Home > Real Estate > We Flipped a House!-Part 2, Renovating a Distressed Property

We Flipped a House!-Part 2, Renovating a Distressed Property

House for saleThanks for checking back in for Part 2 in my series about flipping a house. If you missed the first post you can go back and catch up. Basically I left you with the reasons why we decided it would be a good idea to flip a house and how we decided to use a home equity line of credit to finance it. Our timeline was 6 months, and we planned on investing a maximum of $100,000 to renovate the house. Today, I’ll tell you what happened and if I would do another flip in the future.

Plans for Renovations

While our original time estimate to complete this project was 6 months, remember that this house was very distressed and needed major renovations. Our partners in this project were going to supply most of the labor other than jobs that had to be sub-contracted, like the roof, electrical, and plumbing.  The project started off great. Our contractor, let’s call him Abe, got his crew together. It consisted of a big, Viking like fellow,  we’ll call him Thor. Thor was full time, skilled labor, and we also had several wage type workers that varied from day to day, depending on the job at hand. Demolition was pretty cool since most of the interior of the house was completely gutted. Thor was really impressive with a sledge hammer. Honestly he could have had his own reality show.

After the initial demolition phase, we decided to revamp the floor plan. As it stood, there were three tiny bedrooms with small closets, and two cramped bathrooms. To make the floor plan more modern, we decided to knock out a wall between two of the bedrooms and make this the master. We also added an en suite bath. We took a portion of the large family room and turned that into a third bedroom with a walk-in closet. A wall was taken out of the kitchen to open it up and a laundry closet was built at the far end of the dining room to get the washer and dryer out of the cooking area. The hall bathroom was enlarged and a soaking tub was included. We also reinforced the walls to the detached garage and added a new roof along with the main house. It will make a huge garage or workshop/office space for the right buyer. .

It is Like a Reality Show!

Everything was going really well until Thor started missing work. He then broke his hand after having an altercation with a tree. His performance was pretty spotty after that, so he was let go. Without a trusty second in command, the project hit a huge slow down. On top of that the roof took much longer than anticipated, and then Abe fell down some steps and broke a few ribs. Since we had a pretty small crew to begin with, things pretty much ground to a hault. By this time, winter was coming on, and while they claim to work year round, it appears construction type people don’t seem to be so motivated in the winter. Nothing gets done during the month of December. I was beginning to wonder if we’d hired Pauline’s handyman. While it was extremely frustrating for my husband and I to see nada happening, our hands were pretty much tied. We are only investors and have little say in the labor process other than to voice our opinions. It seems we hit a huge snag like all the reality shows about flipping seem to have!

Back on Track

Warmer weather seems to have Abe pumped up. It appears that we are now on track to have the house finished and up for sale by May 1st. I won’t hold my breath on that one, but I’m hoping we can be pretty close to that timeline. I know our partners want to get it listed for the summer market, as that is the time when property seems to move the fastest.

Silver Lining

Although the renovations have taken much longer than planned, when you are doing anything that requires construction, you need to expect that there will be delays. Those shows on TV where they completely gut a house and have it up for market in two weeks don’t often happen in reality. While I’m a bit disappointed with the speed of the whole process, there are some positives.

  • We’ve managed to stay on budget, even though the timeline was way off, and we are going to come in right at our $100,000 estimate.

  • Any profits we make will be taxed as long term capital gains instead of short term since this project is going to take over a year when all is said and done.

  • We are still on speaking terms with our partners. My husband and I have certainly said a number of times how it’s easy for them do sit back when we are fronting all the money. I’m also sure that our partners have said it’s easy for us to criticize when we aren’t doing any of the work. I try to keep it all in perspective and see both sides.

  • We have used this as a learning experience. Even if it took a long time, we are still on track to make $20,000-$30,000 in profit with really only about $2400 out of pocket for interest payments. Barring complete negligence from our partners over the next month or so, it will be really hard to lose money on this deal, unless, of course, no one buys the house.

Would We Do It Again?

In conclusion, I guess the question is would we ever consider flipping a house again? Although I  never say never, flipping doesn’t seem to be high on our priority list. We haven’t liked the partnership part where we aren’t in control, and we don’t really have the skills at this point to take on a flip by ourselves. It’s much riskier than investing in a rental property over the long haul.

