My Fix and Flip HORROR story: NIGHTMARE Rehab

[Jamaal Gibbs]

***LONG STORY, but it's worth the read if you're a newbie fix and flipper. Skip to the bottom for the lessons. Learn from my mistakes!!***

Currently doing a flip that has been nothing like I expected and super stressful, figured I'd share my "flip diary" with you guys and newbie investors so you don't make the same mistakes I'm paying for....

It all started out with a "deal" I got from a Wholesaler. It was the typical over inflated ARV and underestimated rehab budget. It was my second flip and I thought I could make the numbers work. I am in Colorado as well where values were appreciating a lot (9%+ for about 5 years) so I thought what the heck, I can get a higher price if I do it right.

The House was a Mid Century Modern built in 1955 5 bed/2 bath 2,332 sq ft for $316k, one owner who didn't do any updating the entire time he lived there. Red Flag #1. During the walkthrough there was a huge blue tarp on the roof from water damage of a recent storm. That ended up leaving a large hole in the roof, interior bedroom ceiling and bathroom ceiling. Red Flag #2. Other than that, it needed a wall opened up to make a bigger kitchen, redo the bathroom, and there were hardwood floors that needed refinishing upstairs under the carpet. There was a large black spot on the carpet from where the previous owner let water overflow from his plants he would water, didn't know that until after I closed. Red Flag #3. Onto downstairs.

We're walking the downstairs and the entire thing was covered in the tongue in groove old school style wood planks, Red Flag #4. I figured I could refinish/paint over these. The ceiling was drop panels with some water damage that I planned on drywalling over (contractor charged $8000 for 1,166 sq ft of ceiling). The Furnace was very old as well as the Water heater, easy replacements. The main issue was the plumbing and bathroom. The plumbing was galvanized which would need to be replaced in the whole home, Red Flag #5. The bathroom needed a complete remodel as well and plumbing moved for shower. All pretty simple things. The Electrical was an old panel and would need to be replaced as well, Red Flag #6. 

The wholesaler rep was telling me it would be a simple project with about 65k-70k in work to do everything, me being new and naive, I thought I could get it done for 60k, Especially after the cosmetic flip that I'd just done a few months earlier. The way the wholesaler works is you have to have a 10k non refundable earnest money check in hand if you want the deal, and there were 5 other groups of investors walking the home while we were there. I had ran what I thought were good numbers before I went and looked at the property and I was eager to get my next project going so I gave my rep the check and signed the contract. 

Close on the property a week later, now to get to work! I planned on a 8 week rehab, straightforward work. I went shopping for contractors as the last one was terrible and took forever. A friend from high school wanted to do the last one and I passed on him and he was DESPARATE to work for me on this one to prove his skills'/work to me, so I figured I'd be a good friend and help him out. Red Flag #7(keep business business and personal stuff personal). It took him a week and a half to get me his bid. He was giving me a lower price than the other contractors I talked to, so I went ahead with him. Give him the check for downpayment and it takes almost a week to clear, putting me back 2 weeks since close. 

We get in and start doing demo which went smooth. I got a sewer scope after I close, and of course, discovered a break which needs replacing, ends up costing 5k. Unforseen expense, but it was budgeted for with a 10% buffer on the rehab. The roofer comes in and starts doing his job, which was originally quoted at 7500. As they're demoing the roof (and making a HUGE mess around the property, tar and gravel roof+ pine needles being thrown around the yard with no tarps), he comes back and tells me that spacing between the decking is too far apart compared to code, and it's going to be an extra $3,500 to redeck the entire roof (could have told me this when he gave me the initial quote, wasn't hard to see that). So now I am 11k into the roof, already blown through 10% buffer of 65k. 

The guy who did my floors in the last flip tells me it shouldn't be a problem to do my floors, he just needs to come in and see them. It takes a week of trying to get him in to look and give me a bid, and he ends up going ghost. I chose to hire the "GCs" uncle who does flooring for $4200. That consisted of repairing the large water spots in the wood, install wood in the kitchen (I could of just gone with tile) and refinish everything. 

It's time to get inspection for the roof. The guys had opened up the wall and put in a new beam and the city inspector came in and saw that and asked for the permit. I had permits for HVAC/Plumbing/Electric/Roof but not structural  as I thought my contractor had that taken care of. Inspector puts a stop work order on the project, had to stop in 10 days unless we got the permit. Fortunately he still allowed work to continue up to then. This was also the time that my "friend" told me he didn't have his GC license, which I was under the impression of when we started. We were able to get the permit no problem, and work continued.

Now the roof has been done, interior demoed, we're ready to move onto all the rough work. I had the Electrician from previous project come to give me a bid, and he says he can easily rewire the whole house and put in new service and panel for 6k. I tell him let's move forward. He then tells me he has to find someone who has a license to pull the permit for him. Took him 7 DAYS to get back to me and tell me he couldn't do it (HE didn't even call me and tell me, his plumber friend he brought with him had to). Another week of time lost.

He brings his plumber through to give me a bid on the project which ends up being 7k, i had kind of accounted for this, but there was some extra work that had to be done which brought it up another 1k (and another 1k bringing it up to 9500 in the end). Let's just get it done the right way so I agreed. I ask my "GC" for an electrician and he suggests his friend who's dad has a large Electrical company in town. I figured he would be able to knock the job out so I allowed him to hire the guy. He originally quotes $6500 to get the job done, and after his bid is accepted, he comes back and tell us the service issue overhead so its going to be an extra 1k (starting to see the trend?). Basically lied to get the job. 

