The Tale of the Fix-n-Flip Nightmare!!!

[Sandy Noll]

Some of you know that I got my RE license simply as a means to gain access to comp info for investment properties. For two years my neighbor and good friend Mary Ellen and I had been watching and learning all we could about investment real estate. Her cousin was going to fund whatever she wanted to do so we did lots of drivebys, researched and then attended foreclosure auctions and got close to doing something a couple times. Each time I'd needed comp info I'd call up my good friend Matt. a KW agent, and after two years he finally said "you know Sandy you could do this for yourself?" I had NEVER given any thought to getting a RE license, but he was right. So I talked to his team leader, he signed me up for the online Rockwell course in Oct 2004 and I sat for and passed the licensing exam December 8, 2004! I was pretty jazzed when I walked out considering only 2 of 20 passed the exam and I was one of them!!!!

Now I was ready to get serious about finding that perfect fix-n-flip property. Then came the bad news....Mary Ellen's cousin was to wrapped up in his own ventures building condos in Costa Rica, that he didn't have time to look any of our plans over. To say I was disappointed is an understatement, but I decided to dive into working as an agent, after-all I did have a license.

In comes my husband, Travis. He had been a licensed residential remodel contractor for 10+ years at this point and one of his customers overheard him talking to me about fix-n-flips. She said she had actually been doing a little research herself and would love to do a project with us. We scheduled our first meeting for Monday, Memorial Day 2005. At that meeting they told us they were going to get a HELOC for $300k to use for the home purchase/repairs. I was to do all the research on the upcoming foreclosure auctions and zero in on a few properties to bid on. For those who don't know, watching properties can be a very long process. Often times the day before the auction, the property owner will get the auction postponed or stopped. So you have to be very patient and have several properties to potentially bid on. During that meeting we also presented them with two options. Option 1 - hire Travis to complete all the work, I'll be the listing agent and they'll keep all profits. Option 2 - we ALL work on the remodel together, which gets it done faster and we can get onto the next project sooner. They said they liked option 2, we agreed and said we should form a small LLC. They said their attorney had suggested that as well, but they didn't think it was necessary,we were all friends and they regarded Travis as family. He'd worked on their home on and off for 7 years. They wanted to split profits 50/50 and only wanted an extra $1000 for their financial risk. I told them we needed to eat, breath and sleep the property to get in and get out in 60 days or less. I gave them the MREI to study. We talked about trends like hardwoods, granite and stainless steel for kitchens. They weren't so sure about the granite but agreed on everything else. We mentioned again that we'd really like to form a small LLC, nothing we'd have to spend a fortune putting together just something defining what we were doing. They said "we'll see how this one goes and then we'll form one for the next project".

OK so that's RED FLAG #1, we should have turned and ran away right then and there. But....we were so excited about the prospect of fulfilling our dream we agreed to proceed without forming an LLC.

So I go about researching properties. We sent letters directly to the homeowners of a couple we were interested in hoping they'd be willing to sell prior to the auction, but no go. At the end of July we were set to attend the auction for one home in King county and the sale was cancelled. So we settled on a home in Snohomish county. I'd done my research and determined that we should set our limit at $280k. Other then a photo we had never seen the home. It's not uncommon to bid on a property sight unseen. Unless it happens to be listed for sale, you don't go knocking for a look-see of the home you are going to potentially bid on!

We arrived at the court house and there were hundreds of people there to bid and three criers auctioning off the foreclosed properties. I had attended previously to observe and there was always just one crier, so three made it a little crazy, but we finally found the right one for the property we were interested in bidding on. Prior to bidding you must verify funds with either actual greenbacks

or with a cashiers check made out to the trustee. We verified funds and lucky for us there was only one other person bidding against us. The opening bid must be at least one dollar greater then the opening bid amount set by the trustee. We started the bidding and with each bid my heart beat a little faster. It was very exciting and such a rush! We ended up successfully bidding on the home for $276k. $4k under the max amount I'd set. Mrs. Investment Partner & I celebrated with lunch and called everyone to tell them we were official RE Investors. I'd finally accomplished what I'd set out to do nearly three years prior! I could hardly wait to get started!

Here's our beauty!! We immediately called my RE Attorney and she drafted a letter to be delivered to the current occupants. Now we had to wait for 20 days for them to vacate. Mrs Investment Partner and I decided we should do a drive-by of the home we now owned (or she owned as she'd remind me later). When we got there, there was black paper on the windows, the yard was about 4 feet tall and it was hard to tell if anyone lived there. We didn't want to snoop around to much in case someone did so we waited for our attorney to deliver the notice. My sister lived by so I asked her to drive by daily to see if there were any signs that someone lived there.

