Home > Real Estate > Out of the Flippin’ House Flipping Business

Out of the Flippin’ House Flipping Business

Fllipping a HouseIf you’ve been following this blog for a while, you’ll remember that Jim and I became investor partners in a house flip way back in April 2012. When flipping a house, a main point is to get repairs and renovations done quickly to minimize carrying costs. Originally, we planned on a six month turn around, but you know what they say about the best laid plans , especially if you have to rely on partners to make things happen. Somehow in early November of 2013, we still found ourselves part owners of this property with so much potential, yet there it sat, unfinished and empty, while time continued to move forward and other opportunities passed us by. Yesterday, we put an end to our career as house flippers, even though it meant not making any money.

Out of the House Flipping Game by 2014

We have so much going on in our lives right now with purchasing a commercial building, selling my practice, and trying to build our real estate holdings for early retirement. We were more than over the delays and excuses that seemed to keep coming with the flip. No work had been done on the house since the end of September, despite our earlier ultimatum. We were very serious about wanting to be done with this deal by the end of the year. We  produced what I though were three very fair choices for our partners.

  • Option 1- Finish the House: We would stick with our original agreement to fund the project and our partners would do the work, but he house had to be done by the end of November and ready to list.
  • Option 2- Hire Someone to Finish the House: We would hire an outside party to finish the house by the end of November and have it ready to list. Costs to hire another contractor would be reimbursed out of the final profits.
  • Option 3-Buy Us Out. We would walk away from the project if our partners would pay us enough to cover what we owed on our HELOC plus the money we’ve spent in interest and taxes. This total came to  $91,500.  This option would give them full ownership, and they could finish or not finish the house as they pleased. We offered a similar choice before but added a little profit for us. At the time, they said they did not have the money to buy us out. It would have cost way too much for us to buy them out plus have to pay for the rest of the repairs, so we did not offer that option.

We also told them that if they didn’t agree to one of these solutions, we would have to bring in attorneys to dissolve the partnership.

Not surprisingly, they chose option 3. It makes sense. Most of the  money needed to finish this house is for appliances and counter tops. All other materials are purchased and ready to be installed. They get a great house for just over $91K. If they ever do get it ready for sale, it will easily go for $150K, possibly $180K.

What’s In It For Us?

We really get nothing out of the deal except our lives back. The stress of dealing with partners who didn’t do anything and seeing our empty house every day was a killer. Technically we got back the money that we put into this project, but we’ve earned nothing on that money for the past 20 months. We wouldn’t have taken out a HELOC to invest in the stock market, but we certainly could have purchased another rental property. We will also owe a little in taxes from the sale, but we got quite a bit of money in tax deductions last year, so it’s a wash.

I still have no idea what happened to our partners. I’ve racked my brain to try and see a reason why they couldn’t seem to finish the job. In the end, I guess it really doesn’t matter. I will be watching, though, and if suddenly the house is done and up for sale in a few weeks, I’ll know they were stalling to get to this outcome.

In the end, our real estate egos are a little bruised. Our heads aren’t held quite so high, but we live to fight another day, armed with the experience of this house flipping mess to guide future decisions. I already have my eye on a couple of properties, so we’ll see what 2014 holds.

Have you ever been in a partnership that went south? Were we right to sell out for no profit?

Image:Freedigitalphotos.net/Ammer

 

About Kim Parr

Kim Parr is a private practice optometrist, freelance writer, and personal financial blogger. You can follow her journey to 20/20 financial vision at Eyes on the Dollar.

34 comments

  1. What a bummer that your partners did that- at least you got out! I bet it is a huge sense of relief to be done with that. Do you think you’ll ever take a real estate partner again, or will you guys be flying solo from here on out on the real estate front?
    Dee @ Color Me Frugal recently posted..Foiled an identity theft… barely!My Profile

    • No partners ever again, but we still plan to purchase more real estate. I don’t think we’d do a flip, but long term rentals are what we are hoping for.

