Newbie House Flipping Couple Make Multiple Mistakes!
OK so the other day I get a phone call and the lady leaves me a message saying that she is a real estate investor and wants to talk to me. I pick up the phone and I called her back and Pauline is actually surprised that I called her back because I guess most people she calls never call her back.
I always thought Business 101 you get a phone call from someone, you never know who it might be the rule is that you call them back. The only people you never want to talk to is a government regulator or the IRS, I have may lawyer call those people back.
Jack Rainmaker Flipping Houses Pauline and Her Husband Mr.Pauline Spent Thousands on Seminars
Seems like Pauline her husband, Newbie Real Estate Investing House Flippers, are looking to get into flipping more houses. They had completed I believe a couple flips and currently had another home on the market. Pauline also did tell me that they spent way too much money on different House Flipping seminars and learning how to get into Real Estate Investing. We didn't discuss how much they spent but it was pretty significant and she felt that they really didn't get anything for their money. Okay.
I asked if they were using hard money, she said; "No we are using our own Cash!"
Pauline told me that they did have a house sale and that it had been on the market for quite some time and they really needed to sell it to free up cash.
Mistake Number One! Why would you tie up your Cash in one project and diminish liquidity?
Pauline texted me the address 9308 Vital Crest Las Vegas NV 89123.
$300,000 Rental House in Las Vegas? You can see it on Zillow. So I looked at the house online for sale for $349,400 they purchased it for $300,000 and the renovation was plain Jane nothing spectacular, I would score it a 4 out of 10. Looks like very other BS Las Vegas House.
Mistake Number Two! Shitty Rehab
I ran the numbers in my system and essentially the house is selling at around it's a ARV $339,000 to $369,000, but, according to my system I would've paid tops $267,000 for the House, NOT $300,000.
Mistake Number Three! Paid too much for the Project
I immediately picked up the Phone and called Pauline. I knew that I would be the bearer of bad news, therefore the chances of hearing back from her ever again would be zero.
Newbie House Flipper Pauline picks up the Phone
I first of all told her geewhiz you paid $40,000 more than you should have for the house and it's going to be sitting on the market for a long time. I recommended that they go ahead with a cash out refinance so that they could put the cash back to work.
And by the way why did you pay so much money for the house?
Pauline proceeded to tell me that they initially purchased it as a rental and decided they did not want to be Landlords after a negative tenant experience. Whoa, Wow, What the heck do they Teach at those Real Estate Investing Seminars? Who pays $300,000 for a Rental Property in Las Vegas?
Mistake Number Four! A $300,000 Las Vegas Rental.
As a Real Estate Investor do your research on purchasing Rentals and whatever you do buy them 20% under market value. Same as a Flip!
House Flipping How Bad Can it Really Be?
So here we are we have an older couple with money in the bank presumably retired wanting to keep busy and make a better than average return on their investment. So what did they do? They go to a bunch of seminars and pay a lot of money. They then go and think it would be a great idea to buy a $300,000 rental house which probably would rent tops tops for $1,800 a month! The renovation they perform on the house is mediocre at best. They do rent it out to one fellow who ends up going to jail, and now deciding not to be landlords they want to sell the house.
So the only answer really since they spent all this cash, is to do a cash out refinance, continue to rent the property and have somebody else cover the mortgage payment. Take the Cash from the Cash Out Refinance and put it to work elsewhere but work with somebody who knows what the heck they're doing!
Jack Rainmaker
702-609-5909
Improving Neighborhoods One House at Time
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