The first week in August Investment Partners left for vacation that they had previously planned. On August 8th I couldn't wait any longer (the letter stated they had to vacate by the 15th) so I went to the home to snoop around. The letter from the attorney was still attached to the front door so I snuck around back. The black paper was a little scary. Was there a meth lab there? Transients? I did have with me a letter stating I was entitled to be on the property even though our Investment Partners refused to add our names to the deed.

Red Flag #2. If we were all in this together and they trusted us then why couldn't we have our name on the deed as well? Can't really argue with her when the trustee is waiting to fill out the paperwork and needs the name that should appear on the deed.

As I snooped around I went up the back deck and found the sliding glass door able to be opened. The home was vacant! It was time to get to work. I called Investment Partners and told them I was in, that the home was vacant and per our attorney if it was vacant we didn't need to wait until the 15th. Everything was very outdated and would need replacing. The recroom downstairs had cedar paneling that was so dry there was actually a fire extinguisher hanging down there! I asked them if they minded if I ordered the dumpster and got started demoing the house. They said go for it, so my daughter and I went to town!

We ripped out carpets, cabinets, molding, vanities. By the time Investment Partners returned, the house was pretty much gutted with the exception of some kitchen cabinets we couldn't get up and some laminate flooring that needed to come out. We were raring to go. Travis had given me a schedule of what should be done and in what order and I had my 60 day calendar laid out. Investment Partners stopped by for a couple minutes to see the home and what was needed to be done. They stayed about a half hour then they had to go.

Monday rolls around then Tuesday, Wednesday, Thursday, Friday and no sign of Investment Partners. I called Mrs. Investment Partner on Saturday and asked if they were planning to help. She said they'd come by but Mr. Investment Partner was mad because a Husky Football game was on and he wanted to watch it! We actually had to call to see if they were coming!! Remember I had told them we have to eat-breath-sleep this thing to get it done!!

Red Flag #3. Why are we calling to get help? They had agreed that we would ALL work on the house together!! Do you think we ran the other way............. So Investment Partners show up, help pull out the kitchen cabinets still remaining and a few other things. All of what they removed from the house they left in the front yard!! Why? I don't know, we had a dump truck sitting in the driveway. to lazy I guess. Actually, we thought they'd return to clean it up! They never did!

So by now we are about a month into the project, windows had been replaced, by Travis. Exterior painted, by Travis. Backyard Big Toy Play-system dismantled and yard cleaned up with a Bobcat, by Travis. Are you getting the picture??? Mind you we all had regular day jobs, except Mrs. Investment Partner. I was also planning my daughters surprise 18th birthday party. There were days my boys didn't even see their dad because he'd leave for work at 6am, go to the investment house from there and work until midnight or 1am. All total, Investment Partners might have put in 20 hours total between the two of them at this point.

On a particular weekend when we were working on the backyard, my husband was in a Bobcat moving dirt. My brother-in-law was building a new section of fence, my two sons and nephew were trying to stay out of the way and I was moving a wood pile from the house to the dump truck. At one point Chandler, my 8yr old, came to help me and was jumping on a piece of plywood that was put down on top of some of the wood. Now.....I know rats live in wood piles, but I figured with all the construction we'd been doing and the Bobcat running they would have vacated a long time ago. The movie Stuart Little came to mind and I imagined them packing up their little suitcases and moving on. Well......I pulled the last pieces of wood from the pile and had the final piece of plywood to go. I got a good grip and as I lift it.........there they were two HUGE RATS!!!!

I dropped the plywood and started screaming mouse, mouse. I was totally freaked out!!! I couldn't stop screaming, it was completely uncontrollable. I also thought I was going to wet my pants!!! Travis could hear me screaming over the Bobcat and counted heads thinking he'd run over one of the kids! My brother-in-law came running just in time to see one of the buggers run away and said "that's no mouse, did you see the size of that thing?""" I finally calmed down and said "there may still be one under the board cuz I just dropped it on it's head!!" Tim checked it was gone. That's it, I was done working outside, FOREVER!! Every-time I looked at that area of the house, I got the heebie jeebies!!

