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#1 Worst Real Estate Deal I’ve Ever Done (Crazy Story)

I’d like to tell you a story about the worst deal I’ve ever done.  Some would call it a nightmare deal.  It’s the side of the business that the shiny HGTV house-flipping shows rarely show you.  This was the first fix and flip that I ever attempted and everything that could have gone wrong – literally everything – did!  If you want to know what a “trial by fire” looks like, then let me paint you a picture:

It was Spring of 2010. I already owned a bunch of rentals and had gotten my feet wet with rehabbing, but I was still a relative novice.  Market was pretty depressed in Richmond, but that meant you could get really cheap houses.

So I come across this 2 story colonial that needs a lot of work but can be picked up for just $44k.

Chamberlayne Ave (before pic)

I was going to do a basic renovation and turn it into a rental, which was my strategy all along.

But then I got greedy.

You see, retail sales just started to slowly creep back in.  And this house was located on an edge of a pretty desirable neighborhood.  And I saw that an almost identical house across the back alley from this one just sold for $260k!  And it wasn’t even fully renovated!

Mistake #1:  Not sticking to my sandbox and my strategy.

Mistake #2:  Getting greedy

Mistake #3:  Not doing my due diligence, researching comps accurately and consulting with experts to determine my ARV (After-Repair Value – resale price).  I mis-fired here in a big way (more on this later).

But my stupid mistakes were only beginning.

My buddy at the time found this contractor that he absolutely swore by!  This guy was Costa Rican – I remember him vividly because he had the world’s most terrible haircut.  Bill was his name.  When you met him, he struck you as the Ricco Suave type that would be 50 years old and hitting on 20 year old college girls at a neighborhood bar (unsuccessfuly).  Think “Fonzie” but over the hill.

Anyways, Bill was renovating houses for my friend at some pretty crazy low prices.  I was totally blown by the numbers Bill was charging, so I decided to get him to look at this flip I was about to do, prior to making an offer.

Sure enough, Bill told me he could fully renovate this 1600 sq ft house for $27,000 top to bottom, including granite and stainless appliances!  (For those keeping score at home, that’s less than $17/ft for an almost complete gut renovation!)

“Holly shit!”, I thought to myself.  “I am going to retire on this deal!”  Yachts, helicopters and hot chicks, here I come!

Buy for $44k, put $27k into it, another $5k in closing and holding costs.  Sell for $250k.   That’s a $174,000 profit!  I was going to laugh all the way to the bank.  And then all the way back from the bank.  And then the rest of that day, I’d still be laughing. Like a crazy person.  Crazy rich that is!

Mistake #4: If something is too good to be true, it usually absolutely totally is. Almost always.

So I close on the house, hire Ricco Suave Bill, write him a $5k deposit check to get started with demo, and think I am on my way.

If you think it’s bad so far, wait until you hear the rest of the story.

So Bill gets started on the demo with a $5k deposit, which should have covered demo and framing.  Half way through the demo, he calls me and say: “I need more money”

So obviously a red flag immediately goes up in my head and I say “Are you saying we’re already going over budget?”

“No no, we’re still on budget, but I need more money to pay my guys”.

“But that $5k was supposed to pay for demo and framing”, I say.  “I am not giving you more money until demo and framing is done”.  (At least I had the common sense to do that).

So halfway through demo, with my $5k, Ricco Suave Bill walks off the job never to be seen again.

I now have a half-gutted house, no contractor, and this sinking feeling that the real cost of renovation is going to be much higher than $27k.

Well, being a resilient person that can adapt to situations and who is not willing to lay down, naturally I went out and found another general contractor.  This time, I checked references, created a detailed draw schedule that we all signed, as well as a contract.

And his bid was much more in line with reality, though luckily he was still on the cheaper side (around $75k vs. the $27k magical fairy bullshit bid that I fell for with Ricco Suave Bill).

Even with those numbers, I was sure I’d make plenty of money given a projected $250k resale price!

Little did I know….

So this new contractor actually turns out great.  He does good work. Does what he says he’s going to do and stays on budget and on time.

We complete the renovation and get ready to put the house on the market.

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BEFORE PICS:

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AFTER PICS:

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But just when I think things are finally going my way, two totally messed up things happen that fully complete this “renovation circle of hell” that I’ve invited myself into:

1) When it came time to list the house, I called an experienced agent over and told him I wanted to list for $250k.

He started laughing so hard I thought he was going to have a heart attack.

While I was getting ready to dial 911, his face straightened out and he proceeded to explain to me that while the nearest comps indicated a $200k+ resale value, NONE of them were on this busy street across from a shady, crime-ridden apartment complex.

