156 Flips that Flopped! – Hard Money for Real Estate Investors!

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156 Flips that Flopped! – Hard Money for Real Estate Investors!

Every Thursday at 12:05 PM Eastern, join the Carolina Capital team LIVE for the Real Estate Investor Show on Facebook or YouTube!

To celebrate National Flip Flop Day, Bill, Wendy, and Jonathan talk about their deals that Flopped!

Timestamps:

0:01 – Introduction – Let’s talk about Flips that Flopped!

1:19 – https://www.CarolinaHardMoney.com

1:47 – Wednesday with Wendy: https://calendly.com/wendysweet/wednesdays-with-wendy

2:43 – Bill Fairman vs. The Bank

8:03 – Housing will remain inflationary for a while.

11:00 – Bill’s Flip that Flopped

14:24 – Jonathan’s Flip that Flopped

19:18 – Wendy’s Flip that Flopped

22:45 – Lessons learned

Carolina Capital is a hard money lender serving the needs of the “Real Estate Investor” and the “Small Builder” borrower who is striving to build wealth and generate income for themselves and their families. We offer “hard money rehab loans” and “Ground-up Construction Loans” for investors only in NC, SC, GA, VA, and TN (some areas of FL, as well).

As part of our business practices, we also serve as consultants for investors guiding them to network with other investors and educating them in locating and structuring transactions. Rarely, if ever, will you find a hard money lender willing to invest in your success like Carolina Capital Management.

Listen to our Podcast: https://thealternativeinvestor.libsyn.com/

Visit our website: https://carolinahardmoney.com

YouTube Channel: https://www.youtube.com/channel/UCYzCFOvEt2n9TchgECLwpww/

Facebook: https://www.facebook.com/CarolinaHardMoney/

Bill Fairman

00:00:29

So have you ever heard anyone talk about flips that have flopped? And in honor of National Flip-Flop Day, we’re going to talk about Flips That Have Flopped, not just the rose-colored glasses stuff that you see on HGTV every day, right?
  

Bill Fairman

00:04:14

Again, I refer to HGTV. Everything is a breeze. Of course, they have to have drama on TV. So there’s always a problem somewhere along the way, but it’s always quickly overcome, right?

Jonathan Davis

00:04:37

Usually they save money doing it.

Bill Fairman

00:04:39

Yeah. Or they make more money.

Jonathan Davis

00:04:42

That’s why it cost them less. It’s like, actually, if we do this fix instead of a $45,000 budget, we can actually reduce it to 42. So it really worked out.

Wendy Sweet

00:04:50

Actually,  I have a friend that did the flipping Atlanta one.

Wendy Sweet

00:04:56

And they have to pick because there’s 13 shows per season. They have to pick 13 houses and renovate all 13 of them at the same time. Like there, they really have to find those deals. So really the houses that they’re picking probably aren’t even close to the deals that they say they are, which aren’t really deals anyway to begin with. And that swinging the hammer stuff and knocking their own walls down. And they don’t do that.

Jonathan Davis

00:05:25

I love that they go in there and you can see the sprayed sweat on them. They’re like, yeah, I’ve been here all day. Swinging these hammers.

Wendy Sweet

00:05:33

Yeah. People like me. You know what I was doing today before this started?

Wendy Sweet

00:05:40

We put a new “used” washer dryer into one of our Airbnbs. And I just switched out a plug from a 4-prong to a 3-prong. It’s easy to do. I’m thinking I have 2 minutes. Why should I pay somebody $125 to come out and do something that I can do in 5 minutes? So that’s what I was doing. And I kinda had to back the dryer up so that I couldn’t get out from the closet, and I had a dress on today. So when he was there, cause I had to scoot up all the washer, both my legs are in the air. I’m flipping out.

Jonathan Davis

00:06:17

You won’t see that on HGTV.

Wendy Sweet

00:06:19

You don’t want to see that on TV.

Wendy Sweet

00:06:22

But it’s done and nobody got hurt.

Bill Fairman

00:06:25

And you wonder why she does this? Because our family has a history of being penny-pinchers.

Wendy Sweet

00:06:35

Yeah, we’re frugal.

Bill Fairman

00:06:36

And with the price of everything going up, by the way, my mother-in-law has one of those sunsetter-retractable awnings on her back. She has one of those little single-door awnings. It’s always there. So it’s old. It needs to be replaced. And I inquired with the people that installed it the first time. And it’s just replacing the canvas. Not the unit. 2,500 and some odd dollars just to replace the canvas.

Wendy Sweet

00:07:15

That’s ridiculous.

Bill Fairman

00:07:17

She’s getting an umbrella.

