The Hidden Costs That Killed My $63K Flip

Everybody, Dr. Toby Potter here, The Unshakeable Investor. Hey, I want to, I want to go over a deal with you today that, that I see all the time as a direct hard money lender, as a real estate investor who does deals themselves, and as somebody who's coaching, mentoring, and guiding thousands of people. I see this common mistake all the time. And so I thought that it would be really good to jump on here, kind of go through what happened. How it could have been prevented and how I can help you not go down that road. And I think that's so important. See, the deal we're going to talk about today had a potential on the back of a napkin about a $63,000 profit. So the guy was stoked. He thought he'd run into a gold mine. And when it was all said and done, he had about a $15,000 loss. And he did not use a coach. And let me share something with you. And I say this all the time, and I don't think I can say it enough. There are 3 non-negotiables you have to have to be successful in real estate investing. 3, not 2 of 3, not 1 of 3, 3 of 3. Number 1, the right deal. And I know, oh, that's very vague, Toby. You're right. But number 2 fixes that. Knowledge and education. With knowledge and education, you'll know where it's the right deal or not. And when you have knowledge, education, and the right deal, the third one is capital comes running to you. Over 88% of real estate investors left the market in 2025. That's great news. Because now that means there's still just as many houses out there, but there's less competition. And it's simply because those 88% did not have those 3 things: the right deal, the knowledge, education, information, or the capital. This individual was one of them. He was tired of getting outbid. He was tired of running into bad deals. He mentally thought he had a solid deal. And he lost his shirt. So let me go over it with you, okay? The back of the napkin on this was this simple, this clean, this precise, all right? So on the back of the napkin, his purchase price was $185,000, okay? His rehab was about $62,000, and his ARV, after repair value, was about $310,000. Now mind you, this is on the back of a napkin. So when we run those numbers— purchase price, rehab, After repair valuation, we come up with a profit of $63,000, right? Right. On the surface, that looks like a gold mine. On the surface, that's something that— let's do it. But see, this is the single most common reason investors lose money on their flips. Is not that they bought it wrong, they estimated wrong. See, there's fees in here that nobody calculated that's getting ready to eat this thing up. There's fees in there, phantom cost, that every new person forgets or doesn't know about, and they lose their shirt, and they say this real estate thing doesn't work. This is why number 2, remember Right deal. Education information is so powerful. You don't know what you don't know until you've been there, done that, and you've lost your shirt. Now, I'm going to pause here for just a second. If you like what you're hearing and you see true value in it, I need you to do me a favor real quick. I need you to like this YouTube, put a comment in there, love it, like it, hate it, whatever. But more importantly, click the link below. And get this book right here. This is the book that's getting ready to share these secrets on how to make sure you don't lose your shirt by underestimating and undervaluating the deals. So like, comment, download the link, or click the link and get your book so that you know what's going on. All right, let's get back to it. All right. Let me share with you where our buddy lost, okay? Let me share with you on this. All right, I'm gonna use two colors. I'm gonna try. All right, let's go back to the, to the whiteboard here. So we have our purchase price, okay? And that was $185,000. Okay, you didn't tell me you could see that. Then we had our— and I'm going to drop down here— we had our rehab cost, okay, and that was $62,000, right? And then we had our ARV. So let's plug in there what our guy missed. He bought his buying cost. Can you see that? Not very good, huh? $3,700. All right, a little heavier. Okay, he had a contingency. I want this down. Rehab was $62,000, right? Yeah, $62,000. Okay, then he had one thing that you must do on any house that's built over, uh, pre— I'm gonna put on here pre— and this one, there you go— pre-1980 needs to have a contingency, okay, of 20%. So that's going to be about, uh, well, I think we could probably— 20 is a little heavy. Let's just go conservative. Let's go 15%. We need a different marker, like a purple or something. Um, 15%, which is going to be about $9,300. All right, then we have our holding cost. Everybody forgets about