  2. I used to watch those house flipping shows all the time and it always amazed me the risk involved. It would be fun to transform a “fixer upper” into something bright, shiny and new, but it seems like there are too many variables involved in whether you’d actually make money or not.
    Travis @debtchronicles recently posted..Are Your Holiday Expectations Holding You Hostage?My Profile

    • I think if you know how to do it all yourself and have time, it can be a gold mine. We don’t have enough skills to pull off a project of this size and relying on others got us in trouble.

  3. Sounds like you made the right decision in getting out of that deal, Kim. So glad you were able to get it done with not much money lost too. I know what you mean about the real estate market being a bit scary. We have good friends who are down about ten grand right now due to a crappy tenant. :-(
    Laurie @thefrugalfarmer recently posted..Getting out of Debt: The Secret You Might Not Know AboutMy Profile

  4. Why didn’t they do any of the work? Weird!
    It sounds like you made the right decision. Oh well, cut your losses and move on, right?
    Holly@ClubThrifty recently posted..House Shopping: We Found “The One”My Profile

    • They did lots of work. They just stopped short of finishing it enough to get listed. I have no idea why unless they were hoping to get control of the property to keep all the profits. I’m sure it didn’t start that way, but I’m thinking they knew we wanted out and this was easy for them. For a while, I considered doing letters to the editor about their business and stirring up some emotions to get them moving, but in the end, negativity just breeds more negative things. I’m glad to be out.

  5. I’m with Holly, that makes no sense! Why would your partners start on a project like that and plan to lose money? Maddening!
    FI Pilgrim recently posted..FI 101: Two Stages Of DebtMy Profile

    • I don’t think they started that way, but I’m thinking maybe when they realized we weren’t happy, they though they could stall and buy us out. That way, they get all the money from the sale. I really have no idea, and your mind goes crazy trying to make sense of it all.

  6. Sorry to hear that. But on the positive side, you at least got your money back. Maybe you dodged a bullet here!
    Moneycone recently posted..10 Questions You Must Answer To Stay On Top Of Your PortfolioMy Profile

  7. I think you made the right decision Kim. I know you didn’t make anything out of it, but I think the result of a wash is worth it so you don’t have to deal with it anymore. I’m with the others and wondering why the other party didn’t do any work, but glad you didn’t have to get lawyers involved.
    John S @ Frugal Rules recently posted..How to Save Time as a Blogger: Hire a Virtual AssistantMy Profile

    • I am not sure what happened. All I can guess it is was some sort of personal conflict between the two of them or maybe they were hoping to buy us out in the end to keep all the profit. I’ll never know.

  8. I would have made the same decision. Yes, you won’t make any profit, but you got the money you invested and you can move on. I have never done any partnerships like this and don’t plan on it.
    Grayson @ Debt Roundup recently posted..Republic Wireless Review – A Hybrid Approach To WirelessMy Profile

  9. My friend was in a partnership that nearly fell apart. He bought a house with the guy and the rental situation got complicated when my friend’s biz partner (and roommate’s) girlfriend was going to move in. In the end they avoided having to sell the house and will keep the house and cash flow they are receiving from rent. I’m weary of partnerships and would rather start something and potentially open it up to other investors, but I’m a paranoid control freak!
    DC @ Young Adult Money recently posted..The 4 Qualities of Successful EntrepreneursMy Profile

    • I think in this situation, that would have been a good quality. I often assume people will do the right thing, and well you know what happens when you assume.

  10. Awe I’m sorry Kim! At least you do have your life back…so that’s something. And you tried! Some people never even take chances. I was in sort of a partnership with a friend, and we were working on video projects together. We butted heads like nobody’s business and things got kind of ugly. Luckily we both decided to back out of the working relationship before it completely destroyed our friendship. Even still though we don’t talk as much as we used to these days.
    Tonya@Budget and the Beach recently posted..How I Made 10k in Side IncomeMy Profile

    • Yep, a partnership is a great way to ruin a friendship. I did consider these people friends, but now if we ever have to run across them, it will be strictly professional. You can’t really burn bridges in a small town, but we won’t work with them again.