However, our lack of love for flipping hasn’t changed our take on real estate in general. We plan on using any profit from this deal as a down payment on a second residential rental property with a 1031 exchange. I will certainly talk more about when it happens, and I hope to have updated pictures when everything is done.

Could we have saved  enough on our own for a down payment and not bothered with a risky flip? Yes, but now we still have our savings to invest elsewhere, and this project should fund the down payment. You can certainly fault me for saying I never wanted to take on more debt, but then used a HELOC to finance this project. What I’ve always said is that I won’t take on debt that does’t make money for my family. We would never take equity out of our home for a car or vacation, but we though it was a good financial decision to buy and flip this property. I think if you aren’t strapped for cash and can find the right deal, flipping houses can be extremely rewarding, but I don’t think you’ll see us on reality TV anytime soon!

Do you have any real estate plans in your future? Would you ever consider flipping a house?

Image: Freedigitalphoto.net/renjith krishnan

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.

73 comments

  1. I’ve looked into real estate, but at this time it doesn’t seem like a very good option for me. Houses here are very expense, and I probably couldn’t make positive cash flow renting out most of them. Also, there’s no way that I’ll stay in this area if I ever lose/quit my job.

    If I had a very reliable partner who could handle the contracting part of house flipping, I may consider it. I don’t really have the time or the interest in being that involved in a construction project.
    My Financial Independence Journey recently posted..ConocoPhillips (COP) Dividend Stock AnalysisMy Profile

    • We just don’t have the skills or equipment or knowledge to hire it out without getting ripped off. It was an interesting experience, but I think I’ll stick with rentals from now on.

  2. If I had the right business partner I would love to do a flip. Glad to hear all is well (for the most part) with your experience.
    Dianne @ Skinny Seahorse recently posted..Time for a Fiscal FastMy Profile

  3. Awesome story, but the whole process sounds like a little bit of a nightmare. I think the house flipping shows make it all look just a little too easy. As you found out, it really is a lot of hard work and commitment to see it through to the end. I can tell you with certainty that it is probably not for me. However, you still had a pretty cool experience. Thanks for sharing.
    My Money Design recently posted..Taking a “Pay Off Credit Card” Niche Site to the Next LevelMy Profile

  4. Partnerships are hard, especially when the roles are so clearly different. We’d love to find some good partners our age to invest with in our area, but haven’t found anyone we really feel comfortable with.
    Mrs. Pop @ Planting Our Pennies recently posted..He Said / She Said / Kitty PoP Said – Maximizing Happiness ROIMy Profile

    • I think our partners were good for the most part. I just wish we’d been more insistent on the timeline from the beginning.

  5. Hmmm I’m not sure I would consider flipping a house. Like you, I would prefer to have rental properties that are bringing in cash flow each month. I would consider buying a distressed property, fixing it up, and then renting it, but probably not selling it. Then again, if you can flip it and make a decent profit right then and there it may be a good idea to just go ahead and sell it. Anyway, my plan is to get a rental property down the road.
    DC @ Young Adult Money recently posted..5 Challenges of Living AbroadMy Profile

  6. Great work, thanks for sharing. Looking forward to hearing more about it, Kim.

  7. Thanks for sharing your experience! Id love to renovate a home and rent it out at some point, but im sure there’s a time and a place to flip houses if you really know what you’re doing.
    cashrebel recently posted..Cash Rebel VS The Financial Adviser: Part IIMy Profile

  8. Thor and Abe were both injured? You couldn’t make that up!

    I’m really interested in house flipping. My wife and I would like to flip one house every year when we are “retired”.
    Johnny Moneyseed recently posted..Live everyday like it’s a recessionMy Profile

  9. Interesting experience, Thanks for sharing. What is your partners trick in the flip? It sounds like you’re putting up most of the money?
    Brian recently posted..How do I get a down payment? (…in Vancouver?!)My Profile

    • We are putting up the money. They are not charging for Abe’s labor, which is considerable. They also brought us the deal, so we would never have had a shot with such a good buy without their including us. We will get all of our money back plus what we’ve paid in interest, then profits will be split.

