How Much Money Can You Lose Flipping Houses?
Just like successfully flipping two houses per year can put you in the top percentile of earners in America, just one flip gone horribly wrong can plunge you into bankruptcy. Here at FixFlipRepeat, I made it my mission to be 100% real with my clients, followers, and fans. I give both sides of house flipping: the good and the ugly.
This is my EXPERIENCE WITH the ugly
I Lost So Much On One Deal It Would Have Been A Career-Ender. Kinda.
It all started when I got a call from an “unknown number” at 1:30 pm while on a date in Canada back in January this year. Quite a ways away from Florida where I live and flip houses.
Usually “unknown” callers are scammers or law enforcement. Something told me it was the latter. So I answered.
Turned out it was the local fire marshal on the line.
My heart and jaw dropped from what he was about to tell me. He cited there was a major problem at the property address and I knew all too well what was coming..
He told me there was a major house fire and they are undergoing an arson investigation.
“Of all houses, WHY THIS ONE?” - I remember thinking. It was a beautiful house, in a nice neighborhood. Upper-middle income neighborhood. The kind you want to live in and raise kids in. The picket fence, dog in the front yard kind of neighborhood. You get the drift. Anyway, the place I'd LEAST expect someone to set ablaze.
Here’s a picture of what it looked like AFTER for visualization. This is what it looked like after a TON of work and money. Don’t let it’s good looks fool you. This was a HELL HOUSE.
We purchased this house for $195,000.
In the shape it was originally, it didn't need much work at all.
We budgeted $15,000 repairs for paint, flooring, cleaning, and some cosmetic touchups.
ARV (with simple cosmetic repair) was $235–240,000
As you can see, very tight deal, but one we usually make work very well because we make them happen quick.
This property was occupied though, so we could not see the inside and could only gauge what it needed from the outside. But it looked great all around! So we thought…
The caveat - we had no idea the tenants living in the house were batsh*t crazy!
In Florida, when you buy an occupied foreclosure property the procedures for obtaining possession of such property vary.
If the property is OWNER-occupied, you’re in luck! Usually you can move for a writ of possession right away without issue and can have the order served at the front door within a few weeks.
If it is tenant-occupied, you’re in a pickle. You have to wait until title issues (10 days after sale), serve 30-day notice on the door, THEN you can apply for a writ which is another 15 days. All in all, your turnaround is 45–60 days.
We were in the second boat. Wasted a lot of time. Held the property too long. We verified later that the person living in this house WAS the previous owner, but forged a lease pretending to be a tenant so that she could stay in there longer. HOA fees were racking up, taxes, legal fees, etc.
The Call That Completely Emptied Our Pockets
Came from that same fire marshal. The same day the sheriff was supposed to serve the writ of possession. Go figure. The “occupant” set the house COMPLETELY ablaze. I guess as a retaliatory act to the bank. Or to me? Or to the police officers? (she wrote all over the walls - “Stop police misconduct”).
How They Lit It Up:
She put gas cans in each room, lit it up, shut all the windows, and ran for it!
But she didn't forget to steal the kitchen, appliances, bathtubs, basically anything of any instrumental value before doing it!
This Is What Our “Simple Cosmetic Rehab” Turned Into
Soot covered everything
Nothing of value in the house
I thought my house flipping career was over.
The fireman told me he thought the damages were over $200,000.
I laughed in anxiety not knowing what the hell to do. I cried. I was literally on my knees in desperation and panic. Thinking I was done. This is it.
BUT WHAT ABOUT INSURANCE MAN?!
(Before you ask) I had no insurance on this house.
(Before you think I am crazy) A dark secret of the Foreclosure Real Estate House Flipping Industry - good luck getting ANY insurance on these properties.
Most insurance companies won’t touch them, and the ones that do jack up premiums and give you depreciated ACV rather than replacement cost, and with more exceptions than inclusions, it is pretty much useless really on the aggregate.
So I was stuck and left out in the cold. But (little did I know) I actually struck gold. Well, kinda.
The occupant that lived in the house and wanted to “bring it down with her” before leaving sabotaged her own plans by “overdoing it”. That’s right. She lit up too many gas containers, and instead of the fire reaching the trusses, it actually reached some of the major plumbing pipes.
BOOM! Who would’ve thought a flood would be my saving grace?! It was.
Because of that burst of pipes and the following flood, it actually extinguished the fire on its own BEFORE reaching the trusses.
So the trusses were safe. I then had a professional engineer assess the structural integrity of the house, the electrical wiring, plumbing (all the big stuff), and everything was SOUND! I remember wanting to burst into tears because it wasn’t as bad as I thought it would be.
I’ll spare you the exact details of the renovation (yikes! I've already written a whole lot!) - but needless to say it took a lot of sweat equity to bring it back to standard.
Sales Price: $254,900
Repair expenses were $50,000 instead of $15,000. We were over budget but at least not $185,000 over budget like it could’ve been.
Net Loss: $5,000.00
While this figure isn’t what I’d count a “considerable” loss, with a small tilt of events (those plumbing pipes being untouched), the scale would’ve EASILY tilted to $200,000.00 plus.
What Happened to the Lady Who Tried to Set Your House on Fire?
She got off scott free. The cops “had her in for questioning” but had no “proof” it was her even though everyone of the neighbors knew very well it was. No one would testify against her, thus leaving no “proof beyond a reasonable doubt” that it was her.
So, can’t do anything with that right?
But my take on it? Karma is a …. you know..
I wish her well. I learned a lot from the experience, and it’s pretty safe to say that after going through it there isn’t a single flip property I can’t tackle. So thank you to her for the education and experience! Even though it was hell, I learned and grew from it.
ALWAYS EXPECT THE UNEXPECTED FLIPPING HOUSES.
These things can and do happen. But if they do, you will persevere and learn from it and become better investor and person along the way. Thanks for reading everyone and stay tuned for more crazy awesome stories like these by signing up to my newsletter!
Peace and happy flipping!
-Andrew J. Matella