the project...look at what is moving in that market and maybe go a tad better in terms of fit/finish to set yourself apart from the pack. No need for red carpet looks on a walmart runway if you catch my drift. Above all; this is a learning curve and there is no reason not to enjoy the process! Have fun and feel free to hit me up if you have further questions. Good luck!

Jack Schwartz · Answer

By weighing the pros and cons, between a Contractor, Private Inspector, or an Official Town Inspector.  you can make an informed decision that takes your personal needs and expectations into account.

Consider contractors and inspectors wisely. A contractor walking through the property on Facetime is a great idea, but not all contractors have the same level of experience and honesty. Similarly, there are private inspectors who offer a detailed inspection based on the town code, while town inspectors can guide you on the legal requirements. But, hiring an official inspector may uncover additional problems that could cost more time and money. Remember to make a decision that keeps your personal needs and expectations in mind.

Gabriella Borukhov · Answer

Hey Jack! Thanks for the advice. I haven't had a contractor walk through the property yet. I did have an inspection however and was quoted quite a different price than what the contractors told me so I am going to try to schedule the contractor to walk through the property with me on Facetime. As someone who is experienced in the industry, do you value the option of an inspector more than the contractor, or vice versa? I've been told by my agent that a lot of inspectors aren't used to distressed properties and should listen to my contractor instead. What do you think?

My first fix and flip.. what to watch out for?

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