holding cost. Holding cost is your utilities, is your insurance, is, um, just keeping it, uh, uh, maintenance on the yard, stuff like that. That's gonna be another, let's say, $16,200 because it's usually about 6 months. So we can just figure 6 months holding costs. Okay, 15% contingency. What'd you find? Got a darker marker there. Let's go with this purple. I think it's purple. All right, then you have your seller's cost, right? Open— this one's dry. Okay, and that's usually with title, uh, realtors, probably about 9%. Ah, these things are old too. And that's gonna be another $27,000. Okay, we're just gonna go through markers, ladies and gentlemen. Um, and then you have your financing, um, when you did your loan. So financing— there, this one works. You see that one? Usually about 2.5%. Okay, which is another $4,600, $4,625, I think. So our total from purchase to all our costs, when you add this up, is about $308,725. See the problem? See the problem? And then we sold it for $310. We're broke. We're broke, ladies and gentlemen. Okay, do you understand what I'm talking about here? Can you switch the camera? So these are the kind of things that you have to understand, is that there's carrying costs, what we call phantom costs, that if you don't know you don't have that information, then you don't, you don't see it coming until it's too late. One of the things I want to share with you real quick based upon this analogy, there's 3 variables in math that are absolutes. Math and science are facts. There's 3 things in everything you must know that's a fact in the numbers for investing in real estate. Number 1, what is the after repair value? What is this property going to be worth when it's back on the market? And here's the deal, you can't control that. You have no influence over that. The market does that for you. So you can't control that, but you need to know how to find that out. We show you how to do that. Part of our coaching before we ever do anything is what is that property completely rehabbed going to be worth when we're all said and done? What is the market willing to pay? Okay. The other number 2 is what's our cost in rehab? See, they didn't mess up on the rehab cost. That's probably an accurate number. And then with that, we then now know what our max purchase price would be. So we take the ARV, we back out the rehab cost, and then we know what our max allowable offer will be. So because those are the two things I can control, if I know what it's worth when it's all said and done, then I know exactly how much I can spend. In rehab and purchase price. And if my rehab is an absolute, my contractor says this is the least expensive I can do it, and don't ever say cheapest, we don't do cheap. This is the least expensive, means he's cutting everything down to the penny to get it done for you because he's got another one lined up. Then with those numbers, I know my max allowable offer. To ensure and guarantee profit. This is an absolution. With where we're at, he had maybe a $1,200 profit at best. At best. I think, I think he lost money. When, when I'm spending $308,000, and let's just hope that this was budgeted at 6 months carrying costs. If it went 7, 8, 9, Now I'm at, that's, I think it went 9 months. That's why the guy lost almost $15,000. His budget went higher, his carrying costs went longer, his realtor fees were higher than the, than the, his, uh, um, title fees and realtor fees was more than 9%. He lost his shirt. Don't make that mistake. Right deal, education, information, capital. See, there's 3 ways that this deal fails. Number 1, stress test number 1. Let's go back to the whiteboard, babe. Oh, that red. Ah, my whiteboard just got ruined. Dadgummit. Old markers. You got a wipey? No. Yeah, but I don't have a towel. Technical difficulties, ladies and gentlemen. It's what we do. That's what we do. It's all right, that's why it's live. That's why we're doing this. It's real stuff. We have real life third world problems right here, ladies and gentlemen. But look at that, it is a magic eraser. It cleaned it. All right, let's go back to the, uh, to the board. Hopefully it's dry. It's not yet. Um, here's 3 things that we would stress test this. If you had a coach, if you had a mentor, we would stress test this to ensure profit and success. Stress test number 1: what if the rehab goes— rehab goes over 20% in our budget? Okay, remember, they didn't have any— they had a $62,000 budget. They have any contingency. So what if They get in there, remember this is an older house. You got cast iron plumbing, you got old electrical wires, old outlets, appliances, sewer, all that stuff. What if something that wasn't seen on the surface is discovered and they didn't have that buffer? Number one, then the deal fails. Boom. Okay. Always build in a, a rehab buffer, stress test, Number 2, okay, is the property sits on the market, the property sits on the market longer than 60 days. Because remember, we only had a 6-month carrying cost. So let's go through that math. So month 1 is contract. Okay, month 2 is, um, month 2 through, let's just say, 3. 