1st time flip in chicago (chicagoland) was a flop

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1st time flip in chicago (chicagoland) was a flop

Scot Howat
Investor · Hoffman Estates, IL · Member since 2014 · 434 posts · 185 votes

I'm in the northwest suburbs of Chicago and this was my first rehab / flip.

I'm not happy that I'm losing money on this one, but I learned SO much from it. 

I will probably lose about 12k on this one, depends on closing costs and commissions.

Purchased 92,000

Rehab 39,000

holding costs 2,000

Listed at 149,900 and got an offer 4 days later (awesome!) for 145,000 (148,000 - 3,000 closing credit).

Here's some pics

What do you all think???

I've got much better before/after pictures on my laptop, but you get the idea.

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Jeff S.
Lender · Los Angeles, CA · Member since 2009 · 1k+ posts · 2k+ votes
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Bravo to you, @Scot Howat, for having the guts to share this. Most rehabbers would simply disappear, never to be heard from again.

It would be extremely helpful to others if you shared how and why you though you'd make money on this property. What was your evaluation process? What went wrong?

I'm curious what your original rehab and ARV estimates were. If they were close to your $39k & 145k actuals, you could have predicted a loss from the start from just a rule-of-thumb:

($92k+$39k)/$145k=90%

Here, the conventional wisdom says this shouldn't be more than about 70% to 75% or so to make a fair return. A rule-of-thumb to be sure, but did you run a detailed cost estimate when you evaluated the property? Did something get away from you?

If this were a 6 month project where you used hard money, in CA, where taxes and holding costs tend to be relatively low, you could have predicted nearly a $7k loss using a detailed cost estimate. 

Sorry to hear about this, Scot.  Nice job on the house though.

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  • Jeff Morelock
    Rental Property Investor · Marianna Florida · Member since 2011 · 357 posts · 169 votes
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    Hey, there's "gurus" charging that much for courses and mentoring, but I'll be you learned more with your hands on lesson.

    1Reply
  • Cindy Andrews
    Investor · Fresno, CA · Member since 2015 · 3 posts · 2 votes
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    I think your choices were awesome...from house, clear thru rehab choices.  I guess learning is all part of the process with this, but man is it expensive.  We are still working with dry runs, but hope to venture out in the next month or so.  Hope your closing goes smoothly and you fair better than you expected!

    0Reply
  • John Weidner
    Chicago, IL · Member since 2014 · 710 posts · 200 votes
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    bummer...so I guess you miscalculated the soft costs and ARV on your deal analysis

    What suburb is this located?

    0Reply
  • Derek Walvoord
    Rehabber · Chicago, IL · Member since 2015 · 73 posts · 20 votes
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    Looks nice!  I have been there.  Not fun, but you did learn a lot!

    0Reply
  • Cal C.
    Investor · Peachtree Corners, GA · Member since 2014 · 1k+ posts · 1k+ votes
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    How are you losing $12K? I'm seeing much less than that unless you have some crazy taxes for selling. 

    92 and 39 and 2 are 133.  149 less 10% (commissions and closing costs) is about $134.  So small profit.  

    0Reply
  • Account Closed
    Indianapolis, IN · Member since 2013 · 210 posts · 149 votes
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    @Scot Howat 

    Good job! You paid for your own education. Like @Jeff Morelock said, gurus charge more then that and you get very little out of it. 

    I just ran some quick numbers and you may lose a little or maybe even break even. Anyway you look at it this will be a learning experience that you can carry on to the next property. I am sure you will run your numbers differently and profit on the next flip. 

    Keep pushing forward to Success. 

    0Reply
  • Justin Pease
    Rental Property Investor · Arlington Heights, IL · Member since 2014 · 15 posts · 8 votes
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    Congrats on the deal Scot, regardless of the outcome...lessons learned will be valuable. Interested to hear more about the numbers. Fair to assume you budgeted much less in rehab costs? Any big ticket items pop up that caught you off guard? We just finished a rehab in Arlington Heights, I am working on a blog post with all the details. It was a doozy. Spoiler alert, I got shingles during the process due to stress... What town was yours in? Best, Justin
    0Reply
  • Stacie Meeker
    Investor · Cedar Hill, TX · Member since 2015 · 18 posts · 17 votes
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    Hi Scot,

    Did you use hard money to purchase this?  