Then he dropped the bomb on me.  He said “I don’t think you’re getting anything over $150-$155k.”

Mistake #5:  I failed to realize that a house on a nice, quiet street will sell for much more than the same house on a super-busy and highly trafficked street, directly across from a huge, shady, low-income apartment complex.  Even if those houses are just an alley from each other. It’s night and day!

Check out this pic:

I was using comps for this property from the surrounding area but they were all on MUCH nicer blocks.

All those comps came in in the $200k+ range.   If I calculated my ARV for this house correctly and knew my market, my ARV here would have been in the mid-150s!

So we listed the house at $160k (wishful thinking) and then, because the agent said we must, I spent $1500 to stage the house with furniture and accessories.

It was beautiful.  Master bedroom was fully furnished.  Couches and a coffee table in the living room, beautiful dining table down to actual dinner ware and napkins, etc!

Now it was time to sell this freaking thing and try to make a small profit (I was looking at $30-$35k profit at this point given the money already spent on renovations).

That’s when the 2nd really really really crazy bad thing happened, just as we were crossing the finish line:

I remember it like it was yesterday.

It was Friday afternoon around noon.  Sunny and beautiful outside.  The house has been listed and staged for about 3 days at that point, when I get a call from one of my contractors that goes something like this:

“Hey, Daniil.  I just came over to Chamberlayne ave to take care of the punch list…and…well…you need to get over asap.  I’ve already called the police”.

You NEVER want to get a call that starts like this.

So I jump in the truck and rush over to the house.  As I walk in, my heart literally drops to the floor.

In broad daylight, someone pulled up with 2 trucks (as I later found out from a neighbor who sat on his back porch and watched this).

They took every single piece of staging furniture out.

They took every piece of staging ANYTHING out – down to the plates and the napkins.

They took all the new stainless steel appliances.

They took the washer/dryer.

They then took both of the heat pumps (the outdoor AC units).

But it gets even worse:

They ripped the dishwasher out of the wall and left the water line to just spew water out all over the kitchen and dining room floor, pouring down into the finished basement.

So in addition to all the theft, I had damaged flooring, water-soaked insulation in the attic and ruined sheetrock.

But wait wait wait!  It gets even worse!!!

Ready for this?

After I got over the shock of the sheer screwing over that I just received, I finally settled down and said to myself: “No worries. I have insurance. I am covered”.

Oh boy how wrong I was!

I called my insurance company who promptly dropped another bomb on me (that seemed to be a pattern lately):  staging furniture, appliances, even heat pumps were considered “personal property” and not part of the structure itself.  And my coverage for “personal property” was limited to $5,000.

Read that again.  Between appliances and heat pumps, I was already out around $10k.  Then I had to pay $3k to the staging company to pay them back for the stolen furniture.

So I was taking an $8,000 hit on this daytime visit from the robbers!

So how did this nightmare house flipping adventure end, you may ask?

I replaced the appliances, paid back the staging company, got an ADT security system, and then had this house sit on the market for another 5 months waiting for a buyer to come along.

That’s what happens when you try to flip in a bad location.

Finally, a buyer came along who loved the house but wouldn’t pay asking.  We ended up closing at $142,950 after I gave up a bunch of concessions.

So let’s recap this deal:

Projections:
Purchase:                  $44,000

Rehab:                       $27,000

Closing & Holding:  $5,000

Resell:                        $250,000

Net Profit:                 $174,000

Actual Results:

Purchase:                  $44,000

Rehab:                      $80,499.50  (included all the stuff I had to replace not covered by insurance)

Closing & Holding: $8,444

Resell:                       $142,950

Net Profit:                $-2,000 (after commission, concessions, etc)

Not taken into account in this $2k loss:  huge amount of my time, frustration, headaches and more.  But also, many many lessons were learned.  They were learned the hard way.  But learned nevertheless.

Lessons Learned:

Lesson #1:   If you’re going to switch strategies and move away from your core competencies, do your research extra carefully and really make sure you understand the numbers and the risks!  There’s nothing wrong with expanding your exit strategies – just do your homework and really understand the math.  That’s where the Rehab Valuator software comes in!

Lesson #2:  It is ALL about the ARV (After-Repair Value).  If you get the ARV wrong, results can be disastrous, as in this example.  I only lost $2k but it could have been much much worse!  Know your market block by block.  As you saw, just moving from one street to the next can have a drastic impact on your resale value.

