The Boyle Heights Nightmare House Flip
Years ago, I bought a house from a wholesaler who I had trained.
Wholesaling is the technique of creating a great deal, tying it up, and flipping the contract to someone who has the money to make the deal happen. Buying from a wholesaler is a good way to get additional deal flow and I still buy deals from wholesalers.
Wholesaling is also a great way to get started in the real estate investment business before you have your own money make any significant purchases.
This deal I purchased from the wholesaler was a short sale on a duplex in a rough part of Los Angeles called Boyle Heights. The house was old, maybe built in the 1930’s, which is really old for LA.
I did all the normal inspections on the house including hiring a third-party inspector to check for termites, etc. I always use a third party to inspect my properties before I buy them even though I am a fully licensed general contractor and technically able to save that money.
I take the approach that a third party will be impartial in their inspection and give me unbiased eyes on the deal. I like that because it mitigates risk.
On this particular deal, we got all our third-party inspections done and closed on the property.
My intent was to fix it up cosmetically, sell it for retail price, and make a handsome profit.
The first day on the job, we tore out some of the lath and plaster and quickly discovered that termites had whittled their way through nearly 90 percent of the framing—so much so that the lath and plaster and exterior stucco were the only things holding up the house!
It was going to be a huge expense to replace all of that structure, and the city would normally require us to tear down the entire house and have it all reengineered from the ground up to rebuild.
Many entrepreneurs would go weak in the knees and bail!
But I spent the next several weeks negotiating with the city to let me replace the termite infested framing and forego the re-engineering and costly rebuild. They agreed, and I strapped on my nail bags and did most of the framing myself to save money.
The project did run over budget and took longer than expected, but we got the job done and sold the house for a profit.
This would not have been possible if I had not purchased the property with such a profit margin cushion that it could withstand unforeseen problems.
Another takeaway was that my investor on this deal discovered the real reason that people invest with me: as a trained professional, I make things happen, even when the odds are stacked against me. I used my skills and ability to negotiate a compromise with the city and to get things done. I make sure I do this even when life throws a curve ball.
The biggest takeaway, however, is one of my favorite slogans:
Real Estate Is A Team Sport!
I shudder to think what might have happened to someone who’d gotten involved with this deal without a very high level of expertise, or direct access to someone who does.
And yet, people DO make these level blunders all the time, partly because there are so many bogus real estate courses out there which don’t properly prepare their students for the reality of flipping property.
One of the biggest reasons I created my Dealmaker Society membership is to give people the ability to ask me questions on a regular basis. If you’re already a Society member and you’ve got a potential deal, or you’re stuck and don’t know what to do next, go here.