In Over My Head - Any Help Appreciated

Hello, Everyone,

I began working on my first flip last month, and it has been a total disaster, or at least I think. It is on a REO duplex that we bought wicked cheap.

Purchase price, including fees: $5000
2 unit, 3 bd, 1 bath each side
COMPS: $45-65K

Mistakes I know that made:

Allowing my husband to hire his “friends” so we could get good work done at a fair rate. :banghead

Not being tough enough: I let too many cooks in my kitchen, and I took too much advice from people who don’t know sh*t, b/c I am -WAS - too soft… . :banghead

I went through THREE drywallers, none of whom finished the job. HELLO! How many weeks does it take to freaking drywall 1000 sqft??? I am so frustrated and bummed.

Otherwise, I thought I did everything pretty textbook, if you can use that term in the RE business. :rolleyes I did my research, I shopped around… It still doesn’t seem like I am going to make a profit here. I’m afraid that I will have to claim it as an entire loss or even worse, with my luck, have any profit get eaten up by taxes and fees.

I really want this to be my thing, but I feel like such a failure. How can I save money on this deal without hurting my family financially. I have already sunk about $25,000 into it, and it looks as though I will have to put in about another $25-30 to get it all right, to clean up mistakes. Finished, turn-key, on the market.

What can I do? Please help! And, I apologize for being so whiny.

Have you thought about trying to sell the house half-finished to another investor, cut your losses, and start over?

Hi, Jake,

That is definitely on the table, but I would like to get a little more done in there. Not many people have the stomach for a property that is so “in the rough” as it is, and being an “investor” myself, I know I would nickle and dime every flaw.

We’ll see how it goes! Wish me luck!!


What could you realistically rent out the two units for, assuming you fixed it up to a rentable condition?

What is the vacancy rate in the area?

Now adjust those numbers to account for how the recession could affect them in the next 1-5 years.

Once you have that you can determine the realistic rent expectations for the units and work back a minimal value that a fixed up version of the units should have to an investor. For a quick and dirty method you could use the 2% rule to estimate how much an investor could pay and still make a profit. For a more accurate estimate you could work out a full, I mean full, income and expense sheet for the place and work out a price that an investor could still make a reasonable return on their investment with or without the place mortgaged.

Take that number and compare it to your lowest ARV COMP and put in an investor discount of 30%, maybe 50% in this market. Take the lowest of that number and the value you determined from the rental income. This number is the likely minimal value your property, fixed up could have.

This minimal value is not necessarily what you would get after the fix ups. Some people purchasing for personal use or investors whom did not do their homework might very well pay more. However it does give you a base line of what you may very well end up with, assuming the market there is as dried up as most other places. Note: At this point, this is the most you should expect in a sale with everything fixed up and everything else is just gravy.

Is that value worth the investment and risk of another $25k-$30k?

Take that minimal value and discount the repair estimate you’ve made of $25k-$30k. This is how much you likely could sell the place today. And very likely the highest price since only an investor would take over from the condition you’ve described.

How much is left?

One thing you should avoid is the gamblers’ fallacy. This is the notion that usually kills most people whom get wiped out at casinos and the like. The idea if you just continue playing, fortune will turn around and you will win or at least break even. Sometimes the best course of action is to collect your remaining chips and play again another day. Otherwise you may not have any chips left over to play at all.

While you did not provide a complete view of all estimates and descriptions of the units and the area, I can probably make a few guesses from similar stuff I have seen.

Your units probably rent out for about $300 (1 bed) and $400 (2 bed).
That is $700/month and under the 2% rule a good investor would not pay more than about $35k after repairs and maybe even just $31.5k when compared to the comps.
And that assumes that the 2% rule is enough for your area, here in NY the good cheap areas seam to actually need something more like 3% due to the high property taxes as compared to the rents.
You’ve sunk in $30k (+ holding and lost opportunity costs) so far and expect another $30k to get everything fixed up.

At this rate you may expect to get your $30k addition future investment back, assuming you do everything right this time. If you are lucky you might get all your money back if someone pays full retail and pays the top of the line price for your area and assuming the deflating bubble doesn’t take your area down a bit more while you are completing your project. So maybe if you do everything right this time you might get another 10k-15k back of your already spent money.

Assuming you various past expenses are locked in you may want to just sell for whatever you could get and start fresh with something else.

A recent property I have seen was bought by the previous investor for 15k and so far he’s sunk in an additional 20k in repairs. I had the property checked out and have an estimate for an additional 15k-20k in repairs. For about $700 a month in rents and with huge local taxes I could at best reasonably offer the guy something in the range of 10k-13k. And it seams other people whom have visited the property have determined the same thing as the guy can’t even get the 20k he’s been hold out for several months. Likely he’ll probably do no better than $13k-$15k. Just because money got thrown at something did not make it worth much more.