At the end of September we had a sit down. Investment Partners said they would put $25k of their own money into the project as well. We were pretty much on track to finish in 30 days, they said they were going to be at the house more to help get it down, things seemed to take a turn for the better. Mrs. Investment Partner and I were going to go to Lowe's to buy the kitchen cabinets the next day. They were against the slab granite idea, but I told them about a company I'd found Affordable Extras and they had given me a quote for $3100 and some change for the 1-1/4" granite, 4" back splash and installation. Mrs. Investment Partner said she wanted to get a bid from her tile guy for 12" squares (YUCK). I said OK, let me know what he says.

We meet at the next day and Mrs. Investment Partner decides that the off the shelf cabinets are not good enough! She wants to custom order cabinets!! For anyone who knows about ordering cabinets, that's a 3-6 week order time. I tried to tell her the cabinets were fine, builders were using the same product, but nope she won't hear of it!!! Two weeks pass before she's free to go out to order cabinets. So now we are six weeks into an eight week project. We find a company that says they can get us cabinets in three weeks so we go in to pick them out. At this point Mrs. Investment Partner informs the sales person that she's the one with the money and she'd be making the decision. Hmmmm, what happened to equal partners??? She finally decides on something, the order is placed and we spent $2000 more for the custom order cabinets then we would have if we got the off the shelf cabinets. AND we have to wait three weeks for them to be delivered. So there will be another HELOC payment and we are now going to be well over the 8 week turn around time. But....what can I do.

The next week I ask about the tile bid and get the "oh I havn't heard yet" response. So I decide to call Randy myself. The quote was for $2722, only $500 less then slab granite. I'm ordering the slab. I tell Mrs. Investment Partner what I'd learned, and that I need a 50% deposit for Affordable Extras. First she tries to say she'll come in and lay the tiles herself. I almost laughed in her face. Everything she'd done up to that point was AWFUL. Even her husband thought she should just stay home, because she was making more work for them. She proceeds to say, fine then that's all I'm paying, 50%. Period. Trying to stay nice and calm I ask why when the difference is only $500 and she says because she doesn't think we should do slab granite so she's not going to pay for it. I said FINE I'll pay for it and get reimbursed in the end. She said FINE!

So now we are at about mid October, fall is setting in , and the last time I'd seen or heard from Mrs. Investment Partner was when we discussed the granite. Mr. Investment Partner had been laid off from his job about this time, so he was making a little bit better effort to show up and help out. However, his skills weren't much better and Travis, who's a perfectionist, had to redo a bunch of stuff. We were informed at this time that the budget had been cut in half because they had now decided to take the HELOC payments from the remodel budget! Travis wants to walk but I begged him to just keep going. This was going to be our big payday!

We were onto the recroom and when the cedar paneling was removed the old glue remained so the entire room had to be resheetrocked. We got a bid for $4100 and Investment Partners said NO we'll have to do it ourselves because there wasn't enough left in the budget. So, a job that would have taken 5 guys one week to complete, took Travis six weeks to complete. More HELOC payments! Never once did Investment Partners show up to help hang sheet rock, mud/tape or texture. When Mr. Investment Partner was asked about Mrs he said "oh she's really busy."

Fast forward it's now December. I had noticed that market starting to turn and prices were coming down. I told Mr. Investment Partner we NEEDED to get this house on the market, even though we were only about 95% complete. We could finish while we waited for closing. He agreed. Prior to giving him the listing agreement at the advice of my team leader/broker, I gave them a Quit Claim Deed adding mine and Travis' names. You'd of thought I was asking for the moon! Mrs. Investment Partner called me up (remember I hadn't seen or heard from her in two months by this point) and chewed me up and spit me out!!! She threatened to give the listing to someone else. She told me it was my fault my kids weren't seeing their dad because I wanted to do to much. Funny thing is, everything we did, they agreed to and wrote the checks for. She said there was no way they were going to add our names to the deed! I didn't really respond to her except to say she had reneged on the agreement to help, that Travis was doing all the work and that I'd hire an attorney if she gave the listing to someone else. She hung up on me! Shaking, I called Travis, told him what she'd said and wanted him to talk with Mr. Investment Partner who was at the house working with him. Travis is so non-confrontational that he didn't say anything. Mr. Investment Partner upon returning home and hearing what Mrs had to say, proceeds to send me an email and the long and short of it was that the one with the gold makes all the decisions and he's the one with the gold!!!! Can you believe it???? I did not respond to his email because I just wanted to get things done and move on. Obviously we wouldn't be forming an LLC with them and there wouldn't be any other projects!!