  10. It seems that things are going well. I don’t know if I would be able to handle not seeing work done. I am too handy to sit back and wait. Patience is a virtue a guess. I wouldn’t do this, but I would like to purchase rental property one day later down the road. Who knows what the future will bring.
    Grayson @ Debt RoundUp recently posted..My Greatest Childhood Money LessonMy Profile

    • Our rental was certainly stressful, but at least it was all on us. We could work as fast or slow as we wanted. It is odd when that is out of your control. Any investment can be trying, but I think real estate is a wonderful way to help your financial future.

  11. Awesome post! Always good when things don’t go as planned yet you still turn a profit! You will be that much better prepared if you ever decide to flip another house!
    writing2reality recently posted..The Right Job – Turning Down a 30% RaiseMy Profile

  12. That does sounds like a reality show because they ALWAYS hit that snag…and Thor sounds like a character…not a good one but a character. Do we get to see after pics? At this rate I might never own anything, so I can’t imagine flipping a house myself.
    Budget and the Beach recently posted..I’m Breaking Up with my HairdresserMy Profile

    • I really liked Thor. He had some anger issues that sort of ruined his work ethic in the end. I will have after pics as soon as everything is done.

  13. Sounds like you are having a lot of bad luck.

    Now, in defense of construction workers everywhere, have you ever tried working outside in the winter? It’s not fun. The clothes than keep you warm the most also limit your mobility too much. And it’s very hard to have the right about of clothing on when you job requires a lot of stop and go. You build up a sweat and start to take off layers, but then you stop to consult the plans, give someone directions, or get another load of building materials. That’s when you cool down and you start freezing again. There have been days that I took my coat off 5 times.
    Edward Antrobus recently posted..21 Ways to Create a Sales Stampede on the Internet: Book ReviewMy Profile

    • It would suck to work outside in the cold, but most of the outdoor stuff was done before it got cold. It really wasn’t that bad indoors. I just think all construction takes forever.

  14. I love hearing about this because I’m interested in eventually flipping a home or two. I don’t think I could do the partnership thing–I’d want to have the full control over the contractors, etc. That being said, I don’t know much about contracting, etc, so I might be at a disadvantage there!
    The Happy Homeowner recently posted..Realistic Ways to Recover from a Financial SetbackMy Profile

  15. We’ve flipped a few…all before we had kids. I don’t think I would have the time or energy now. Great job, though!
    Holly@ClubThrifty recently posted..Quicken Loans Review: My Easy Home Mortgage RefinanceMy Profile

  16. I loved this story. I like how you compared it to a reality show because it really does sound like all of those shows on HGTV. :) I don’t think i’ll be getting into flipping any time soon, but I have aspirations to build a rental empire!
    Nick @ ayoungpro.com recently posted..Career Advice: Be An EntrepreneurMy Profile

  17. Thanks for sharing the experience up to this point. It gives me some ideas of what I may have to deal with if I get into trying this out as well.
    Alan@escapingmydebt recently posted..Advice NeededMy Profile

  18. I owned apartment buildings and never remodeled any of them, however we replaced just everything in a few of them. Construction never goes as planned! I would never flip houses because even if I could control the construction, I cannot control the real estate market.
    krantcents recently posted..Follow Me to Wealth!My Profile

  19. It certainly sounds like Abe and Thor made it an interesting experience worthy of it’s own TV show. I’m glad it looks like everything will work out in the end for you. Like you, I’m not sure I’d flip a house because we lack the skills to do a lot of work ourselves and the housing market in LA is still pretty rough. I’d probably be more interested in rental properties. Can’t wait to see the unveiling of the remodeled home. :)
    Shannon @ The Heavy Purse recently posted..3 Money Myths Parents Need to Stop BelievingMy Profile

  20. That definitely would frustrate me, not having the control! Sounds like the crew needs to have more toolbox meetings to encourage safe behaviour. :-S
    I bet the tax savings are pretty substantial, too. Here’s hoping it sells quickly, for top dollar :)
    Anne @ Unique Gifter recently posted..Housewarming Gift: The Idiot BoxMy Profile

  21. Sounds like quite the adventure! Also, on the 1031 exchange, make sure to meet with your accountant before making any moves. There are specific timelines you need to hit for this to be a tax-free event :)
    Jacob @ iHeartBudgets recently posted..Best Place To Put Your Tax Return MoneyMy Profile

    • I have tons to learn about that before it happens. I also know you need to find an intermediary to handle the money. I am a bit nervous about it, but hopefully we can pull it off correctly, assuming the place does sell.

