5 Lessons Learned From a Bad Fix and Flip Deal
He was like an angel, hovering three stories above the ground.
Okay, he wasn’t really hovering. This contractor, likely sent from Heaven, was actually standing on a 32-foot extension ladder.
His name was Santos. And, he’d come to our rescue.
It was a chilly October afternoon. Dressed in a red sweatshirt and a warm smile, he climbed to the top peak of our Victorian rehab in Wauwatosa, Wisconsin and installed half-round siding on the front, side, and rear of the home.
The job was simple, but the height was dizzying.
However, Santos and his crew still finished the job in two days.
Since then we’ve hired him to demo, paint, lay tile, install cabinets, hang drywall and do landscaping clean up. He’s one of our go-to guys now and we’re grateful to have him on our team.
Ignorance on Fire
My business partner Manny Romero has a saying…
“I’ll take ignorance on fire over knowledge on ice any time.”
It seems Santos is the walking definition of “ignorance on fire”. You see, a few months ago he went out and bought a distressed property without telling us. After realizing he may have overpaid for the house, and needing advice, he asked me to drop by for a look.
The house was a disaster, certainly nothing we’d ever considering buying.
However, I explained to Santos that while he may have spent too much to acquire the home, he could still turn a profit (albeit a very small one).
So, he went to work.
It turns out Santos is a good listener, and a very quick learner. He observed us rehab our properties and used the same paint colors, carpet, cabinets, counter tops, tile and light fixtures as we do.
Next week, he’ll finish up the rehab and list it for sale.
Now Santos hasn’t told us how much he spent to fix up the home. And, it’s difficult to predict what the market will pay for his property.
But I do know this…
Regardless of whether he makes money or not, Santos learned a lot. He figured out:
How to write a contract so he can back out if the repair costs are too high.
How to estimate repair costs for a full-blown, basement to roof rehab.
How much other skilled trades (plumbers, electricians, HVAC techs charge for their services)
Why scheduling trades is so difficult (and how to be more efficient)
What the market is like in this Milwaukee neighborhood
Knowledge on Ice
Don’t get me wrong…
Making a profit should always be your goal. But, breaking even (or losing money) on a fix and flip deal from time to time isn’t the end of the world. Think of it as a loss leader.
We meet aspiring fix and flip investors all the time that spend hundreds of hours (and thousands of dollars) going from one seminar to the next.
They have lots of knowledge, but never pull the trigger.
With action comes clarity.
No doubt our friend Santos will tell you his first fix and flip project didn’t go as planned. However, you can bet that won’t stop him from doing another one.
He’ll take what he learned from the experience to expand his mind, and his wallet.