The Biggest Mistakes House Flippers Make (And How My Cybertruck Saves the Day)

House flipping might seem like the perfect way to build wealth and live the dream, but trust me, after 40 years in the game, I've seen it all. Today, I'm breaking down the biggest mistakes new house flippers make and how to avoid them. Oh, and yes, we're doing it in Cybertruck style.

So mistake number 1, and I think that's probably one of the biggest mistakes, is really not knowing your numbers.

You have to know everything that's going on in that particular flip or transaction. You're going to make your money on the purchase of the property.

And if you're not making your money on the purchase of the property, you've purchased it in the wrong way.

You did not do it correctly. So let me give you a hint, and I'm going to go into my screen here, and I'm going to show you how Peligo can help you with the comps on a property. Okay?

So we're going to jump in here, and we're going to put the address of the property that we're at, 25652.

25652.

And then Cervantes, and it should start looking it up. Okay, so you see it pulled it up. The last off-market sale was $995,000, which is what this flipper bought it for. It's saying that it's worth $1,200,000. It's going to be worth a lot more than that at the end of the day. So this, this will tell you everything that you need to know about the property. All the past information of when it sold, how much it sold for, and then we come in here to the comp area. So you can see that these are the comps that it's using in the area. If you're going past this 5 freeway here, you really don't want to use those comps. So that's D, so we're going to uncheck D, and then here's E, we're going to uncheck E. We want to keep on this side of the freeway and try to keep as close to this property as possible. You've got A, B, and C here. 1, 2, 1, 2, 1, 2. I and G for some reason aren't highlighted. Here's G, 1, 4. And what is that one?

I.

Oops, sorry. I, 1.3. So you can see as we get closer to this property, we're actually getting better comps. So at the end of the day, 1.4, 1.37, another 1.4. By the time this flip is done, again, he purchased it, let's just call it $1 million. If he can sell it for 1.4, he's got about I'd say $150,000 to $175,000 in rehab costs in here. Probably going to end up making $100,000 at the end of the day. This property may even go as high as $160,000. So depending on the finishes, this is a very, very nice area. This was a hoarder house. It was overgrown in the front yard, in the backyard. But anyway, Pelago, Does all those calculations for you, and then we go down to the resale value here and the carrying cost and then purchase price, and then we're going to change, we're going to change this if we can here to 1, let's call it 15, 1, 2, 3, another 1, 15, and then the rehab. Costs about $150,000. 1, 2, 3. So once that's calculated out, see after repair value, $105,000. Sorry, rehab costs went up too high. Too many zeros.

There we go.

So this is with hard money loan, putting 20% down, interest rate 12%. This flipper gets interest rates of 8%, zero points, but we're just going to use what's on the screen here. And you can see if he sells it for $1.5 million, purchased it for $1 million, put $150,000 into the rehab, buying costs, closing costs, selling costs, all that, we end up making a profit of $191,000. And that's with hard money. So if you were to take and uncheck the hard money part, His profit goes up to $265,000. So having hard money in a deal means that you have a partner in the deal with you. So from $265,000, again, putting the hard money lender back in place, now we've gone down to $191,000. So in this example, the hard money to buy this property is going to cost about $75,000. So the question is, would you be okay paying the hard money lender $75,000 of your profit if you're going to still make $191,000? I do that deal every day, all day, multiple times a day. So Pelico website is awesome for that, for figuring everything out as quickly as possible. You get leads coming in, just put the address in there and go through this Number process, very easy. If the numbers work out, that's when you're going to get up, go see the property in person and make sure that all those rehab numbers are correct for you at the end of the day. Now, in this property, I believe they're not going to do any roof because the roof is in pretty good condition. They had to do a lot of landscaping, so that's a little bit more expensive. to do landscaping. Normally in a flip like this, you'd probably pay in this area around $100,000, $110,000, and I threw another, you know, $30,000, $40,000 in for the landscape and everything else that's going on inside.

Let's talk about mistake number 2, skipping an inspection. You should always, always inspect the property that you're going to buy to find out if there's any issues. If you're not experienced, then I would definitely suggest that you bring a contractor with you. Here's a property where most of the time we come in and rehab the property. This one developed an issue, and that issue was a neighbor. The neighbor saw that we were working over here and decided to call the city, and the city inspector came over. a stop work order on this property. And now we're in full permit mode. And that way, that delays the project anywhere between 2 and 3 weeks around there. But it is a delay. And remember I said you want to come in and rehab as quick as you can. So anyways, once we came in, we decided that we were going to remove this wall here. There was a wall, it was a wall that is a retaining wall, and it was already done, and a beam was up there, a load-bearing beam, because it was a load-bearing wall. But the inspector decided, no, that's not enough. He wanted us to dig these foundation holes. If you can see down there, Every time I come to this property, I look, make sure there's nobody buried down there because it's pretty far down there. So all that's going to be filled up with cement. So you've got a big giant base here under this, this piece of wood that is holding up this giant beam. If you could look up there, you should be able to see the beam that grows all the way across. It's being held up by these 4x4s right now. Those will disappear and then open up that space. And then the same thing on this other side. All this is going to be filled up with cement over here so that there's a huge cement foundation for this post that is holding up this entire beam that's up there. So again, that— the permitting process delayed us about 2 or 3 weeks. This process, because we're having to do much more than we originally were going to do, is again, it's delaying us probably another 2 to 3 weeks. So there's a big delay on this project, but once you're turned into the city, there's a stop work order, you've got to comply with everything that the city wants you to do. And pretty much all the time, they're going to want you to bring this place up to code. And up to code. You can see there was a slab leak originally. The water went underneath. There was a slab leak, so they decided to take the water supply out from the cement, and now it goes through the ceiling area, the roof, and then it comes back down into the walls, into the kitchen. You can see they did some new plumbing as well. Put new water line in, they're using PEX. They moved a gas line from that wall over to a peninsula they're gonna put here. So as somebody's cooking, they can see out into the living room and be able to talk to people out there. So a lot bigger project once we got the permit process involved, unfortunately, but that's the way it is. You can see that there's double-pane windows here. The biggest thing is getting the cement truck over here and filling all this stuff up with cement and moving forward. Before they do that, they have to call for another inspection. The inspector has to come out, look at all this stuff, and say, okay, you're ready to go. You can pour the cement. And then once all that's done and it dries out and cures, then you're able to remove this—

