Spend time educating yourself before jumping in. No, not with some $49,777 mentorship through the guru-of-the-week, Look online and read everything you can on house flipping.
Meet with a local house flipper or two in your area. Don’t view them as competition, but as heroes. Help them out. Find them a deal. Build that relationship. Learn. Grow.
Learn your city, inside and out. Yes, this means getting into your car and driving up and down every road you can. Talk to people. Find out what others think about different locations. Become an expert on your town.
Get to know some real estate agents. They can help you find great deals, get you comps, help you connect with lenders or contractors, and a lot more. Don’t settle for an average agent though – find a great investor friendly agent.
Don’t let fear keep you away from getting started, but use that fear to keep you careful.
Consider partnering with someone more experienced on your first house flip. Remember, 50% of a great deal is better than 100% of no deal.
Understand that big money can be made when house flipping, but big money can also be lost. Don’t go in unprepared.
Is your spouse onboard with your house flipping plans? If not, don’t even think about starting.
If you plan to do the labor yourself, you’ve bought yourself a job. Nothing wrong with that – I’ve done it multiple times. However, it IS a job. If you want to run a scalable business, learn to budget for others to do the labor.
Take inventory of your skills. Can you manage people? Can you do the numbers/math? Can you organize 50 different moving parts? These are essential skills for any house flipper to have. If you lack them, consider working with a partner.
Flipping houses takes money, but that money doesn’t need to be 100% yours (or even 0% yours.) Spend time up front learning about how Insource Funding Can Finance your flip, including the no (and low) money down strategies discussed in our recent book “The Book on Investing in Real Estate with No (and Low) Money Down” by… me!
Watch the flipping TV shows, but understand that they are mostly fake. But that’s okay – they are great for inspiration and you might even pick up an idea or two.
If you are not familiar with how basic home construction works, spend some time at Home Depot or pick up a basic book on home improvement. You don’t need to be a pro, but you do need to understand the basics.
Understand what improvements are needed in your market and what improvements are not. Granite countertops? Hardwood floors? Just because you saw something on a flipping TV show, doesn’t mean it’s needed (or wanted) in your neighborhood.
Start building your house flipping team before you buy your first flip, but don’t think that it needs to be formal. You aren’t forming the next Avengers group. Just start networking and finding who the best people are in your town to work with.
Read my article from last year “How NOT to Flip a House: An Embarrassing Story of Wasted Time, Money, and Opportunity.” Learn from my mistakes.
Shopping for Great Real Estate Deals to Flip
Focus on one particular area of your city when looking for a flip. If you have to sift through 100,000 homes for sale, it will overwhelm you. Develop what we call, your “farm area.”
Know your criteria. What is it you are looking for? Five bedroom homes? Two bedroom homes? Three thousand square feet? One thousand square feet? Write down what you are looking for so you don’t waste time sifting through deals you don’t want.
If you are shopping on the MLS for deals, use a real estate agent. The seller pays their commission so it’s free for you!
Flip houses in locations that people want to buy.
Flip houses that look like houses people want to buy.
Look for the worst house on a nice street.
Don’t underestimate the importance of the condition of the neighbors’ homes. The house next door to your flip might look great in comparison to the wreck you are about to fix up, but after your flip is flipped, will your neighbor’s home look like a dump?
Neighbors with dogs can kill the sale of your flip. Trust me. Been there, done that.
Connect with local real estate wholesalers in your area who can find and bring you incredible deals, but understand that 99% of wholesalers have no idea what they are doing. Look for the 1% who do.
Properties with a bad smell can often be the best flips. Bad smells are typically easy to remedy but drive away most of the competition. Just be sure to understand the source of the smell before closing on it!
Consider direct mail marketing to find deals. For more info.
Driving for dollars can be a great way to find deals. Yes, that means getting into your car and driving around, looking for potential house flip opportunities. Combining this with your direct mail can be incredibly effective.
Talk to the neighbors of any potential flip when shopping. You can often learn interesting and helpful things about the home (“yeah, this place floods every year!”)
Talk to your mailman about potential leads. They spend more time in the neighborhood than anyone else and are also most likely to know of vacant properties.
