People Who Have Failed At Flipping Houses Describe What Happened
HGTV makes flipping houses seem glamorous. But they don’t show you the hard labor, long hours, and extensive capital it takes to finish renovations. Unexpected issues arise, and you never know if your first flip is going to be a success or a failure. Sometimes, buyers discover something awful about the house a little too late; other times, they just ignore red flags, particularly when it comes to building codes.
Reading about these Redditors’ failures might just save you the headache of a house-flipping catastrophe.
From Redditor /u/seb1080:
I recently closed on a flip from hell that delivered a huge financial blow for me (all in all, close to $30,000 loss). I am pretty discouraged about it. It is one of my first flips, and I can only blame myself for the mistakes made; mainly not buying low enough, and being too optimistic about the ARV [after repair value]: $177,000 purchase, $265,000 ARV. The standard rehab went about $10,000 over budget, plus a few more repairs called out by inspection, but the real kicker was a busted water line due to a freeze five days before closing.
This cost me $2,200 in cleanup, $1,600 in further water line replacements, as well as new carpet. At the end of the day my rehab was $15,000 over budget…
The house sat on the market a long time; meanwhile, I was paying the hard money lender 12% interest. I got tons of showings, lots of activity, and good feedback, but no offers. I started lowering the price. Finally, an offer came in well below my asking price, so I met the buyer almost halfway. It was $15,000 below my reduced asking price, $25,000 below my original list price. With my HML [hard money loan] due after month six, along with the almost no offer activity, I decided I didn’t have much of a choice.
Years of savings have been wiped out and I feel like I am pretty much starting over…
They Ran Out Of Money
From a former Redditor:
I went online and found the best-reviewed contractors I could find, and vetted them. We worked out a deal to get the work done for $75,000, and they would get a bonus on the back end when it sold (another $75,000), contingent on timeliness and completeness.
Everything went great at first. Then, dates started slipping by a lot, I noticed they were substituting cheap materials, and they weren’t doing some things I asked for. Nevertheless, the house was 97% complete, and the project was well over a year in.
When we significantly passed the date on the contract, they were sure they weren’t getting their bonus, and I finally had run out of money to keep paying the mortgage. I had even sold my own home to keep making the payments for the previous six months, as I was no longer consulting [to focus] on this project full time… Everything finally spiraled into oblivion from there, and I could not save it.
The contractor filed a lien for the bonus and stopped working, even though they didn’t earn the bonus, according to the contract. We listed the house frantically (1% commission), staged it a little early on net 60 terms, and did several open houses, decreasing the price dramatically in hopes that I could get out quick and at least break even. But the house wasn’t finished enough for the price point.
Then, a couple months (and $150,000 of my own money) later, I moved to California to start a new job, and it was all finished. It foreclosed. The bank called me to thank me for working with them every step of the way, and that they were not going to report the foreclosure to my credit.They Were Too Stubborn
From Redditor /u/dreadpirater:
My first flip I bought as an REO [real estate owned] for $42,000, put $20,000 into the flip, plus a TON of my own time (I redid the hardwood floors myself, pulled all new wire, painted, countertops, tile – essentially I paid for plumbing, connecting the new electrical panel, and a little bit of masonry touchup), and sold for $92,000.
The flip took me six months. It sat on [the] market for five months because I didn’t know enough to evaluate how location affected the comps, and I was stubborn and wanted what I wanted out of it. Lessons learned.
When I repaid the family loan for the purchase… the Realtor and closing costs… etc… I’d made less than if I spent those 11 months working at Walmart, for sure.
They Clashed With Contractors
From Redditor /u/NerdDawgs:
Took over a year and a half to complete thanks to getting my newbie [butt] handed to me by three different contractors… but I was finally able to sell both – one at a $3,000 loss, and the other I got lucky as the area appreciated during my extensive holding period so we made about $30,000.