The scaffolding.

Fake wall here. It's just holding up the beam right now. You can remove this because the 2 beams at the end and the posts are going to be holding everything up that you see there, basically the ceiling. This is a one-story place, so there's not a lot of weight on there because it's only one story. There would be way more if it was two-story. But if you look up, you can see the size of that beam. It is huge. But it does run a long ways, and it is a special type of beam as well. So make sure that you don't make those mistakes, that you look at the project, you find out exactly how much it's going to cost. Always take into account if you get stopped on the work that you're performing, that you're going to have enough money in the budget to do these things. Things that are required now through the permitting process, and be ready. Don't get behind the 8-ball because you're not planning for that stuff.

This truck is like my partner.

As you can see, it's got everything that I need when I do an inspection. I've got a flashlight right there, one on the other side. I've got all my handy tools here. And this travels around with me. I also have a frunk on the front where I have a lot of other tools, and there's some additional storage space underneath there where I have, you know, levels and tape measures and stuff like that that I may need on a project. I also have several buy-and-holds that I've acquired over the years, and In here, in the front especially, I've got parts to fix a toilet, you know, just minimal stuff that I know goes bad all the time. Repairing a garbage disposal, I've got a special wrench to do that. So there's a lot of tools, special tools and stuff that I have here that are ready to go. Get a call that something's not working, I just go over there. Open up the truck. This, this is really handy. It can roll in with me, so I have all my tools there available, ready to go. I really, I really wouldn't know what to do without my truck. I love this truck. I didn't think that it would ever come because it took me almost 4 and a half years to get it.

Let's talk about number 3, and that's really over-renovating a place. You have to be careful. You have to know the area that you're renovating the property. You have to know the property that you're renovating and make sure that it conforms with the type of material that you're putting in, the dollar amount, all that stuff. So for example, you're renovating a condominium in a not so great area. You're not going to put in gold Fixtures in the vanity, in the kitchen, high-dollar amount of cabinets, flooring. Pretty much if you're going to renovate a condo in a lower-end area, you're probably going to be shopping at Home Depot per se instead of someplace that's more high-end. Vice versa, if you're renovating a property along the beach and the price is over $1 million, you don't want to shop at Home Depot to put those type of items in a property that's going to be worth, at the end of the day, it may be worth $1.1, $1.2, even $2 million. So you have to conform to what it is that you're flipping and you also have to conform to the area that you're flipping in. You may be flipping in a local area here in Orange County, Mission Viejo, pretty much middle run of the road. Then you go down to Dana Point, let's say, and it's more beachy. So you might want to throw in some beachy colors into the place, where in Mission Viejo you could get away with the standard colors. Beiges. I used to say grays, but I think we're kind of moving away from grays. Flooring used to be gray, walls are gray, light gray, not dark gray. We're kind of moving away from all that stuff right now. So again, depending on the area that you're in, the type of property that you're flipping, please don't make those mistakes. And I think the biggest one is And this is one that a first-time flipper makes is they think like, I'm going to live here. And if I lived here, this is what I would want in this property. And of course that's a lot of nice stuff, higher-end stuff, but you're not living there. You're flipping the property. Your goal is to go in and buy something, renovate it, and get out as quick as possible. So you need to— Plan for the masses. You need to plan for the masses and then make sure that you're flipping to those that are going to end up buying the place.

Don't underestimate your timeline. This is a perfect example of a timeline that maybe we underestimated. One, the permitting process. 2, the extra stuff that we have to do to comply with the city codes and the permitting process. 3, take a look around. This is the backyard. This was completely full of trees, everything else. The trees are gone. We're getting ready to install a fence. But as you can see, the cement over there, the last piece of cement, All of that has to be taken up because there's a huge crack in that cement, probably from the trees, but that needs to be removed and replaced. So all this takes time. Yeah, if you had your crews running 24/7, maybe you could do it in a timely manner, but this flipper— my son-in-law has about 15 flips that he's doing right now. So he has to take time to send his crews to different properties and move this stuff along. We're waiting for the inspector to come in to approve the cement pour here. So while they're waiting for that, they just can't sit around. So they move to another project to start that project as well. And then once we have that approval, then we'll send the cement crew back out here. to do the cement slab and probably pour this one over here as well that hasn't been done yet. So timelines are very important. Make sure you know what your timeframe is. If you're using hard money, that costs money every month. So make sure that you built in a good amount of time and build those numbers into your formula so that you don't end up losing money at the end of the day. So in flipping, time is not your friend. So make sure that you time everything properly and correctly so that you finish everything on time.

Flipping houses is a skill, and like any skill, it takes time to master. Avoid these mistakes and you'll already be ahead of the game. And remember, success isn't just about hard work. It's about working smart.

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