Lessons Learned

Get the right contractor.

The saying is true:  Either pay now or pay later.  If you go with the lowest bidder just because they are the lowest, that is likely the quality you will get and you will have to pay someone even more later to fix the messes of the first contractor.

Know how to run comps

You will have to do some research to find the "After Repair Value" or ARV.  This is more an art than a science.  If you have the wrong ARV, all your other numbers will not be reliable to predict a profit.

Don't over-improve

Find comparable homes in the area and stay within what is typical.  In flipping a property, we may want to put nicer features in it, but many times, the return on our investment is not there.

Have a Team

Good people to have on your team are an investor-friendly title company, a lender (maybe a hard money lender or private money lender), a reputable contractor, a realtor who understands investing, an accountant, and a mentor or coach.

Have contingency funds

Rarely does a project go as planned.  Unexpected expenses are a given.  Markets shift and change, prices of materials go up, projects go longer than anticipated, unpleasant things are found behind torn out walls.  Have back-up funds for things like this.

Have an attorney review contracts

The last thing you want is for your contract to go sideways, especially when you are partnering with someone on a deal. You don't want to have to give up profit to an unscrupulous and greedy partner who wrote the contract to unfairly favor themself.

Get a W-9 from contractor ASAP

The W-9 is what identifies the EIN for the contractor so their income is appropriately reported to the IRS, and it helps you annotate your deductible rehab expenses.  Typically this is required only when a contractor is paid over $600.

Trust your gut

If something doesn't look or smell right, then it probably isn't.  Don't be afraid to ask questions, follow up on your contractor, request pictures, evaluate their work, get receipts, and even fire them if necessary.  This is your project, your investment, and they are your employee.

A good partner matters!

You can never have a good deal with a bad partner. No amount of potential profit can make up for a poor, dishonest, or shady partner.  Don't go into business with just anyone.  The numbers might work, but does the partnership?  If it doesn't, take a pass on it.  

Correctly document forms

If you are a partner and funding the rehab, make sure the W-9 is to your name or your business name.  Don't allow your partner to be the intermediary for the rehab funds (contractor completes W-9 to partner, and partner completes W-9 to you). If done this way, you will have no proof that your funds paid a contractor for anything. You will only have a receipt of what you paid your partner.  And an unpaid contractor can come back and put a lien on a property if your partner did not pay them.

Confirm, confirm, confirm

Before you wire any funds to anyone, call the title company yourself.  Check their website, verify their routing number, and account number, along with the correct address.  Do not assume the information you received from someone else is accurate; it is your responsibility. Your partners will understand and respect your diligence.  Because once the funds are wired, they are gone.

Ensure you are an additional insured

Make sure you are listed as an additional insured on the hazard insurance if you are a part owner or private money lender. Contact the insurance company to confirm this. Your partner or borrower should take care of this but it is your responsibility to ensure it is done. If there is a disaster or fire, the house may not be the only thing going up in flames.