  11. While it sucks, I think you guys learned a really valuable lesson with this deal. Hopefully you guys will have a plan to vet future partnerships and maybe set out more specific “if this/then that” in a written contract before diving in next time. Keep us updated on if/when the house is ever finished and brought to market – that truly is some shady dealings on your partners’ part!
    Mrs. Pop @ Planting Our Pennies recently posted..Thoughts On Art And Money – Art Basel 2013My Profile

    • I am still trying to decide if they are that shady or just plain unreliable. It all changed so quickly because past projects went really well. I think there will be no more partners in our future at all. You really can only depend on yourselves.

  12. Hey Kim, wow, looks like you’ve been through a lot. Also, I’ve been part of a bad partnership that ended in the dissolution of a great business. You know what, even though I lost my half of a great business, I’m glad it happened. Since then, I’ve opened up other options for myself!
    Joshua @ CNA Finance recently posted..Why An Extreme Frugal Mindset Could Be Stopping You From Becoming RichMy Profile

  13. You are lucky you got your money back! Seems like they were unreliable partners. How well did you know them before? I hope they weren’t close family friends or something of that nature!

  14. So were your partners in this deal people you didn’t know? Kinda like silent investors who gave you a loan to do the work? So hard to do real estate flips with other people involved, especially when they don’t have the same goals as you. You definitely did the right thing be getting out!
    Kyle | Rather-Be-Shopping.com recently posted..How to Properly Glue Yourself to a Toilet Seat at The Home DepotMy Profile

  15. With a brother who works heavily in contract law, I have learned the importance of an air-tight contract. I am glad you at least got out of this mess without loss. Better to have gotten out like this than to lose everything.
    Tara @ Streets Ahead Living recently posted..Just because it’s “natural” doesn’t mean it’s healthy!My Profile

  16. Yikes! Sorry you had to deal with that but I’m glad the outcome wasn’t a complete disaster. You made the right decision by getting out of that while you could.
    Laura @ RichmondSavers.com recently posted..Lending Club Update December 2013My Profile

  17. I’m sure it must be difficult to get into house flipping. lots of work and money. Plus being partners in something like that can be very stressful!
    Poor Student recently posted..Save Space and Decorate Your Dorm on a BudgetMy Profile

  18. Sorry to hear that, but for the sake of sanity, it is better to buy an early exit rather than let it be a drag for many more years.
    It may have been their plan all along?
    Pauline @RFIndependence recently posted..Why your mindset is more important than strategies when reaching financial independence.My Profile

    • I don’t want to think it, but it sort of looks that way. We’ll see if the house is done in a few weeks and ready to sell. Regardless, I’m glad to be free from this project. It was a mental drain.

  19. I was just wondering today whatever became of this house! Are you reading my mind, Kim?
    Well, that sucks as an outcome, but at least you emerged relatively unscathed financially, though I’m sure the relationship and emotional aspects suck.
    Anne @ Unique Gifter recently posted..An Absolutely Awesome Gift Giving StuntMy Profile

    • At this point, moving on is the best emotional thing we can do. This whole episode did diminish my trust in fellow man a bit. I guess you can never be too cautious in business dealings.

  20. I’m really happy that you were able to get your money back! I am very, very leery of partnerships. One person always moves slower than the other-think group projects in College/Grad School. I think your other Real Estate holdings will be more than enough. You will purchase other holdings that will be a lot easier to manage.
    Michelle recently posted..Retail Fail-I won’t be working holiday retail for the first time in years!My Profile

Leave a Reply

Your email address will not be published. Required fields are marked *

*

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>

CommentLuv badge