The Messy Business of Flipping Houses
So, I've been going back and forth on whether or not I should write a post like this, but I've finally decided to delve into writing a little bit about the less photogenic side of house flipping: the stressful things that go on behind the scenes. And I'll be honest, I'm still gonna hold back a little bit, because I'm afraid of sounding extra whiny or something. Keep in mind that OVERALL, I absolutely love this path that I've chosen! The good parts are worth enduring the bad days and the obstacles. But I also don't want to portray this whole thing as a perfect dream life, because no dream is perfect. It's just the nature of real life, right? Just because I am living and following my dream doesn't mean it's easy, but the passion I have for creating beautiful homes gives me the strength to trudge through the hard things.
Let's start it off easy: phone calls. Contracts. Documents. Business. Adult stuff.
So first of all, as an investor buying a home in really awful condition, the process is so much different than buying a home the traditional way. The homes we find typically aren't on MLS - they are offered through wholesalers who buy houses at auction, and then try to independently (and quickly) find a buyer so they can make a quick profit off of the houses without doing anything to them. Often times, when you find a house you like from a wholesaler, if it's a GOOD house, you're going to be up against a bunch of other investors to snag it quickly. With our first house, we had to decide if we wanted it within an hour. WITHIN THAT HOUR, you have to be on the phone with your hard money lender (I'll get to that in a sec) and investors to make sure everyone's on the same page, and giving you the okay to buy it. You then deliver a little earnest money to the title company to secure it once the wholesaler sends over the contract. This is a VERY fast process, requires a LOT of phone calls, going to the property, taking photos, drawing up rough plans, talking to your contractor, wiring money, etc. All in the timespan of a couple of hours.
As an introvert who avoids the phone at all costs, this is extremely difficult for me. Hah! The weeks when we buy houses are incredibly stressful. Adding to the difficulty is just maintaining normal life with the kids - dropoff and pickups at school, naptimes, errands. It would be a lot easier if we paid for a sitter, which might happen down the road, but I do love being present in their lives, and I love the idea that our kids will grow up seeing their parents involved in their lives, and running businesses at the same time. Josh and I do a lot of switching off days with the kids so each other can work, and I couldn't do this without him, I have to say. :)
Okay - so let's talk about hard money loans! These are a great way to buy a house quickly and easily, but they're also quite expensive and take away from your final profit. Basically, it's a loan that doesn't require the extensive paperwork, and enables you to close quickly (typically in one week) but they require around 20% down, and not only are the interest rates high (ranging from 12-15% and up) but EACH MONTH your payments are interest ONLY. So in simple terms - every month, you make a payment to your hard money lender, and the amount you owe on the loan never changes. It's pure profit to them. This is why when you see house flippers on TV say they need to finish the flip as fast as possible, it's because every month that your house isn't done, every month that it sits on the market - it's a couple thousand dollars out of your pocket. OUCH. Right? (For example - our first house we've had since May, and since we decided to DIY the majority of the renovation without considering that time=money, it's now been on our hands for 9 months. We pay over $2200 a month in interest on it. Do that math. File it under: things we learned the hard way because we are stubborn and cheap and it turns out we did it the MOST expensive way possible.)
Okay so when you're buying a house, most of that stuff is expected. Let's talk a little about the unexpected stuff that comes up!
I think I remember posting either on Instagram or in my Instagram Stories that when we bought our Cuter Tudor house, I showed up early on the day that demo was supposed to start and found a group of homeless people living in the back! In retrospect it was probably dangerous to go there by myself but thankfully they were very nice and we talked for awhile. I let them know that they were free to stay on the property if they would help us keep tweakers and squatters away. We talked for awhile and planned to meet that night so we could bring them some food and stuff, but later that night, they had gone. We heard from a neighbor that they were on meth or something, and most likely got paranoid that we were going to turn them in. To be honest I was bummed they were gone, even though it was a weird unforeseen thing! It felt like we had made neighborhood allies. Also it goes to show you how naive I am about talking to people who are on drugs and having NO IDEA that they're super high. Hah!
Speaking of neighbors, that's one thing that you don't really think about affecting your renovation! We've had an *interesting* conflict with a very special neighbor, which I won't go into a lot of detail about. But I will say that ultimately we resolved it, and it always pays to kill them with kindness. And also, if they have a lot of pets, give them pet treats. They'll LOVE it. But it was incredibly stressful UNTIL it got resolved, and I'm horrible about confrontation / dealing with unhappy people. But it's just one aspect of house flipping that you don't really think about when you sign onto it! We've also had to deal with city codes about resolving issues that previous owners ignored / were fined for. It's pretty scary to buy a house and then all of a sudden start getting very official letters from the city and calls from codes workers about something that needs to be resolved that you had no idea about. But again, you just take it one step at a time and do everything the right way! It's a lot more responsibility than you expect to take on.
I also want to post sometime about EVERYTHING we did wrong on our first house, and why we had to make those mistakes, and what we are learning from it. Because although we are in escrow, we keep having little set backs that take more time (meaning more money we are paying out in our hard money payments) and ultimately, we aren't going to make any money off of this house. And that is REALLY HARD and embarrassing to admit. I cried a lot. I feel like a failure. 8 months of work with nothing to show for it but some pretty photos. But it hit me - every great success story starts off with a huge failure. Right? I HATE failing. Most of the times I won't even start something unless I am 100% sure I will succeed. I'm not a huge risk taker. But in analyzing this whole thing, we concluded that the only thing we did wrong was do everything ourselves, which made us pay SO much money in hard money payments. So now, we hire a contractor and a crew who move super fast. Lesson learned! And on the positive side - it's an education that we didn't have to pay any money for.
I want to be really transparent in this, because my beautiful house flipping mentor Grace was really transparent to me in getting started. I don't want to portray myself as an expert - we are still just house flipping babies. We're getting our sea legs here. Thanks for joining us in our huge learning curve!