    0Reply
  • Jeff Valentino
    Residential Real Estate Broker · Winston Salem, NC · Member since 2011 · 345 posts · 120 votes
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    You got a deal done and learned lots so congrats on that @Scot Howat ! Did you close or just accepted an offer?

    Eta: looks like you haven't closed. Good luck!!

    0Reply
  • Jeff S.
    Lender · Los Angeles, CA · Member since 2009 · 1k+ posts · 2k+ votes
    11y

    Bravo to you, @Scot Howat, for having the guts to share this. Most rehabbers would simply disappear, never to be heard from again.

    It would be extremely helpful to others if you shared how and why you though you'd make money on this property. What was your evaluation process? What went wrong?

    I'm curious what your original rehab and ARV estimates were. If they were close to your $39k & 145k actuals, you could have predicted a loss from the start from just a rule-of-thumb:

    ($92k+$39k)/$145k=90%

    Here, the conventional wisdom says this shouldn't be more than about 70% to 75% or so to make a fair return. A rule-of-thumb to be sure, but did you run a detailed cost estimate when you evaluated the property? Did something get away from you?

    If this were a 6 month project where you used hard money, in CA, where taxes and holding costs tend to be relatively low, you could have predicted nearly a $7k loss using a detailed cost estimate. 

    Sorry to hear about this, Scot.  Nice job on the house though.

    2Reply
  • Steve Smith
    Contractor · Lowell, IN · Member since 2014 · 31 posts · 11 votes
    11y

    Takes a lot of courage to post that you lost.  Others will benefit greatly from this.  You cannot sharpen the pencil or use the eraser just to make it look like a good deal.  

    1Reply
  • George P.
    Property Manager · Livonia, MI · Member since 2011 · 4k+ posts · 1k+ votes
    11y

    looks really nice,  but that washer in the kitchen is weird.  reminds me of an European kitchen.  they keep their washers in the kitchen. 

    yyou overpaid for the repairs.  does not look like a big house.  these are just cosmetic changes. codes it have a basement?  sounds like u spent too much

    0Reply
  • Dawn AnastasiPro Member
    Rental Property Investor · Milwaukee, WI · Member since 2013 · 6k+ posts · 4k+ votes
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    @Scot Howat

    $39k does sound a bit high for a rehab, so I'm wondering if you can break down where you spent the money in the rehab?  I think we're not seeing all the costs here.

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  • Account Closed
    Investor · Harvard, CA · Member since 2015 · 38 posts · 15 votes
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    @Scot Howat

    First, I will echo everyone's request for more details on this one including how you originally found the property.

    Second, to the point made by @Jeff S., you don't see enough stories like this on BP and it takes a lot of courage to admit to a loss for whatever reason. I sometimes feel like these posts can be more valuable than all of the success stories we read here every day or in the podcasts we listen to. I wonder how much more we could all learn if more investors would suck up their egos and share more stories like these.

    Thanks for sharing!

    2Reply
  • Marc M.
    Contractor · Rockville, MD · Member since 2014 · 423 posts · 135 votes
    11y

    Agreed on the above; props to you for sharing this.  I know it probably doesn't help ease the pain but many, many other people will benefit from your insight and you may even pick up some valuable feedback from the more experienced folks on here that will help you on the next one.  

    Hope to see another post from you in the future detailing your insane profit.  :-)

    0Reply
  • Scot Howat
    OP
    Investor · Hoffman Estates, IL · Member since 2014 · 434 posts · 185 votes
    11y

    @John Weidner

    It's in Streamwood IL.

    @Account Closed

    The original repair bid came in at 23k which included all new windows and HVAC (and of course flooring, kitchen cabinets, bath, tile etc).  

    1Reply
  • Crystal SmithPro Member
    Moderator
    Real Estate Broker · Chicago, IL · Member since 2014 · 2k+ posts · 1k+ votes
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    312-681-7487
    1Reply
  • Account Closed
    Investor · Harvard, CA · Member since 2015 · 38 posts · 15 votes
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    @Crystal Smith true... a newbie or even intermediate investor in my opinion would not know most of these if they fell on their head. I would just see a crappy driveway that wasn't worth repairing. 

    I'm always surprised by some of the village code in my area. It's my understanding that this is where a very good local inspector and GC pays dividends.

