Episode 68: The Five Mistakes We Made on Our Current Flip

Welcome to the On Purpose Investor podcast, show number 68. Five mistakes we made on our current flip. Welcome to the On Purpose Investor podcast. My name is Eric Vogel. I'm a real estate investor mastermind, coach, husband to an amazing woman and often my co-host, tiffany, and father to two incredible boys. I'm on a mission to help you become a real estate investor and not only achieve seven figure success, like my wife and I did, but to do so with intention, direction and clarity. If you want to transform your financial and personal goals, become the version of yourself you've always wanted and reach your dream life ASAP, then you're in the right place. Thank you for deciding to hit that play button today. Now let's begin what is going on, everybody, and welcome back to the On Purpose Investor podcast. I am one of your hosts, eric. Uh-uh-uh, oh, wow, with my amazing, beautiful life.

And co-host Tiffany, and she's gorgeous and redheaded. Can you stop? And beautiful, the fake air horn was too much. Ha ha ha. We're not in the club.

Well, today we're going to dive into the five mistakes we made on our current flip and let me tell you it has not been a lot of fun. It's like the deal that won't go away and we used to think like Meadowcliff was the deal that wouldn't go away and it was painful. But this one is a new level of painful Meadowcliff was.

I was like eight months pregnant, so that threw in another factor.

Garbage, yeah, garbage factor.

Yeah, cause stress and pregnancy. Don't mix.

Yeah, so that's true.

Yeah, this one is like. It's just been going on for so long and we made so many mistakes. We didn't do what we like, know we're supposed to do Right.

We ignored all of our protocols, yeah and drove forward thinking well, I mean, we haven't bought a deal in two years or a year and it's just time to do a deal, and this one looks good enough, let's just do it. But that's like an over encompassing mistake. We're going to dive into the five serious mistakes we made and we bring this to you with the lens of we don't want you to make the same mistakes.

Yeah, and we'll give an update when it finally sells, because we're about three weeks, four weeks away from listing. Yeah, we might be writing a check. We'll see. But I will say writing a check is not the worst thing in the world.

We have not lost money on a deal yet.

No, we've broken even so lost time We've broken even twice.

We've broken even twice. We have made boo-coos of money on some of them, yeah, and this one might be the first one Right when we have to write a check, and I'm actually kind of excited to say that we made it five years in real estate investing before we had to write a check. Yeah.

And lose. That's fair. Well, we took our eye off the mall, though. We did and that's all that happened. That is the one thing that we did. We didn't follow our own rules.

Let's dive into the five things that we did wrong. This episode might be quick, so if you're just taking a quick little trip, you know this might be the episode for you.

Yeah.

But we're just going to run through the five things we did wrong. Number one was we did not hold firm with our minimum numbers.

Yeah. So this one we bought, we were going to run it through Pad Split by the room and the plan was to make all this money. And we always said, if we're buying a Pad Split, we're going to make sure it cash flows as a traditional 12 month rental and this one, we're like oh, it's fine, we have plenty of Pad Splits, it's going to be great.

Well, and even still like on the cash flowing as a traditional rental. It would have broken even as a traditional rental if the Pad Split didn't work, but something big happened. Well, but we had to leave money in the deal we would have had to leave money in the deal and the cash on cash return would have been terrible. Like four or five percent yeah. And it was not worth doing it as a traditional rental, so we were going to run it as a Pad Split and it was thin margins, and thin margins leave room for huge mistakes.

Yeah, and we had our requirements. We didn't follow them and we didn't do enough due diligence, and that's so we already had thin margins and then we weren't as like on top of our due diligence and everything that could have gone wrong on this house went wrong.

Yeah, so usually in due diligence, I go through with a fine tooth comb and really look at every detail. We've bought enough properties. I should know what to look for and I thought I did, you do know. And I thought I looked at it all yeah, but looking back I was really just skimming it. I didn't take my camera, I didn't take my pen and paper, I didn't jot down all the things, I didn't run numbers on fixing certain aspects.