Jonathan Davis

00:07:25

But speaking of that, we’re talking, lumber prices have gone down pretty decently.

Wendy Sweet

00:07:29

Yeah, yay! Yeah, they sure have.

Bill Fairman

00:07:31

Great, right after I had them installed on my deck.

Jonathan Davis

00:07:34

Well, I mean, they went up 400%. So they’re down 40 from the 400. Yeah.

Wendy Sweet

00:07:39

It’s a change. We’re starting to see it a little bit. And I think you’ll continue to see that.

Jonathan Davis

00:07:45

It won’t go back to where it was but it will level off.

Bill Fairman

00:07:46

Yeah. Well it’s transitory.

Bill Fairman

00:07:54

Some of the inflation is going to remain, especially in housing and  this is not why we’re discussing this, but it’s okay. Housing is going to remain inflationary for a while. A lot of it has to do with

Wendy Sweet

00:08:09

Supply and demand.

Bill Fairman

00:08:11

Yes. And why is it that way? I’ve got an analogy for you

Bill Fairman

00:08:19

Or a possible scenario is that you get that there’s big hedge funds, BlackRock being one of them, that are, since 2008 have been going in and buying- Am I really doing it?

Bill Fairman

00:08:47

So anyway, since the crash, they’ve been buying up single-family homes, they paid way too much for them. So they kind of kicked all the mom-and-pops, fix-and- flippers out of the business. 

Jonathan Davis

00:09:02

You’re talking about from 2008 when they strike that?

Bill Fairman

00:09:04

Well, 2011. And that was when they started, but they’re doing it now. And it shows now that they’re paying 20 to 50% more than everybody else.

Jonathan Davis

00:09:14

And how can they do that, Bill?

Bill Fairman

00:09:16

Well, because their money cost them nothing.

Jonathan Davis

00:09:18

Where are they getting their money that costs nothing?

Bill Fairman

00:09:20

From the stock market.

Jonathan Davis

00:09:24

They’re getting it from government agencies.

Bill Fairman

00:09:26

Well, that, too.

Jonathan Davis

00:09:30

So they are getting money almost either at zero or next-to-zero prices, which allows them. I mean, they can overbid those odds.  

Wendy Sweet

00:09:41

You mean like the PPP loans and stuff?

Bill Fairman

00:09:42

So they leverage funds just like everybody else. They raise a certain amount of capital and they get bank-financing and then leverage the assets that they have. But here’s part of the reason that prices are always going to continue to go up or at least in the near future, if prices go down, they have the same margin call issues that your stock people have.

Jonathan Davis

00:10:06

Well, who’s going to bail them out?

Wendy Sweet

00:10:08

I think our government should do that since we have so much money.

Jonathan Davis

00:10:11

Yeah, great, and the new bill, like who gets to put that bill to?

Bill Fairman

00:10:18

They figured, BlackRock did a study. They think that 63% of millennials will never buy a house because they’re just going to be renters. So they’re heavily invested in single-family.

Jonathan Davis

00:10:32

Well, they would have to be renters if the price to buy a house is so high.  

Bill Fairman

00:10:37

It’s also knocking people out of the market. But their point is single-family rentals are still going to be a good business for them. But at the same time, they don’t want prices to come down because they have so much wrapped up in their portfolios that they would have to write those down.  

Jonathan Davis

00:10:55

They’re over-leveraged on all these assets.

Bill Fairman

00:10:57

All right, so back to our flips that have flopped.  

Bill Fairman

00:11:16

We had one that ended up being turned into lemonade. So we had a borrower years ago, he was buying stuff in the HUD store back when you could actually cherry pick. And he pulled this house in Charlotte that happened to be in a flood zone. Didn’t realize it. Well, if you know anything about Charlotte, no one pays flood insurance because there’s very few places that are in a flood zone. So in order for you to sell a house after you fixed it up and then require them to get flood insurance, you’re out-pricing the price.

Wendy Sweet

00:11:52

Turned out to be a good thing for him though.

Bill Fairman

00:11:55

So, he did a little extra due diligence on this since it was his house now. And he went to the city to try and get an elevation survey. So he could see, at least save him some money on his flood insurance. And a few hours later, somebody from the city engineer’s office called him and said, “How’d you get that house?” And he goes, “Well, I bought it at the HUD home store.” And he said, “Really? We’ve been trying to buy this house for 3 years because we have this program. We’re buying up all these houses in the flood zone and clearing it out and making it a green space.” And he said, “Really, how much were you offering?” So it was a lot more than he paid. So he ended up selling that house to him right away, of course, at a nice profit. All he did was buy it and then essentially assign it to him. 