I completed the listing agreement, delivered it to Mr. Investment Partner, he pulls it out, looks at it and says "you'll need to change it to DRS, LLC" I thought I was going to be sick. I was physically ill. They had gone behind our backs and formed their own LLC. Keeping my composure, I said OK, changed the name and redelivered it. Then Mrs Investment Partner decides she's holding the agreement hostage until I give her all the receipts. I was doing a spreadsheet and hadn't had time to enter everything in. I'd said I'd be happy to get them to them by the end of the week. Mr Investment Partner then calls me the next day and says only one of them has to sign the agreement and he's president so he'll meet me at Starbucks with the listing agreement. So now it's obvious he's had enough too and just wants to get it listed and sold! Then they were off to their $10k/week stay in Hawaii for Christmas. And no the house still wasn't 100% complete. We had cancelled our summer campouts to work on the house and spent New Years Eve there ringing in the new year with paint brush in hand!!

When I got home to enter the listing, enclosed was a piece of paper with all their demands for closing. No where was there any compensation to Travis. They were now saying my commission was part of my profits. They thought the 6% was going straight to me and wanted to match that before splitting any profits. Because they had said they'd run out of money, we put $10k of our own money into completing the remodel. It was not going to be repaid because they never "asked" us to put in any money. I sent them an email explaining the 6% was LOC and SOC, asked about Travis getting paid for his time (about $40k in labor) and said what happened to you getting an extra $1000 for financial risk taken and the rest was split 50/50? I never got a response.

Well long story short we sat and sat and sat. Thought we had an offer and I was going to do both sides (there's some redemption for us) but they backed out because the neighbors had told them some lies. Finally got an offer and closed May 31st, 2006, 10 looooong months after successfully bidding at the auction. Finished product! With the exception of 2 toilets & a jetted tub everything was new. There ended up only being a $6k profit because of $14k paid in HELOC payments and do you think they paid Travis? Nope. In their minds it was my fault and Travis would have to take it up with me. We did not get our $10k back either, so essentially my commission covered that so neither Travis or I received anything for all our hard work. I developed tendinitis in my elbows and worked in December with pneumonia. Travis missed out on time with his kids and his back went out a couple times.

Moral of the tale: NEVER NEVER NEVER TRUST ANYONE WHEN IT COMES TO BUSINESS!
I knew we should have formed an LLC from the git go. It's just smart business, but my husband felt like he knew them well and truly believed they wouldn't have done anything to screw us! After-all they regarded him as family. At the end I thought I'd hate to be part of their family if that's how they treat them.

My good friend Matt said when emotions and money got involved it was impossible to reason with them. That project nearly cost me my marriage for a myriad of reasons. My boys got yelled at way to much for getting into things they shouldn't have, but what else were they to do? Mr Investment Partner even had the gull to get on Chandler one day and I phoned him later and said I'm done bringing my boys over to get yelled at. He'd need to help Travis finish up.

I did contact an three in fact, but the bottom line was without anything in writing it would be a tough case to prove.

Would I do another? ABSOLUTELY!!! I would love to do another fix-n-flip. It was very exciting even with all the drama. Obviously I'd do things very differently. I think it would actually be a waste to never do it again and apply what we learned. I'm a firm believer in learning from one's mistakes. Plus there is the new Flip book with better guidlines to follow Travis says no way, I'm oughta here!! The crux of it is that Investment Partners were not independently wealthy. They'd gotten where they were financially because of inheritance money from his family. I also believe it was VERY difficult for them to go from hiring someone to remodel to doing the work themselves.

Months later Travis was at a another local hardware store and in walks Investment Partners. Mrs says "oh look it's Travis" and waves as if nothing happened. Mr walked to the back of the store. Travis was just thankful he was next in line at the cashier and turned his back to them. He said he started shaking and felt sick and was surprised by his reaction. I asked him if he'd read this post and he said No!

Sorry this is soooo long, but thank you to everyone for reading. It's like therapy for me!

Sandy Noll
Realtor, eAgent
Keller Williams Realty
425-890-0878
[e-mail]
http://www.letsachieveyourgoals.com/
Woodinville, Kirkland, Bothell

[Kathleen "Kate" Elim]

Sandy,

I suffered with you each step of the way. No suspense in this story just abuse. Unbelieveable.

Please be careful in the future. I am glad you are not going to give up. If this is something you want to do, do not let "them" take that away from you.

My first real estate transaction was not my best experience. This was back in 1986 and I remember it like it was yesterday but here I am in 2008, still loving real estate. If you ever want to know my "story" I will be happy to share.

Sandy, this was only Chapter 1. I'm looking forward to a very successful Chapter 2 from you.

Take care,

Kathleen

P.S. Take good care of that Travis. He sounds pretty special.