Lesson #3:  Learning how to properly forecast repair costs is just as important as knowing your ARV (see Lesson #1).   And if something seems too good to be true, avoid it.  It’ll bite you in the end.

Lesson #4:  Insurance.  Review your rehab, new construction and vacant policies carefully.  In my particular case, I got bit in the ass by the “personal property” distinction and the $5k limit.  After this incident, I fired my insurance company and switched to a really good local insurance broker who has been doing all my policies ever since 2010.  Find someone really good to work with that gets your business.  Then ask as many questions as possible:  “What if x happens?”, What if z happens?”  Etc

Lesson #5:  Bad, frustrating, unexpected things will happen in this business.  They happen in any business.  You have to learn to take it on the chin, adapt and keep going.  Period.

Lesson #6: No matter how many stupid mistakes you make and how many bad, unexpected things will happen during your project (like robbers taking everything inside and outside the house), you will greatly protect your downside if you buy cheap.  In my case, I only lost $2k because I got the house at the right price.  So know your values, learn to negotiate and always buy right.

Oh and by the way, whatever happened to Ricco Suave Bill the Contractor you may ask?  Well, I went to the local DPOR, filed a major complaint against him and they took away his contracting license.  I saw him at Lowes a few years later and it took every bit of self control not to body slam him into the powertool isle.  But I took satisfaction in knowing I already gotten payback against him.

This deal took place a long long time ago (2010 – seems like a lifetime), but since then I’ve made many other mistakes.  And that’s ok.  The key is not to make mistakes.  Everyone does.  The key is to learn from them and not repeat them.  My goal every day, every week, every month, every year has been to get just a little bit better and a little bit smarter than I was before.  As long as you’re constantly improving your skillset and your knowledgebase, you’re moving in the right direction!

Daniil Kleyman

If you enjoyed this blog post, hit the button below and share it on social media. Then leave me a comment below!

Check Out Other Content and Resources on Our Site:

Rehab Valuator Software:  Analyze and Market Your Deals like a Pro

WHOLESALING 101:  Free Course

Finding Cheap Off Market Deals:  Free Course

BRRRR:  Buy, Rehab, Rent, Refi, Repeat – How I Built a $10 million+ Real Estate Portfolio (and growing)

Comments (37 comments so far)


  1. William Turner

    Wow! You just can’t make up details like this. As I read this blog, I said to myself, this must be about somebody else: this can’t possibly be Daniil.
    All I can say is, you are amazingly resilient, Daniil! And thank you for sticking it out and being in a position to pass all this value on to us. I count myself privileged.


    • Daniil Kleyman

      Thanks, William. We all make mistakes and start somewhere. Unfortunately the best lessons and ones we tend to remember come from our own mistakes, not someone else’s.


  2. Tracy

    Thank you for sharing this with us, Daniil. As you noted, could have been a much more expensive lesson than it was, had you not bought at a price that could (almost) absorb all those mistakes.

    Not sure how long ago this was but you have obviously come a long way since then! Congrats on persevering, and again, thanks for sharing!


    • StefanieK

      Thanks for reading Tracy


  3. Graham

    Hey Daniil. Thanks for giving us a valuable lesson. Did you have builders risk insurance then or now? Is that the difference? Is that sufficient to offset theft and vandalism? Or is some form of security system is needed as well in addition to the insurance, if so what security system do you recommend?


    • Daniil Kleyman

      I get builders risk now and pay attention to my coverages. They don’t require a security system but in certain areas it’s a good idea. Don’t get ADT. They lock you into a long term contract


  4. Hard L

    I’ve only done one flip. Used rehabvaluator.com and #6 saved it in the end. Great insights reference #4. I knew enough discuss it and my GC had some guys sleep on site, so no burglaries. Thanks, Daniil.


    • Daniil Kleyman

      Awesome!


  5. Tony Caruso

    Unfortunately life is a learning process. The better prepared, the better chance of success and reduction of risk. I appreciate your story and will pass it on to my students who are interested in learning how to invest in real estate. I’m a Texas Broker and New Mexico Qualifying Broker for nearly 29 years and a Certified Texas Real Estate Instructor for over 20 years. I concentrate on commercial and investment properties for my clients. I know the successes out weigh the losses, or we would have jumped off that bridge long ago. Have a blessed day. Tony


  6. Mikey Catalano

    Thanks Daniil,

    You have a funny way of explaining a horrible instance. It is really nice to hear you’re still involved in real estate investing. I’m still a novice myself and all though I’ve done several flips from the construction side I’m still really new to the investing part of it. Thank you for your stories and advice; it’s always appreciated. You’re in Richmond VA, right? Do you know Dave & Tom Kern?