Wendy Sweet

00:12:54

Well, that was lucky. How’s that a flip or flop?

Bill Fairman

00:12:56

Well, it could have been a flop because he bought a house in a flood zone that the competition was awful. And then on top of that, it was flooded before. And the people that were foreclosed on had all brand new appliances, heating and air because the insurance paid to have all this stuff. And then he ended up selling the appliances to us, to put in other homes. Matter of fact, I still have the beautiful GE gas range that we got outta that.

Wendy Sweet

00:13:29

I forgot, we got a dishwasher or refrigerator, HPAC unit.

Bill Fairman

00:13:34

He sold all that stuff for, really, pennies, but it didn’t cost him anything because of profit for him. And then one last one, we had a guy that we ended up foreclosing on. He didn’t come to us for any draw requests. So we didn’t have to do any inspections because he was just paying it out of his pocket, which we love. There’s a downside to that. When we had to take it back, we went in there and he had gotten a really good deal on 2x4s. And he had re-floored his entire house with 2x4s.

Jonathan Davis

00:14:10

Rustic. Yeah. Real rustic.

Jonathan Davis

00:14:15

There’ll be like liquid, just the gold, gold floors.

Jonathan Davis

00:14:24

I was just gonna tell the one I’m in Concord right now. So 12 months later, I’m still working on the house.

Bill Fairman

00:14:32

Good news. The market keeps going.

Jonathan Davis

00:14:36

So the house was supposed to be done in January. The good news is it has only increased by $30,000 in value since January. So it’s still not done. Basically, lesson learned, you go in, you scope the house. I have a GC that I had been working with 7 to 900 square-foot houses. And on those size houses, we can go in, we can scope them out real quick, know what we need to do. And we don’t really have to communicate too much or set out a plan because it’s usually 2 or 3 bedrooms, 1 or 2 bathrooms, pretty simple. This house was a little over 2,500 square-feet, 5 bedrooms, 3 full baths and a downstairs screened-in porch, upstairs screened in porch. I mean, super nice. So we did the same thing we always do. We go in, we scope it out. We talk about it. Then we run into electrical issues. The house was vacant for almost 10 years. But the people who had lived there before really liked to wire on their own.

Bill Fairman

00:15:58

Nothing wrong with that.

Wendy Sweet

00:15:58

And you didn’t know this going in.

Jonathan Davis

00:16:00

I didn’t know because it was all hidden right behind the wall, yeah.

Jonathan Davis

00:16:04

So 5 electrical inspections later. I think we might be passing. They had a transformer box or not transformer. It was kinda like a secondary breaker box. It was like a sub box, but they had it in an extension that they built in the house on the inside of the house that wasn’t built to code. So we actually had to move that box outside to bring it to code. But the fine folks at Cabarrus County told us that on the fourth inspection, not the first.

Wendy Sweet

00:16:49

That drives me crazy. It’s this, this and this. And then when I come back, I’ll tell you what else.

Jonathan Davis

00:16:55

I was like, just tell me everything. But yeah. 

Wendy Sweet

00:16:59

He was trying to break it to you gently.

Jonathan Davis

00:17:04

So had that. What else was there?
 

Jonathan Davis

00:17:09

Oh gosh, the siding’s all rippling.

Wendy Sweet

00:17:14

Now you taught me something that I thought was really interesting as to why the siding is rippling like that. I think that came from you and it’s because the neighbor has that UV-reflective window and that bounces off the windows and melts the siding of the neighbors. Did you know that?

Jonathan Davis

00:17:31

Yeah, it can heat it up and it can warp it, but yeah.

Wendy Sweet

00:17:33

That’s crazy. I didn’t know that.

Jonathan Davis

00:17:35

You can get it like a couple different ways, but you know, that’s one

Jonathan Davis

00:17:53

I closed on the house in July of 2020. So it might be ready to hit the market by July, maybe. We had to take down a 2-story workshop that was already falling apart. Well, the house is just beautiful. Like it’s all 2-story. It’s that old colonial style. And the whole house is built out in 1960. So it has all that old shiplap, everywhere, tongue and groove. Every wall is a solid tongue and groove. Like, it’s beautiful. And then, you know, of course you’re gonna go in there and like, oh, I’m going to put in, you know, what is it? Porcelain tile, hardwood floors in the main floor. That was a mistake that cost me about 3 weeks. And probably an extra $4,000.

Wendy Sweet

00:18:54

Gotta be careful what you’re putting in there.

Jonathan Davis

00:18:57

I remember I was talking with Don Harris about it and we were just talking, he’s my agent on it and he’s like, “You made some mistakes but, you’ll still make some money ’cause the market’s good.” I was like, “Well, I appreciate it, Don.” He’s like, “You’re young, you make mistakes.”