At best maybe you can bring in a buyer whom will give you profit sharing on the final sale price. They will invest the additional repair capital and you get maybe a base sales price along with a small share of the resale final profit.

If you do want to stick it out then here is what you MUST do:

Bring in 3 reputable contractors to give you full repair estimates if not absolute price quote.
Redo your area comps, just in case the situation changed.
Find out the local vacancy and rental rates.
Do an honest check out of the area. Is there a lot of competition? Is this place just another Detroit-like area?

SUE your husbands friends. In this case they are your contractors, not friends. Whatever agreements they made, they must honor or return the money they have taken from you.

The only way you have a chance to succeed in this case is to get your money back from them. If you cannot sue, then you fail in your fiduciary responsibilities as a business owner and should turn over the matter to another person or entity. If it makes it any easier you can always “hire” a representative for the business to handle this matter for you, although it will make little difference to your husband’s friends.

Once that is done you can complete the project with a much tighter reign on your contractors.

And NEVER, NEVER do any business with friends and family. Unless you are from certain Asian cultures, and even then it is risky, in which everyone gets brought up conditioned to support the common family good, you are likely to get burned as this limits your ability to complain, fire, or control your employees.

Good luck to you.


As you pointed out, this is a self-inflicted wound. You didn’t do YOUR job and therefore this project has gotten away from you. It is time, TODAY, to take back your project!

There is a saying in management circles that “people do what you inspect, not what you expect.” You need to ACTIVELY manage this project, or better yet, do the work yourself. At a minimum, that means that you need to be at the property EVERY DAY, actively insuring that the workers are showing up as promised and that the work is being done. Don’t pay anyone until their job is complete. If you hire a contractor that doesn’t show up when promised - FIRE THEM and get another one. These are tough economic times and there are a lot of contractors out there that need the work!

Even if you start doing things right today, you may still lose money on this deal. If that’s the case, then take this as an expensive learning experience and don’t make the same mistake next time.

Good Luck,


Thank you Sammy and Property Manager for your replies. They are greatly appreciated.

I put feelers out for renters about a month ago (the just in case scenario), and the reponse was great. I can rent each unit out for $400 a month - the vacancy rate in the area is quite low. Most folks stick around; it is a small, family town in PA.

As far as being on site, I was at the job every single day trying to provide some oversight and as much help as possible. Quite frankly, and not that I care, I think the guys didn’t like me being there (oh, well - too damn bad). When the contractors needed extra materials - I went so they could stay and keep working. I did a lot of "go-fer"work, painting, demo, drywall… you name it. Like I said, learning not to do business with friends has been a very costly lesson, one that I will shout to the hill tops. Never, ever again. Never.

Yes, these are tough economic times, but I have had a hell of a time finding anyone who wants to do any work for a fair price. I had a guy quote me almost $17,000 for siding; I know for a fact after pricing all of the materials that the siding, soffit, etc. would only cost $2500 retail. Either the guys didn’t want to work, wanted to tell me that “drywall takes at least four weeks,” or charge me too much.

One unit is almost completed, so I think what my plan me be now is to get that one done, rent it out, get some income coming from there, and then get the other unit fixed up a little later and go from there.

You need to get hard about stuff right now. Sounds like some guys are taking advantage of you because you’re a girl. We’re getting a guy to install siding on one of our houses. It’s 1090 sq ft. Materials were about $1500 and he’s charging $1000 for installation. The guy at Lowe’s dropped his jaw on the floor when I told him what we were paying. He said he wouldn’t have done it for double that. People are desperate for work. The guy laying carpet in one of our other houses cut his rate from $3.50/sq yd to $3.00/sq just to get the job.

Have you thought about hiring a professional rehabber, property manger, or construction company to do it all for you.

Sounds too much like you are trying to be the general contractor on this project with no experience.

Pay for the experience and it is work it! Just like hiring an attorney or an accountant.

Good luck!


I come from the side of being a general contractor and an investor.

If you are going to act as a general contactor on your investments then dont be afraid to get other bids and in particular challange bids. Bidding a job is difficult but is completely open to negotiation. On the side of the contractors, remember that being licensed/bonded/insured is a large expense to them. In return you have some extra protection that your husbands friends can’t provide. Plus being profesionals they have a reputation to protect. But still remember you are the one to make sure the project meets your expectations.

Think you are on the right path of getting one unit ready and rented.

At the price you purchased the property it must have needed a lot of work. Still, if you sink $60K into the propery and have income of $800/month you are not in terible shape as long as you don’t have high interest loans to worry about.

If you do, rerun your numbers to make sure that you can handle the monthly loss. Sometimes a shorterm loss is worth the long term gain.

From the limited amount that I know of your situation, I’d say that you are not in a terrible possition though it may not have been what you origionally dreamed of.