  22. haha so the construction world is always an interesting place… what we are doing now is pay per project so we don’t care if the guys do it in one day or two weeks. For the things we sub contract we ask for an ETA and put penalties if they don’t respect that. I would go for house flipping if I was sure there was some renting potential in case the sale doesn’t come through quickly.

  23. I enjoy house flipping, but Cheryl isn’t excited about it at all. I think she sees renting homes as a safer long term investment.
    AverageJoe recently posted..How Colors Affect Your Investment DecisionsMy Profile

  24. I love rental real estate and have had great success with it. I’m not sure I’m ready or have the time to flip a house. Great job though…hope you get a buyer quickly!
    Brian @ Luke1428 recently posted..I Love to Clean the BathroomMy Profile

  25. Partnerships can put people in a tough position especially if someone is not pulling their weight. Sounds like you had some ups and downs with this project but if you sell then at least you will reap the rewards. Great experience I bet! I’ve never flipped a house before but I would consider it.
    Canadian Budget Binder recently posted..Growing A Garden In A Small SpaceMy Profile

    • It was a great learning experience, but not one I’m likely to repeat. I bet you and Mrs. CBB would be good with a flip, but I’m sure houses are much more expensive where you live.

  26. I’ve considered doing a flip in exactly the same fashion as you are doing – fronting the money and partnering with somebody else to do all the work. Mostly due to my lack of time to take on something like this. The whole partnership thing scares me though. It would be difficult to decide how to fairly divvy up the profits.

    Previously, real estate was my only goal for future passive income. Now that I am into the internet marketing scene, real estate isn’t in my plans at all. Maybe one day when I have enough cash laying around to make a 100% down payment on a rental property.
    Matthew Allen recently posted..I Need a Job Now and I Hate My Part-Time Job!My Profile

    • Sadly, I don’t have the savvy internet savvy skills to do that. As long as we can find pretty low cost properties that will rent well, I think that’s still going to be a big part of our plan.

  27. Mr. 1500 and I flipped a few houses before we had kids, and one afterwards. We did all the work (read Mr. 1500 did 99% of the work) and lived in them while renovating, to take care of the capital gains issues. THAT was a nightmare sometimes.

    You said in the first post that this was on the second best street in your city – could you just rent it out? Buy out your partners, keep it and rent. What can you get for rent vs. what profit can you turn?

    Just a thought.

    • Good thought, but I think we’ve gone too nice for a rental. Most long term renters that could afford what we’d need to charge for rent would go ahead and buy. I think I just want to let this one be over and find the next one.

  28. Nope! I have no home repair skills or connections – it would not be for me!
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  29. I’ve always thought about flipping houses after watching too much HGTV, but I have no clue about any of it so this post was very enlightening!

  30. Thanks Kim, that was an interesting read. I’m not sure I would ever have the time to even try to flip a house. the ironic thing is that I have the skills and the tools to do a lot of it myself but time? there’s never enough time!
    Jose recently posted..Envelope Budgeting – A Quick Introduction and Tour – Plus A Video!My Profile

  31. Kim, thanks for sharing your experience. I loved the video in the previous post.
    I plan on buying houses in need of cosmetic repairs, fixing them up, and renting them out. As for a full blown flip, I doubt it. I’ve had bad experiences as well with contractors and couldn’t deal with it for a solid six months or more.

  32. I am still interested in flipping houses. But would rather buy a fixer upper, live in it, and fix it up, and when we decide to move, very likely in a few years, we will sell for a profit.

  33. We’d considered doing a flip a few years back when all of those flip shows came out (it looked so easy). I’m glad that we never did. Bf is less than handy, god bless him, and we don’t know anything about construction. We would totally get ripped off because we know nothing about how much the market value is of the work that would need to be done. Thankfully the condo we bought was in move-in condition and we haven’t had to do any work.
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