Well, and materials and labor have gone up so much too.

I didn't calculate for the inflation of materials or the cost of labor and just going into this I just thought in my head. I was like, well, it's going to be a pad split. There's a good buffer with pad split, we're going to be fine, right.

Yeah, and so we already had thin margins, so always had contingencies. I kind of let Eric run with this one because I was working on other stuff and we had to. I think we bought this when the baby was like tiny, yeah. So I was dealing with newborns and like whatever, just go do it, I don't care. Yeah, and we didn't have like, we normally add like 20% to our rehab costs. We didn't do that. We were already on thin margin from the rehab and on the rental side, yeah. So you know, we decided, okay, if we're not going to keep it as a pad split, we're not going to keep it as a rental, we're going to flip it. And that was our plan.

Well, I'd like to bring up something that you may not realize happened, because I've sheltered you from a lot of this. Oh boy, we got red tagged.

I know that I'm permitting Right.

And when the red tag came in, they had to ask us what are you doing? And we had to tell them you know, we're replacing all the windows, we're bringing in an air conditioner or putting in some new plumbing and stuff like that. I said well, just from what you've told me, and I can already tell you, if you put it on paper, it's going to have the same result. You have to bring this whole house up to code. Yeah, and at that moment my heart just went down into the six feet under like, not even to the floor, it was like below grade. And I said, oh my God, this 40,000 hour renovation is now a hundred thousand hour renovation. And I just said, oh my gosh, there's no way out of this. Yeah, there's no way out of this. Definitely can't pad split it, definitely can't straight rental it.

Right, Because if we pad split it we got shut down like week one of renovating it. So we for sure would have gotten shut down.

Or at least a hard look, yeah, on what we're doing. And then they would have just been a pain in our rears about it. Right, we made the decision. We just have to flip it. We've got to get out of this.

Yeah, so we have a newborn. You're getting ready to go off to army training for basically six months. We have this house that got red tagged and has to be fully brought up to code. You have a team of contractors that didn't work out. Yeah, we'll just leave it at that. Yeah, so you've got to find you're. You're in Alabama, was that where you were?

No, I was in Virginia.

Okay, when we Well, you were in Alabama first right and I was in Alabama first. And it got to the point where I just totally like but it's it for two months, because you've got to focus on your army stuff. I can't deal with this because I'm home with two kids on my own.

So we're just going to let it sit for a little while. And then I get home and then hire a team of contractors to go over there. They start doing work. That was a little questionable. I let it ride, shouldn't have let it ride. I didn't replace them as soon as I should have. Yep, there was a lot of work that had to be torn out and redone, so that was more cost. It was more cost than there was finding a new contractor and getting them up to speed. And they've been great Absolutely They've been really good. And then we had to get a general contractor because of the big permitting thing. And then we had to do plans and then we had to formally added the second bathroom Right, and then we had to relay out the whole house.

And you left again, and then I left again, and so I'm again staying home with the kids by myself, trying to keep everything juggling. And there's times it's like, hey, I need you to go drop a check off and I'm like, oh crap, like kids are sleeping.

So there was a big issue with payments to our contractors. You know, if you're doing long distance real estate investing and you have a flip going on, make sure your contractors know how you're going to pay them. And make sure they know, like I have to do bank payments, which means you're getting mail to check and it's going to be five days after you invoice Right, and so making sure they're aware of that situation.

So yeah, we definitely bid off more than we could chew, I think we just felt like, hey, it's time to add another deal. This looks like a great one, let's do it. Yeah, and we did not account for everything else we had going on personally, no, and we just didn't have our eye on them all. Yeah, like we overlooked things, we bit off way more than we could chew at the time and we did not account for anything at the time. It's been a good lesson of, I think, like, in a way, we got comfortable and like we did I don't know if it's ego that got in the way or like just you know, we know what we're doing, like it's fine, we don't need to do all those.

I have a feeling that we had a sense of invincibility.

