When Good Flips Go Bad - Posted by Terry J. Dunlap, Jr.

Posted by Bob-Tx on March 02, 1999 at 19:55:41:

With all due respect - ain’t no way!! You are so far away from a good deal it just is not going to happen. You need to focus on damage control…and learning.

When Good Flips Go Bad - Posted by Terry J. Dunlap, Jr.

Posted by Terry J. Dunlap, Jr. on March 02, 1999 at 07:07:10:

I am in a situation where some clear minded thinking from anyone would be beneficial.

I recently wrote two purchase contracts on two different properties. The first is a side-by-side duplex with combined monthly rents of $700/mo. The second is a single family home w/2 bds & 1 bath in a mixed neighborhood.

The duplex was listed at $65,000, but I have it under contract for $57,000 due to close at the end of March. The SF was listed at $50,000, but I have it under contract for $40,000 also due to close at the end of March. Both contracts contain a clause which will allow me to assign the contracts prior to closing.

Now before I went out to perform these transactions, I lined up some buyers. However, for one reason or another, they backed out. Now I’m stuck with two properties I need to close on soon!

I sought financing from a local S&L. However, I am required to put 25% down on each deal since I applied via No Income Verification, a.k.a. No Doc. Since I have been in business for myself for less than two years, I don’t have the required income for a traditional 3%-10% down financing.

Today I moved all my IRA assets to cash in the unfortunate event that I need to actually purchase these properties by the end of the month.

The duplex was recently appraised at $61,000 while the SF was appraised at $51,000. I can’t understand what the hell I did wrong when trying to put these deals together.

I need your help. Any and all suggestions would be helpful. By the way, I did a CMA on the other area homes and found that the rental units where the duplex sits fetch between $55 and $65K, while the SF homes fetch, on average, $48,000.

I want to run an ad in the paper but I’m not sure how to word it to get maximum response.

Thank you all for your time. I look forward to all your responses.


Re: When Good Flips Go Bad - Posted by bbray

Posted by bbray on March 03, 1999 at 18:00:51:

terry, my contract gives me an out clause , stating that this contract is void if i cannot get financing and i have another contract that states the contract is void if my partner does not agree with the deal , your contracts should have an out clause , at the most you will lose your earnest money…

i hope this helps…


Re: When Good Flips Go Bad - Posted by David Alexander

Posted by David Alexander on March 03, 1999 at 11:15:52:

I would say don’t do it either. There is not enough profit in the deals. And tying that much IRA money up you could do 20 deals with far greater returns. But, alas if you feel you must do the deals with your IRA money, then at least convert your IRA to a Self directed IRA(Mid-OHio) and then do the deals, don’t lose your money to penalties and taxes.

David Alexander

DON’T DO IT - Posted by Laure

Posted by Laure on March 03, 1999 at 24:14:57:

DON’T MESS WITH TAKING MONEY OUT OF YOUR IRA !!! Lose the deal if you don’t have an escape clause. The penalties and tax on your IRA will blow you away and make you wish you had never heard of real estate !

Good Luck,
Laure :slight_smile:

Re: When Good Flips Go Bad - Posted by Carlton

Posted by Carlton on March 02, 1999 at 23:28:54:

What book did you read that taught you
4k or less below LTV was a good flip
deal? I would return the course to
the original seller, and ask for a

Looks like some kinda Wade Cook garbage.


Re: When Good Flips Go Bad - Posted by Dave (CA)

Posted by Dave (CA) on March 02, 1999 at 14:18:09:

Before walking away, why don’t you go back to the sellers and try to negotiage a new deal. Depending on their level of motivation, they make take that over nothing.


Re: When Good Flips Go Bad - Posted by J. Clifton

Posted by J. Clifton on March 02, 1999 at 12:17:29:

In summary, your three problems:

  1. Too thin a profit to flip, and/or perhaps too thin a network of cash investors
  2. No contingency clause (?) to back out based on “your partner” not approving of the deal
  3. No plan B, to be able to purchase it yourself (a good wholesale flip should be at a price low enough to buy with hard money or non-conforming loans, so you wouldn’t have to suffer through the standard industry dis-qualifying process)

L/O or split funding (“half cash now via hard loan–balloon later,” if there’s enough equity or you can re-negotiate a smaller price) may make the deals salvageable.

Re: When Good Flips Go Bad - Posted by Bob-Tx

Posted by Bob-Tx on March 02, 1999 at 10:03:02:

Well, I agree with the others that you have paid too much for these to do wholesale flips. As one who does rehabs I can assure you that I’m not going to pay more than 60% of fmv for this type of deal.
So, the question now is … what to do?
If for some reason you want to invest your savings in these two deals then go for it and best of luck. Unless you have a very succinct exit strategy on these and are willing to tie your money for a lengthy process I would strongly urge against that course of action.

If it were me, I would walk away from both of these and at most forfeit a couple of hundred bucks earnest money. More likely I would rely upon the escape clause that included in the special provisions section of the contract, and would exit with injured pride, hat in hand, and go on to the next deal.

Here’s hoping that you have such an escape clause in the contracts and/or have put up very little earnest money. Then you sit down and write down what went wrong with these deals, learn a valuable lesson, and go find lots more opportunities to profit.

Best of fortunes to you.

Re: When Good Flips Go Bad - Posted by phil fernandez

Posted by phil fernandez on March 02, 1999 at 08:44:22:


The spread on your two deals are not there to flip to investors.

Duplex under contract for $57,000, appraisal at $61,000. Remember the top 20% of vaue is often phantom equity. It might be there, but it might not be there.

The single family house spread between appraisal of $51,000 and your contract price of $40,000 still just gives you the 20% maybe profit.

I would have to buy the duplex for no more than about $35,000 and the single house for no more than $30,000 to ensure that I could flip it to the next guy so that he could make a decent profit.

You paid too much for the properties to flip.

Re: When Good Flips Go Bad - Posted by Alexander (Fl)

Posted by Alexander (Fl) on March 02, 1999 at 08:23:12:


For the life of me, even in a heated market like Miami where I operate, I cannot see the flip potential in either of your properties.

This is likely the reason why the investors you had lined up backed out of the deal.

The duplex is appraised at $4,000 more that you have it optioned for. There is just not enough spread for an investor to even consider this one.

As far as the single-family, you’re in a better position, but still not enough spread to flip to an investor who knows his stuff.

At this point, I see two possibilities here.
First, approach the tenants in your duplex and see if either one is interested in buying it under a lease-option arrangement…then exercise your option.

If this fails and your earnest money is low, just let the option expire.

If the single-family homes in this price range are a hot commodity in your market, go ahead and exercise your option and close.

You shouldn’t have any difficulty in getting occupied with a tenant under a lease-purchase agreement.


Re: When Good Flips Go Bad - Posted by David Alexander

Posted by David Alexander on March 03, 1999 at 11:20:45:


what books have you read of Wade Cooks that teach you Flip Properties with 4k equity or less. I’ve read most of his stuff and have never heard of such. But, for your know ledge you can make money on a property with no equity if the terms are right, or you are assuming existing financing. You just don’t want to dump all your money into the deals, drops your return.

David Alexander