60 days for rehab. Okay, month 4, it's on the market. And let's say you get a buyer within the first 30 days. They're all going to take 30 days to close. So now month 5 is your 30 days of closing to fund on the 6th month. Okay, now if anything happens, you get it under contract on the market and contracted, and that buyer walks or isn't qualified, the loan gets declined, and you got to start all over You're back up here again and you go past 60 days on the market. You got to figure the first 90 days is purchase, rehab, on the market. The next 60 days is getting it contracted and closed. If it goes past that, you're starting to tap into that reserve of holding costs. All right. So that stress test number 2, you could easily lose $4,000 to $5,000 $4,000 to $5,000 just on that carrying cost. And then you have stress test number 3. Your ARV— the market dips, the market dips, and your ARV is less. It's, it's a 5% decline. Okay, 5% decline. 5% is not that much, but if it does, your property that you thought was worth $310,000 is now worth $294,500. And guess what? We spent $310,000 purchase, rehab, closing costs, carrying costs, all that. See how you lose? It's just too thin. It's just too thin. And that's what I want to protect you with. So as you go through your deals, understand, if you don't have a system in place to ensure and guarantee that you stress test it and you make profit of it, no matter what the worst case scenario comes out, then when it doesn't go south, you make that much more. But let's, let's at least know for sure we're going to make a minimum of. So here's what you should have done. Number 1, know the comps. Absolutely beyond a shadow of doubt, know the comps and back it off 5%. And will it still work? At that number. Number 2, know the property. Like I said, if it's a pre-1980, you got to build in a contingency. You got old plumbing, old wiring, HVAC system, sewer system, roof. You got to know the property, make sure you control that. So that's step number 2. Number 3, make sure your, your scope of work is line item detailed, not lump sums. Flooring, $6,000. What does that mean? What is flooring $6,000? Is it LVT? Is it tile? Is it carpet? What does that mean? Break it out. I go as far as LVT kitchen, hallway, bathrooms, X. Carpet bedrooms, X. Hardwood floor, living room, den, X. Break it out. Make sure it's crystal clear. Okay, and then run that, that stress test that we just did. Did you put in a contingency? What happens if it goes 9 or 12 months? Understand some things you can't control, but if you prepare for the worst and hope for the best, you'll always come out on top. So here's what I recommend. As I shared with you earlier, you can click, click the link below and you can download the book that's going to explain all this in great detail. But you can also, in those links, you can join our mastermind, you can join our coaching program, and you can get plugged in with somebody who's been doing this for 30 years, who's worked with over 7,000 clients, who's funded over $1.8 billion in deals, and that can help guide, direct, and educate to ensure not only do you have fun, have profit, but now you get fulfillment in your life. I can promise you, if you've done a couple of deals on your own, they were probably the most stressful things you've ever went through. Even if you've just done a remodel in your own house. I hear those horror stories all the time. You don't want to be there by yourself. You don't want to be there alone until you can build a crew and a team that guarantees they'll run through walls with you. That's what we do here at The Unshakeable Investor. You don't need another podcast. You don't need another YouTube. You don't need another course. What you need is our free masterclass every Thursday at 4:30. I'll gift you one showing to come in there. Just DM me, Masterclass, or comment Masterclass. We give you the free Ignite every Monday morning, which I promise you this, you give me 1 hour on a Monday morning and your life will be transformed. And it's for free. And then once you see the power that we're bringing to you, your family, your future, schedule that one-on-one call. And let's make life happen. Ladies and gentlemen, my name is Dr. Toby Potter. I am the Unshakeable Investor, and I'm here to ensure you have the absolute best opportunity to have everything you've ever wanted in life. Talk to you soon.