He comes in the first week and tell us in order to bring the house up to code, all the paneling in the basement is going to have to get ripped off the walls and 2x4s along the exterior walls in the basement. Wasn't anticipating that. He also doesn't want to do the work himself as I was trying to keep the panels and he wouldn't be able to salvage them if he did that. We go back and forth a week and a half for him to take them off and he doesn't so I end up having my GC take the panels off. Another 1k in Demo costs. The electrician also came in and demoed all the drywall in the upstairs of the home, leaving another huge mess, which ends up costing thousands to replace.

I check in with my contractor every few days after this to see if the work is getting done and he keeps telling me that the electrician isn't coming in, his crew is sick, he gets off work late, blah blah blah, Every excuse in the book to not get the job done. He gets maybe 10% done with the job in the ENTIRE 6 WEEKS he is there, and I need up telling the GC he needs to get rid of the guy. They end up getting in a dispute and the electrician feels like he should keep $3500 after 6 weeks of getting 10% of the job complete. He doesn't want to give the money back so my GC ends up keeping the materials and eating the 3500 dollar loss. He then comes to me and tells me that we need to split it because he "didn't know the guy would take this long and it wasn't his fault because he didn't know that". 

It should have been all on him at this point but me being way too nice and looking at him as a "friend" I end up splitting that $3500 loss with him because I thought he would walk off the job. Mind you, we are already 8 weeks into this thing, all the other rough work had been finished, all the outside work has been finished, we are just waiting for a competent electrician to get in here and get this thing done! The GC also tells me that the entire basement will need to be framed out in order to be brought up to code which adds another $3800 to the cost. Also, the home now needs brand new insulation , adding another $2,650. I find an electrician who comes in and gets the job done in 1 week. So now I am 9 weeks into the project and finally through roughing stage. So far I've spent about $54,000 of my $65,000 and we are barely halfway through the project.

Now that everything is completely off schedule, the drywall is hung and it's time to start kitchen planning, picking finishes, etc. The tiling job for the bathrooms I was originally quoted $4000 for jumped up to $4500 because the tile guy the GC hired "didn't want to use the smaller tile and the stacked design that's more work to install". He also tell me his guy has been in business 25 years and has done numerous showers and thinks my design isn't practical for the showers. I tell him I could give a rats you-know-what about how long he's been doing it and what he thinks, It's my project and my concept, get it done. 

I come back from my birthday vacation to check out the progress of the home, sure enough they went with a completely different style of tile and did a staggered design rather than the stacked I had asked for in both bathrooms. I tell him I'm unhappy with that and he offers to tear it out and redo but at this point, were 12 weeks in and can't afford to wait however much longer it would take to do that. I am also scrambling to order and find some of the finishes we need, which end up pushing the time out even more. Vanity that takes a week, door that was ORIGINALLY supposed to take a week( but the door company comes back to tell me its going to take 2 weeks, still waiting).

I get a kitchen from IKEA, it takes 1 week for them to send me the parts they didn't have in the store. The trim I originally wanted was too expensive and would take weeks so I settle on some cheap stuff that doesn't really match the style of home but whatever, I need to get this done. This brings me to the point I'm at now. 

I ordered my countertops from IKEA as well, but due to the holiday season, the company they contracted with says they are booked out until the 9th of January which is when they can come out and measure, not even install( install is going to take another 10 business days). They are also charging $250 to come back out and measure the space (after they told me they would have to come out at 7am this morning because another client they had cancelled their appointment, they were supposed to be there at 11am today when cabinets would've been installed. How does this even make any sense?) I still have Electrical/ tub refinish and Plumbing guys waiting on this stuff to they can finish trim and they are all going to be pushed back out. 

Realistically, I'm probably not going to be listing this flip until close to end of January. With a 3k a month interest only payment(10.75% Interest, 2.5 points origination, supposed to be paid off mid Feb), 3k in monthly bills, and 14k in cash left AFTER investing 90k of my own money in the deal, you can see the terrible position I'm in now. I will most likely have to list the flip right now and sell it 90-95% completed and take some sort of loss. 

I am new to the investing world, as well as a new agent and still learning A LOT. I tried to read as much as I could, talk to as many people as I could, and prepare as much as I thought I needed but you just don't know until you get into these things what it takes. 

Some of the lessons I learned are:

1. DON'T HIRE UNLICENSED CONTRACTORS

2. DO YOUR DUE DILIGENCE BEFORE SELECTING CONTRACTORS, GET REFERENCES IF POSSIBLE.

3. DON'T REHAB A HOUSE THAT NEEDS EVERYTHING DONE TO BRING IT TO STANDARDS.

4. DON'T BUY A HOME WITH A LOT OF DEFERRED MAINTENANCE.

5. USE A CONTRACT WITH EVERY SINGLE CONTRACTOR YOU DO BUSINESS  WITH TO HOLD THEM ACCOUNTABLE.

6. HAVE MULTIPLE CONTRACTORS YOU CAN GO TO.

7. GET MULTIPLE BIDS ON THE PROJECT SO YOU CAN KNOW HOW MUCH THINGS WILL COST.

8. DON'T DO BUSINESS WITH FRIENDS. 

9. DO AS MUCH DUE DILIGENCE AS YOU CAN AND RUN YOUR NUMBERS AS CONSERVATIVE AS POSSIBLE. 

10. DON'T BUY FROM WHOLESALERS UNLESS YOU ABSOLUTELY KNOW YOUR NUMBERS.

11. DON'T USE HARD MONEY LOANS FOR FLIPS. FIND PRIVATE MONEY LOANS.

I hope this story helps some of you guys out there who are looking to get started. Yes I made stupid mistakes. Yes I should have known some of these things, but like I said, it's my 2nd flip and you just don't know what you don't know. Please learn from my mistakes and make the best out of your project!!