My flip took 11 months...what went wrong?

[William C.]

Ok so that's a bit of a loaded question because I have a good idea as to what we did wrong along the way. The reason I pose the question this way is so that I can get some unbiased, candid feedback regarding this project so I can use it to move forward in the right direction. Here is the long story short. Please let me know what you would do differently moving forward to make sure a standard flip doesn't take 11 months. We purchased a foreclosure that had been sitting for about 8 months for $90k. The property needed pretty much everything. We took the second floor to the studs and rearranged some walls to add a bath and make a bedroom for functional. We redid all the plumbing and electric. New carpeting and some hardwood throughout. New kitchens new baths. The home was 2200 sq ft had 4 beds and 2 baths. We purchased in September 2015 and sold in August 2016. The renovations were done by a handy man/contractor. He knows how to do most things, but for example is not an expert carpenter,master plumber etc. He is paid by the hour and we pay for all supplies. If something is needed, he picks it up at Home Depot and we reimburse him. His hourly wage is low compared to what most contractors would charge, but he is guaranteed the work, and in return we get cheap labor. He also worked other projects along the way, so he wasn't at the property all day every day during this time. In order to align our goals, we gave him an incentive of 1/3 the net profit when it was all said and done. This way, he would try to reduce costs where possible to maximize profits. After is was all said and done the budget he gave us when we were analyzing the deal went $30k over budget. A majority of that was due to the length in time in took and labor costs were more than expected. The contractor is also a friend of my partner, and the way he sees it is that for when he went over budget, he was only having to pay 2/3 for the labor because the contractor would have received the 1/3 profit anyway. So he figured he was actually hurting himself by going over budget. Iv suggested maybe trying a new contractor to see if we could get a better deal, but his response is that at his current hourly wage he's cheaper than we would get anyone else to do it. The work when it's completed is pretty good. It's not perfect, but it is competed, safe, and passes a home inspection and code inspection. We pay cash for the home so there are no holding costs on the money. The taxes were about $3200 for the year, so holding costs altogether were not significant. The project in the end was a success, the profit after fees and costs was $20k, but partly due to the market rising and the ARV went up $20k from what we thought it would sell for when we bought. We would have broke even had we sold for the number we all thought it was worth going in. We only have enough funds to do one project at a time using this method because we pay with cash, and then pay for all materials and labor as it occurs. What would you do? What did we do wrong? I know there is a better way, but what is it? Looking forward to a lively debate. Thanks!