Our house flipping team turns over 50 properties a year on average. With that volume, we are bound to have a few flips that end up less lucrative than we estimate at the beginning. Mistakes happen, unforeseen circumstances occur and the real estate market is not always buyer or seller friendly. Here is a real house flipping story from our worst property of 2017.

Morrow Street – Denver, CO

The property we purchased on Morrow St. is a brick ranch built in 1954 located in a popular area of Denver. The home had curb appeal, solid bones and was located in the district of the best elementary school in Denver. It spanned 2,070 square feet, had three bedrooms, two baths, a two car garage and no basement. The backyard had big, mature trees and bushes and a pergola deck in the back just off the sunroom. Unusually, the home has had just one owner since it was built.

Sourcing the Property

Morrow came to us from one of our acquisition managers through the formation of a new realtor relationship with the Realtor Solutions Program. The property was originally listed at $580,000. When the price was reduced to $550,000, we offered $525,000 and our offer was accepted.

Initial Evaluation

The home came with well preserved and well-aged oak hardwood floors throughout that would look great after refinishing them. But, what made this property layout unusual was the second bathroom was located on the opposite side of the kitchen from the other bathroom and three bedrooms. Our original plan was to open up the kitchen as we always do, turn the sunroom into year-round, livable space and remodel the bathrooms. 

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Here is our initial evaluation:

Purchase Price:  $530,250 (after acquisition commissions)

Renovation Budget:  $57,000

Sales Price: $715,000

Net Proceeds (6% Exit): $672,100

Estimated Profit: $84,850 or 14.45%

We estimated the remodel would take 65 days.

Before Gallery

Final Results

One of the best features of this home was the original, retro light switches that provided character and worked great. However, after removing the wall to open up the kitchen, we discovered the retro switches were for a low voltage lighting system (very avant-garde in 1954). We were unable to find the parts we needed to upgrade the system, which meant a full rewire of the entire electrical system in the main area of the house.

In addition, the main bathroom plumbing by the bedrooms made it difficult to add a two sink vanity. This popular feature would have helped us get a better price, but we had to live without it. 

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Finally, mid-project we learned that our General Contractor has also won a significant drywall contract for a large school district in Denver. Since kids return to school on a specific date, there was a hard deadline for the GC to complete the work. Our GC prioritized the bigger job so we noticed a slowdown on the Morrow remodel.

The above factors — unexpected electrical costs, inability to upgrade certain features and a timeline extension — most certainly impacted our profit. After all, time is money!

On the positive side, our team executed the remodel plan well and the end result was attractive and competitive in the market. We received many compliments on the kitchen redesign, color choices and workmanship.

Here is our initial evaluation:

Purchase Price: $524,250 (after bad sewer credit)

Renovation Budget:  $57,953

Sales Price: $635,000 (Ugh! Original ARV was $715,000)

Net Proceeds: $605,807

Profit: $23,604 or 4.1%

From purchase to sale, the project took 202 days. Construction took 111 days.

After Gallery

When we did the post-mortem on Morrow after the sale, we walked away with several lessons. Here is what we learned: 

  • When we bought Morrow, we were testing some new roles and responsibilities. We relied on a new realtor relationship for too much information. In the future, we will do more research to better estimate ARV prior to purchase.
  • You cannot compensate for a bad layout with a good location. The floor plan of the home could not be changed and the space did not allow us to add a master bathroom. Buyers are not willing to pay $700,000 for a home without a master bathroom.
  • If the main bathroom is to be used for the master bedroom, there must be two sinks in the vanity. ALWAYS!
  • Regardless of how nice it is, families do not want to walk across the kitchen to take a shower. We could have possibly squeezed a bedroom next to the second bathroom, but most likely this buyer has small children and does not want their bedroom on ground level on the far side of the house.

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In the strict financial sense, we made money on Morrow. However, when you factor in the extra time, carrying costs and lost opportunity costs, Morrow was our worst project of 2017. This flip is an example of how basic mistakes compound and cannot be fixed. Ultimately, there are always unknowns when beginning a project. As flippers, we must be ready to take the risk and deal with the consequences. 

Learn more about novice house flipping mishaps in this article: Major House Flipping Mistakes to Avoid.