Wendy Sweet

00:19:17

That’s right. Well, I’m old and I make mistakes. I’ve got one right here in Rock Hill that I’m in with my partner, Darren. And we’re right in here, right now. Thought it would be about an $80,000 rehab. And it’s turned out to be double that and counting.

Jonathan Davis

00:19:36

I’m sorry. On my rehab. My original budget was 55,000. I’m a little over 75 right now.

Wendy Sweet

00:19:40

Well, that’s not too bad. It sucks, but it’s not too bad.

Jonathan Davis

00:19:44

20 grand over budget. Yeah. And where are you at? And yours is an 80 budget?

Wendy Sweet

00:19:48

We’re at 160. Yeah. So we’re double on that. There’s 3 inspectors in the city of Rock Hill. And 2 of them are really great to work with. One is over by the book. Like he’s not just by the book. He’s way over by the book.

Bill Fairman

00:20:07

He’s making his own rules?

Wendy Sweet

00:20:10

And he’s a nice guy, but he’s been a real bear to work with. Every time you turn around, there’s another thing that’s wrong. We knocked down the front porch, didn’t know that we weren’t supposed to. And then when we built it back up, we had 2 sets of plans. We had a new set of plans and we had an old set of plans. And the new set of plans that were supposed to be used were on the front of the house and the guy who was rebuilding the porch, picked the old set that was hidden. You know, he had to look for it to get it. So the ones that were right there on the front of the house, so the whole porch is wrong. Tear that out again. I mean, every single thing you can, it’s been broken into four times.

Wendy Sweet

00:20:51

We even had somebody break in and take the inside of the plumbing fixtures out of the toilets. It’s like, why would you do this? Yes, and it’s a gorgeous house. It’s a 4- bedroom, 3-bath toilet.

Bill Fairman

00:21:05

Wouldn’t it be easier for you to take the toilet?

Wendy Sweet

00:21:05

And that’s what I don’t get. We’ve had windows broken. They broke into it 4 times and took stuff. And we’ve been through 3 contractors. The one we have now is great. We’ve used him on a lot of other stuff, but I mean, every time you turn around, it’s something else. It’s termites. It’s wood rot. It’s band sills. It’s, even taking the plaster down, we were going to try and not take all the plaster down and sheet rocks on the walls rather than, excuse me. Replaster but the inspector made us go ahead and take it all down. We were going to raise the roof, but the inspector won’t let us do that. It’s just every single thing we planned, and so we should be ready to sell it next week. 

Bill Fairman

00:21:50

What is the going price for homes in that area?

Wendy Sweet

00:21:51

Six months behind.

Wendy Sweet

00:21:53

Houses have gone up. When we originally bought it, we thought we could sell it for about 260. So now we think we can sell it for 310, but we’re still going to bring, you know, 10, $20,000 to close it, so everybody can lose money in real estate. Even those of us that have been doing it for 20 years.

Bill Fairman

00:22:13

Even those of us who think we know what we’re doing.

Wendy Sweet

00:22:13

Yeah. I’m really good at telling other people how to do stuff.

Jonathan Davis

00:22:16

Well, that’s the thing, like, it doesn’t matter if this is your first flip or your hundredth, you don’t know what you don’t know. There’s things in the walls that you can’t know, until you get in them.

Wendy Sweet

00:22:31

If this had been my first flip, I would have never done another one after this, but I can say this, I’ve made a lot more money off this stuff than I’m losing on this one.

Bill Fairman

00:22:44

Here’s the thing. You can only control what you can control. There are going to be things that you can’t control. You have to kind of factor for those in your budget. You have to have a contingency budget for cases of going over. If you’re new in this business, the best thing you can do is make sure that you’re doing small projects.

Wendy Sweet

00:23:09

First, and kind of work your way up.

Bill Fairman

00:23:12

Because the more involved they are, the more stuff that can’t go wrong.

Wendy Sweet

00:23:15

It was so much easier to build than it is to rehab.

Jonathan Davis

00:23:17

Do new construction before you do a major flip. It’s way easier.

Wendy Sweet

00:23:22

Cong just made a comment, “Ouch”, you know, on the $160,000 rehab. He’s a good friend of mine and he just built a fixed-to-rent house right down the road from our house. And it’s beautiful. He did a great job on it. 

Wendy Sweet

00:23:34

That’s what I should’ve been doing. Next one you want to do, Cong, I’m your lender.

Bill Fairman

00:23:45

All right, folks. That’s gonna wrap it up in honor of National Flip-Flop Day.

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