That really yeah everything has kind of worked out. Everything has kind of because we did all the due diligence and with our renters. We had a house sit vacant for a month and a half but we were okay with that because we found a great tenant for it yeah and the saying is hire slowly, fire quickly. Yeah, and that's been our approach with everything like whether it's buying or Putting in tenants or contractors. Yeah, we're very slow and Doing our due diligence and analysis and on this one, we just didn't do it.

Nope, we were honestly looking at this deal through rose covered glasses and Just felt like, oh, it'll be good. Even if it's not good, it'll be good.

Yeah, we'll figure it out. It's fine, we don't have the money for this, but we'll figure it out has been like the mantra yeah, and we always have figured it out.

But we're tired of living like that.

Yes.

We're tired of getting into you know tight situations, of we can figure it out right, because that usually Causes a lot of tension right between us as husband and wife, between us as business partners, and just stress and just you know, a lot of stress. And every time a question comes up about you know how close are we on the flip.

I get stressed because I'm like dang it, I don't know I just need to know how much cash do you need, like where I need to go find you money when?

do you need it, and in times I don't know how much cash I need, I know like, well, they just uncovered something else. Right, that is another five, six grand, the number of times I have been told by our contractors we found something else. We found something else. This house was built in 1920s, 1925, 1935, somewhere in there, and as of now, probably 95% of the house has been rebuilt. Yeah, 95% of it.

So if you're looking for a new old house, and in it It's- got almost all brand new interior.

you know structuring yeah, all new floor system, all new ceiling system, everything is new and we paid dearly for it, yeah.

but at the end of the day, if this was our first deal and we had to write a five or ten thousand dollar check, I don't know where it's gonna wind up landing, but that is cheaper than a college education and we got a college education worth of information, right and this one deal.

Tiffany likes to call it. Look hiya you the streets University. Yeah, and a lot of people call it the road of hard knocks.

People are so hesitant to invest in education because, oh my gosh, ten thousand dollars to be in a mastermind like that's so expensive. But losing ten thousand dollars on this deal was more expensive because it took stress, time, frustration, yeah, arguments between us like it has not been a fun experience. So Paying for education and being in a mastermind where you have access to people that can say, hey, no, don't do that deal like if we had run this by some friends. It would have been like what are you doing? Yeah, you have a baby, go, go be at home. Yeah, you have cash flow, go relax.

Yeah, you don't need to do a deal right now, but I will say doing the deal shifted our perspective and Doing this deal catapulted us Into the season we're in we're entering in right now, which was forcing understanding of properties we want to keep and don't wanna keep, and I feel like this deal, even if we pay $10,000 at closing to get rid of it, was a catalyst for us to make another half million to a million dollars of net worth in the next three years. So part of me wishes we never did the deal, but a bigger part of me is thankful that we've went through this, because a few good things have come of it. One is that huge shift in our mentality. Two, we found an excellent contractor. They came to our house last week and did a small job for us here and we just hung out. We had a couple beers and hung out and really got to know them. They love our kids. They're sitting in the back deck with us, playing with our kids and interacting and having a good time, and really feels like they could become a part of our extended real estate family.

Yeah, you think about it. It's like our insurance agent, our real estate agent, our attorney. We were having a pull hangout and invited a few of them and it was just kind of comical telling our friend like, hey, we're gonna have some people over, and then it's like, oh shoot, it's our attorney, our insurance agent and our real estate agent would be here, except he's on a cruise. So our team has become a family.

And we'd also invite our lenders over.

Right right they become really good friends and I hope this deal has led us to these guys that will be our extended team.

I know it is the big deal we're doing. Next we should be closing on it in about a month and starting a big project in North Georgia. And when I told them about it they was like oh, that ain't no big deal, we'll go do that. That sounds like fun. I was like are you sure? Like it's up in the mountains. And he's like well, do you got power? Yeah, we have power. Do you got water? Yeah, it's got water. Yeah, well, we'll just take our camper up there and we'll just work up there. I'm like I didn't even think about that. I thought we was gonna have to find a whole team of contractors up there in a different area that we don't really know, and now we get to bring someone we're comfortable with. That we trust.