    • StefanieK

      Hi Mikey, thanks for reading. We do like to keep a sense of humor about our failures around here.


    • Daniil Kleyman

      Mikey – yep, I am in Richmond. Don’t know Dave or Tom


  7. Roger Buchanan

    Really enjoyed your story. Hopefully I have learned from this. Thank you.


    • Daniil Kleyman

      Certainly hope you did, Roger!


  8. Anand Dahya

    educationsl and tough to swallow

  9. Sounds familiar Daniil. Thanks for sharing this with us. I was too embarrassed to tell anyone any of my trials and tribulations over the past 30 years or so.


    • Daniil Kleyman

      No need to be embarrassed. We all make mistakes


  10. merlene

    Thanks for sharing your misfortune. That’s really a eye opening for me, starting my new business.


    • Daniil Kleyman

      Good luck in your new business!


  11. Jeffrey Alan Ellis

    Daniil,
    I want to thank you from the bottom of my heart for the warning. I guess that may have been something good to post on my facebook timeline. I do not have a business website yet. I had issues with work and school. I am just getting ready to start over, and the first thing is getting to know the market which means several things including the neighbors, etc. So your story reinforces the great importance of following the steps as learned.

    I am just starting to accept that I have to choose what is of great significance for me (and do it) and I am embracing my future slowly. I may look at your wholesale class to boost cash flow before I am forced to take my eye off the task temporarily.

    I am going to try to delete any junk so I can make some headway into an actual deal. I realize that I have been doing everything except what is important for me to succeed.

    I am grateful once more,
    Jeffrey Alan Ellis


  12. Wanda R.

    Thanks for sharing. This is very similar to a property I am currently working on.


    • Daniil Kleyman

      Hope you make more money than I did on this one, Wanda 🙂


  13. Louie M

    That is the perfect scary story to tell on Holloween:0, The Nightmare Flip

    On the serious side, thank you for sharing. Defenetly eye opening, and will remember to update my check list. Thank You


    • Daniil Kleyman

      I plan on telling my children this on Halloween for years to come 🙂

  14. Maybe you should have stuck to the original plan of turning it into a rental.

    Cash out on the short term through a mortgage, bringing things to break even.

    What’s the rental market like in that area?

    And of course, these days there’s AIR-BNB too. 😉


    • Daniil Kleyman

      This was back in 2010 🙂 Should have turned it into a rental for sure back then, and waited until now to sell it


  15. Joe

    Interesting story but happens to the beat of us, hopefully new people just starting will read and learn.

    Thanks


    • Daniil Kleyman

      For sure, Joe! Thanks for reading!


  16. Nader Boctor

    Daniil

    Thank you so much for sharing your experience


    • Daniil Kleyman

      You’re welcome, Nader!


  17. Michael

    Truly a great read – full of valuable lessons and details. Thanks for sharing your nightmare. Your lessons learned will be something I’ll definitely look back on as I consider a flip. Congrats on your successes, and demonstrating failure isn’t fatal. Cheers, Michael


    • Daniil Kleyman

      Glad you enjoyed it, Michael!

  18. I have a friend who’s nephew talked her into flipping a house because he could do all the work himself, told her not to tell anyone because they will try and talk you out of it, she is sorry now that she didn’t confide in me. I’m no expert by any means, made many mistakes and keep learning everyday but I would of told her to not buy a 156 year old farmhouse on a busy street three doors down from the shopping mall. This bozo nephew of her’s told her he could do it by himself for $30,000 and finish in six months while working his full time construction job six days a week. They did not hire any professional contractors to do plumbing or electric, he watched youtube videos, nothing can go wrong there, right? They have no money to finish, the work is shoddy, no garage, basement or driveway, when it rains it’s all mud. I don’t see how they will ever get rid of it or pass any inspections. I have people all the time telling me they want to get into rehabbing and once I start answering their questions or telling them some of the things we have encountered it’s a game changer. It is not, find a cheap house, fix it up and sell it for big money, it’s all the stuff in the middle that you need to know. You have to learn by your mistakes and you have shown just how to do that. Thanks for sharing!


    • StefanieK

      Thank you for sharing your experience Kimberly. I think you have hit the nail on the head. It is so important to learn from other people’s experiences, especially their mistakes.

  19. Hi Daniil
    That was a hard lesson to learn. Thanks for telling us about it so WE do not make the same mistake.
    thanks again for a lesson learned.
    Susan S


    • StefanieK

      Thanks for tuning in Susan.