    1Reply
  • Jeff Valentino
    Residential Real Estate Broker · Winston Salem, NC · Member since 2011 · 345 posts · 120 votes
    11y

    @Scot Howat that sounds like some typical realtor puffery unfortunately. 

    Good news is except for the most of the village stuff your repairs were close. If your inspector is not familiar or unwilling to help w future code issues I would suggest contacting the village during your inspection period. They vary so much from town to town it's hard to keep up with. 

    It's also a good idea to ask the inspector and contractor how familiar they are with a particular village/towns codes. They will likely leave themselves wiggle room but at least it's another data point. 

    1Reply
  • Crystal SmithPro Member
    Moderator
    Real Estate Broker · Chicago, IL · Member since 2014 · 2k+ posts · 1k+ votes
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    @Account Closed  Our approach in some of the villages is to pay to get the village inspection & GC bid complete before the end of the contract inspection period.  Then we don't need to rely on an independent inspector or a GC opinion about what's up to code or note.

    312-681-7487
    0Reply
  • Scot Howat
    OP
    Investor · Hoffman Estates, IL · Member since 2014 · 434 posts · 185 votes
    11y

    We called and left 5 messages to the village during our inspection contingency to try and get him out there and give us a heads up of what we would need to repair, but he never called us back. 

    After the closing happened the GC calls the village inspectors cell phone and gets him to shows up a day or two later.  The GC was familiar with the area but didn't include any of those repairs in his initial bid. 

    I'm not sure if it's anyone's fault that this happened, but my inexperience definitely cost me.  At least I'll know to look for these things on the next deal.

    @Stacie Meeker

     I used a commercial loan for the flip.  7.25% interest only payments

    0Reply
  • Scot Howat
    OP
    Investor · Hoffman Estates, IL · Member since 2014 · 434 posts · 185 votes
    11y

    @Jeff Howat

    0Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
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    Originally posted by @Jeff Morelock:

    Hey, there's "gurus" charging that much for courses and mentoring, but I'll be you learned more with your hands on lesson.

    But even a modest guru would have not let him make that deal in the first place.. I don't get the  ( hey you get a better education by losing money doing it yourself than paying for any guru training)  any coach you pay whether private or guru will usually keep you from even buying this in the first place and then getting discouraged.

    Pay for good training and make money on your first deal that gets your capital back and pays for your education.. don't just go out there half cocked and lose 10 to 20k and then call it a great learning experience...

    Its the same as those that go to VEgas and call losing money gambling  as but hey " its entertainment" never got that one either. 

    so I for one totally disagree with that thought process... learn first even if you have to pay for it.. then be successful in all your deals..

    Of course your going to have a bummer every now and again but that's RE.. just don't want it to be your first one if you can help it.

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    1Reply
  • Brian Gibbons
    Investor · Sherman Oaks, CA · Member since 2008 · 6k+ posts · 3k+ votes
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    Originally posted by @Jay Hinrichs:
    Originally posted by @Jeff Morelock:

    Hey, there's "gurus" charging that much for courses and mentoring, but I'll be you learned more with your hands on lesson.

    But even a modest guru would have not let him make that deal in the first place.. I don't get the  ( hey you get a better education by losing money doing it yourself than paying for any guru training)  any coach you pay whether private or guru will usually keep you from even buying this in the first place and then getting discouraged.

    Pay for good training and make money on your first deal that gets your capital back and pays for your education.. don't just go out there half cocked and lose 10 to 20k and then call it a great learning experience...

    Its the same as those that go to VEgas and call losing money gambling  as but hey " its entertainment" never got that one either. 

    so I for one totally disagree with that thought process... learn first even if you have to pay for it.. then be successful in all your deals..

    Of course your going to have a bummer every now and again but that's RE.. just don't want it to be your first one if you can help it.

    Let's say you've been arrested for suspicion of murder

    Are you going to take advice from a paralegal that does divorces or go find the best criminal defense attorney you can find?

    So many people are against training, avoiding mistakes, making a profit on the first deal, it's amazing to me...

    0Reply
  • Vincent Crane
    Realtor · Atlanta, GA · Member since 2015 · 693 posts · 357 votes
    11y

    All that village code crap is what put you in the hole. That's seriously insane, and really added up to not add value to the house and ultimately cost you the profit

    0Reply
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