And talking about you being gone and trying to manage contractors from afar. You've built this relationship with them and you guys have a working relationship, so they know what's expected and how you like things done.

It's taken a few visits to the flip house that we're talking about.

But it's a heck of a lot easier to drive 20 minutes than two hours. Yes, it is.

And I get to drive over there and just walk through the house and be like, hey man, what happened in this corner? It looks a little rough. I don't like that. And that trains him in a way to understand. Oh, Eric does want this level versus this level, Right, and it's willing to pay for that extra.

It's willing to pay for it, right. And all of this has led us to where we are now, so we don't regret it. I think when we get to closing we're gonna get money back because we've sunk so much of our own cash in this, so it's gonna feel like a payday. But we're gonna know deep down that we might be writing a check. We don't know for sure where it's gonna land, but it all works out in the end for our benefit. But in the moment it sucks.

I want to say this just as a sense of journaling you know, audio journaling because I may come back in 15 years and listen to this episode and listen to us talk about how tough it was, and I want to come back and listen to be like, dang, they were really struggling with that, I was really struggling with that. But also the price point, because I don't know what it's going to be in 15 years. Right, so you're going to. If you're interested in a brand new old house that has all new everything, it's going to be in downtown Newnen, right next to the fire station, and it's going to be between 250 and $275,000.

Yeah, so in 15 years when you come back and listen and it's like a half million dollar house, you're going to be like dang. I should have kept that, I know but we are not keeping it we have gone back and forth and we're really good at trying to make things work and we could keep it, but we would leave a lot of cash in that deal.

We would leave a ton of cash in that deal.

It's not worth the return that we would get? No, not even a little bit, and a part of it is interest rates where they are in materials. It is a hard market right now to make a deal happen, and I think we tried to force a deal that was not really a deal for us and lesson learned. So, as you're getting started or getting your next deal, do the due diligence Like really spend the time and do it the right way. Don't cut corners because you just want to get a deal. Have your buy box and hold firm to that and don't change it just because you think you can make some money somewhere else.

Don't do that. So just to recap the big five things, the biggest mistakes we made on this One was not holding firm to our numbers. Two was we took on way too much at once. Three was we didn't do enough due diligence. Four was permitting we did not account for permitting.

And bringing everything to code and all that and bringing everything to code.

And then five was. We just were looking at this through a set of rose colored glasses and we felt invincible and we hadn't lost yet and didn't feel like losing was going to happen here we are, here we are, but we're taking the lesson, and losing this is going to catapult us to make even more.

So if you lose money on a deal, don't let it get you down. Call it the fee for education.

Let it motivate you and let it send you to the next phase of where you're headed. So I think we did a good job of finding the silver lining in a bad deal. But at the end of the day, it was a bad deal and we did it.

And we should be out of it soon, hopefully, hopefully.

All right. Thanks, y'all for hanging out for this today. On the On Purpose Investor podcast. We're on a mission to bring you tools to live a life of hyperintentionality so that you can one day wake up and be proud of where you are and excited to be living the life you're living. But it starts with action. It starts with taking massive, imperfect action today so that one day you are very happy about where you are and it just takes one little decision to start moving toward a life of financial time freedom. Our good friend Leon Johnson calls it peace and freedom. All right, we'll see you next time on the On Purpose Investor podcast. We are immensely grateful for you joining us today. If you haven't already done so, we invite you to subscribe to our show. We understand that many of you tune in regularly, but perhaps haven't had the chance to hit that subscribe button yet. Don't worry, it's effortless, takes about three seconds to follow or subscribe on your platforms like Spotify, apple Podcast or wherever you're enjoying the show. Your support is invaluable to us and has played a crucial role in the tremendous growth of our podcast. We sincerely appreciate your assistance in any way, shape or form. Together we can launch this podcast to even greater heights.