My First Flip

[Tilmon Smith]

I just completed my first flip. It took 6 months from beginning to end and here are the approximate numbers:

Purchase Price - $170k

Closing Costs at purchase - $11k

Renovation Costs - $80k

Holding Costs - $9k

Sales Price - $320k

Closing Costs at Sale - $35k

Net Profit - $15k

I was hoping for profits closer to $30k however since it was my first flip, I'm just glad that I didn't lose money. It was a great learning experience and has given me confidence that I can do this.  Here are a couple of points regarding my experience.

1. The high closing costs at purchase was due to $8k that was due to the homeowners association. I knew about these costs but did it anyway because I wanted to get started and felt that I could make money on this anyway.

2. The high closing costs at the sale was due to $9k sellers help with the closing along with a $3k incentive to the buyers agent which helped move the house along. The house was priced a little high for the market and I didn't receive any offers until I offered the buyers agent incentive. After the incentive, I received two offers.

3. I was expecting renovation costs of around $60k and went over budget to $75k when the house initially finished and had to put in another $5k after the inspection. The primary causes of being over budget were unexpected plumbing problems which then caused extra problems with the drywall and a decision to open up the house after the original budget was established. In looking back at this, we should have anticipated the plumbing problems because the house was vacant for two years and we were not able to turn on utilities until after we owned the house.  We should of at least had a contingency for it.

Now that my first flip is over, I am really excited to keep this going and am currently looking for my next house. I feel that this was a valuable first experience and since then have been increasing my education by reading books and listening to the podcasts. My next step is to use hard money financing so that I can leverage my funds and be able to do more than one house at a time. If anyone has or knows of any houses out there in Maryland let me know. My focus is on Howard, Prince Georges and Montgomery counties but am willing to go to Baltimore if the deal is good.

[Stephen Hundley]

Good job getting this one done. A few things you should look at: 

1. Profit margins that small are not worth all of the risk. Less then 10%, that's a pass. 

2. You make your money in the purchase. This property was way over purchased. 

3. Sounds like you need to ensure you have a better contractor. Projects that go over budget more then 10%, are pushing the limits of failure. You preserve the money you made in the purchase with the rehab of the property. 

Good luck in the future. If I can be of assistance, feel free to contact me.