I was thinking about taking on a bigger project after taking my licks with these two smaller deals, but now I’m convinced to just stick with lower- to median-range homes.They Realized Loss Is Sometimes Inevitable
From Redditor /u/sonalogy:
The worst project I ever did, I lost about $200,000 – even more if you consider the fact that I still have about $500,000 of equity tied up in the project that (for a lot of complicated reasons) I cannot liquidate or leverage in any way, shape, or form in the near future. Combination of big risks, some bad decisions, and some bad luck.
My father, who is my real estate mentor, has had deals where he’s lost way, way more than that…
There are times when you realize that you are just going to take a loss, and there’s nothing you can do about it. You have to complete the project to mitigate the loss as best as possible; completing the project takes time and money, and then it just becomes a situation where you need to take whatever offer you can get just to get out.
They Realized It’s Not Like The TV Shows
From Redditor /u/cadehalada:
Flipping houses is not what the TV shows make it out to be. Typically, it’s hard to find good deals, the returns are not as good or are misleading, and feeling your way through your first deal is stressful. The TV shows make it look easy and fun. It’s not.
Once you get past the first deal, learn your market, learn how to deal with renters, repairs, and remodeling, and start seeing some returns, then it can be rewarding. But it’s a risk, and for every success you hear and see about, there are plenty of people that tried and failed. They Needed More Cash
From Redditor /u/Oax_Mike:
You need cash. Lots of it. Enough to pay for the houses and all upgrades in cash. Can you do it without cash? Sure, for a fraction of the profit… By the time you figure in the cost of financing and six to 12 months of mortgage payments, you can literally be looking at $10,000 to $20,000 in lost profits compared to someone doing the same flip with cash.
Realistically, you will only make good money fixing up houses via financing if you play the long game (buy sh*tty houses, fix them up, and then rent them out for 10-plus years before you fix up again and sell).
They Suffered From Sales Tax
From Redditor /u/FutureSynth:
Any sales tax your country has is going to cripple your profits. Even if you can reduce renovation costs. You’ll be waiting for that golden-opportunity home to come along that is a real trash heap. Not many of those around, unless you’re in a cheap area where you may struggle to get high sales figures even with improvements because the rest of the street is a trash heap.
Not saying it’s impossible, but I would look at it more as a project than a business. See if you can do one, learn from experience and go from there.They Picked The Wrong Location
From Redditor /u/thesaunaking:
Location and price [matter].
Lost money on my first place since it was too far out of the cities and a little too expensive for the area.
They Had Bad Luck With The Market
From Redditor /u/ZacQuicksilver:
This also relies on a somewhat stable housing market. If the housing market stays steady, then the work you put in, especially if it is cheap work that makes a huge difference, will make you a profit. And if the housing market is handing you rising prices, making a profit is easy.
However, if housing prices go down while you’re holding a house, you could get stuck with the house (and the mortgage).They Needed To Know The Area
From Redditor /u/caverunner17:
Market conditions need to be right. A hot market will mean few opportunities to get a house that has that much upside unless it’s an estate sale or short sale. And you’ll probably need cash.
Slower markets would allow for more negotiations and more options with less competition, but it could take longer to sell.
In addition, you need to know about the area and neighborhood. If you take a $200,000 house and upgrade it to the level of a $400,000 house, but the neighborhood listings are at $250,000, you’re not going to get $400,000 for it.
They Were Fooled By Nice-Looking Properties
From Redditor /u/BeachGlassBlazer:
One house was in a $500,000 neighborhood. It was bank-owned – they put a new roof on it, it had five bedrooms and five baths, private yard, etc. But the taxes alone were $40,000 a year. [Because] the place was so big, the “easy fixes” like carpet and paint [were just] enormous.
Then another house I saw… near a university, a fraction of typical home values, it even looked over a park… But it was original everything, and I’m guessing the original owner lived in it until they [passed] and did nothing to the place. So it need[ed] complete electrical and HVAC updates… scrapping off asbestos ceilings and lead paint and mold, and trees growing in the basement and sunroom, etc. Funny how online these all look sweet.