Breaking Your Budget on Day 1
When Ann and I had finally decided to try our hand at investing in real estate, we were beyond nervous and excited all at the same time. After looking at several potential deals we had finally settled on what we now call Project Tallmadge. The ink was still drying on the closing documents when Ann, Declan and I pulled into the driveway as proud owners of our first flip. We knew what we needed to do and were ready to take the first swing at this house.
Little did I know, we were in for a few big surprises.
A few weeks prior to closing on Project Tallmadge, we had sat down with our realtor and mentor Loree and she helped us to build a budget for the Tallmadge house. We spent hours fine-tuning that budget, attempting to forecast every single item requiring an update, replacement or modification. After several revisions we settled on a final budget and to-do list.
The very first thing on our to do list was removing the absolute quagmire of an in-ground pool in the backyard. Why remove the pool you ask?I asked myself the same question! I love pools and thought, “why not just clean this up?” People will love having a pool in their backyard right? This is where mentors are so helpful, and crucial, when you are first getting started in nearly anything. They can answer all of those “seemingly” subjective questions with experience and insight that you just do not have as a new investor. Loree explained to us that although Ann and I thought pools were just great, there are A LOT of people who do not like pools and the maintenance that they require. When you decide to keep a pool in a flip, you have to remember that there is a good amount of people that will pass on your property literally because they see that you have one. Your potential buyers have shrunk to only people who want a pool, and for first time flippers, Ann and I were not interested in shrinking our amount of potential buyers at all! That being said, there are obviously situations where keeping a pool is the right decision but we had made our choice for Project Tallmadge.
Loree spoke with a local flipper that she worked with that had removed several pools in the same neighborhood as Project Tallmadge and told us to budget roughly $2,500 for pool removal. The excavation was scheduled to start on day one of the project. I remember struggling to hold back my excitement, and nerves, as I pulled into the project to meet the contractor on that very first day. I jumped out of the car, shook hands with the contractor, gave him the go ahead to start demolishing the pool and then hopped back in my truck. I remember thinking “wow, that was easy! This whole flipping thing isn’t so bad afterall.” I was dreaming of how amazing we were going to do on this project and how we had everything detailed out perfectly.
I think what added to my feeling of excitement was that we had budgeted $5,000 for miscellaneous issues that might come up throughout the project, which gave me a good feeling of security. Little did I know that the entire $5,000 would be blown the very first day!
I had given the contractor the go-ahead on the pool around 7:30am…and about three hours later I got a phone call from him saying I needed to come back ASAP because we had a big problem!
I raced back to the job site like a NASCAR driver and skidded into the driveway. The excavator explained that originally they would partially fill the pool in with the old concrete used for the pool walls, then fill the rest with dirt. Easy, right? Well, just as they were pushing the concrete back into the hole…a city code official drove by. The code officer said that the pool concrete could not be used to backfill the hole, because it would potentially create a sinkhole! He said that ALL of the old pool’s concrete needed to be removed, and the hole had to be filled in completely with soil. And to make that “little” change, the contractor’s price spiked from $2,500 to $7,500!! Literally, our entire miscellaneous budget of $5,000 evaporated three hours into the first day of our flip! Talk about a gut punch!
I immediately made a phone call and sought the advice of our mentor but there was no advice to be given. His group had flipped several houses with pools in the same neighborhood and he had never received so much as a funny look! Boy did we get “lucky.” I remember feeling my stomach turn upside-down and the rush of anxiety pumping through my veins. But right before the anxiety sent me into a full panic attack, I took a deep breath. There was no turning back: we “owned” this house and panicking would only make things worse. We had to push forward.
I turned around, and told the contractor to get it done. I decided right then and there never to look back at that moment until the project was completed.
Was I excited about blowing our entire miscellaneous budget hours into our first day? Absolutely not BUT I was still extremely grateful that we had a miscellaneous budget to begin with that allowed us to take that hit, as hard as it was. I knew that for the rest of the project we would have to work really hard and be extremely frugal to stay within the overall budget but I felt that we could do it and if we didn’t…we were getting the education of a lifetime, we were “going to school.”
Mentally, I was ready to trade a break-even scenario, or even a small loss, for the experience I was gaining by the second. It’s an invaluable perspective I’ve retained and applied to each new project: permanent experience at the price of temporary hardship is always a transaction I’m willing to make. Honestly, this “worst-case scenario” mindset was responsible for a calm rationale that I’ve called upon for nearly every job since.
Again, a “gut check” is the best way to describe our first day flipping a house. Each different obstacle begged the same question: ‘Is this what you really want?’ And each time, my dream of financial freedom through estate provided a difficult question with a resounding, empowering ‘Yes’.
I really felt that the pool demo debacle was a personnel challenge to Ann and I…we had the choice to fold under the pressure and stress out about things that could potentially not go the way we expected or rise up to the occasion, dig deep, and give it our all. We chose the latter. So how did it turn out in the end?
Last thing I want to share about this experience: So many times when I begin a journey, big or small, real estate-related or otherwise, I am almost immediately met with opposition. In the past, I chose to view that strong opposition as a “sign” that I was making the wrong decision and I would quit almost right away. But what I realize now is that when you embark on a journey, particularly pursuing something big, that the gateway to your dream may be HEAVY and it is going to require a strong push to open it.
Sean | INVEST