Don’t forget to check Craigslist for deals – both by posting ads and looking for posted ads.
Monitor public eviction records and reach out to the landlords who are doing the evictions. With the stress that an eviction can cause for a landlord… talk about motivation!
Tell everyone you know that you are looking to buy real estate. You never know who will know someone who knows someone with something to sell!
Consider training your own wholesaler or birddog to find deals for you.
Place ads on Facebook, Google or Craigslist that you are looking for real estate deals.
Make a lot of offers. No, you don’t need to be the guy making 1000’s of offers and ticking off all the real estate agents – but finding a great deal is often a number’s game. The more offers you make, the more deals you’ll likely get.
Analyzing Your Next Flip
Make sure you actually do analyze your deal. DO NOT rely on your intuition. That’s a recipe for disaster.
A flip analysis begins with knowing the ARV (after repair value.) You NEED to be confident in this number. I once flipped a house that I thought would sell for $170,000 when fixed up but after 12 months on the market, finally sold for $125,000. I clearly did not know the ARV.
Don’t assume future appreciation. If the ARV today is $150,000 – don’t convince yourself you can probably get $160,000 because prices are going up. Assume that $150,000 or even less.
Keep emotions out of the analysis. Keep it strictly about the numbers – not about your excitement.
Use the 70% rule for a quick and dirty way to estimate your maximum allowable offer.
But don’t rely 100% on a rule of thumb to make decisions. Rules of thumb are great for quickly screening through properties, but always do a more thorough analysis that includes ALL potential expenses. We recommend the BiggerPockets House Flipping Calculator.
Hire a professional home inspector ($350-$600) to comb through every square inch of the property. They will see things you don’t.
Create a scope of work that breaks down everything needed to be repaired, broken into manageable categories.
Use that scope of work to create a detailed budget.
Ask a contractor to help you estimate the repair costs. Pay them if necessary.
The two main causes of losing money when house flipping are, a.) going over budget and b.) going over your timeline. Make sure your analysis gets this right.
When doing the numbers, be conservative in your math (and liberal in your expense estimates.) Think flooring will cost between $2,000 and $3,000? Budget for at least $3,000.
The information about the property that the selling broker supplied is worth about the same as the paper it was printed on. Do your own due diligence on the numbers and condition of the property.
Include an “overage” budget in your math of at least 10%. So if you plan to spend $30,000 on repairs, set aside an additional $3,000 (at least) for overages.
Remember: every day you hold the property costs you more and more money. This is called “holding costs.” Don’t forget to include them in your analysis.
Take numerous photos of the property, inside and out. Trust me – you won’t remember everything. This will help with your analysis later.
Drive around and look at the recently sold comps in the neighborhood. How similar are they to the property you want to flip?
Run your numbers past an experienced investor and see what they think. I recommend just asking for help in the Forums here on BiggerPockets. It’s easy and free.
In your analysis, don’t forget to include the closing costs you have to pay on both sides of the flip.
The tax assessed value from your local Tax Assessor is NOT likely the actual value. This number can be off dramatically depending on where you live.
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Financing
Conventional loans can be a relatively inexpensive way to finance your flip, but getting a conventional mortgage on a distressed property is extremely difficult unless the home is really in good shape already.
Don’t have the cash? Consider using a partner who can finance this project. This is known as an “equity partner” or “equity investor.”
Equity in your own personal home? Consider getting a Home Equity Loan on your primary residence to pay for the flip – or cover the down payment.
If you are willing to move into the home and live for at least one year, consider getting an owner occupied loan like the FHA loan to help keep your down payment requirement down. If you use the 203k FHA loan, you can wrap the repair costs right into the loan!
If the deal is good enough, the money will be the least of your concerns. So focus on finding the best deals possible and the money will find you! or we will personally deliver it.
Managing the Flip
Don’t hire your brother, uncle, or best friend to be the contractor on the flip. I know it’s tempting, but understand that the risk of losing that relationship is great.
You can hire a handyman, full general contractor, or subcontractors to do the work. There is no “one right way” to get it done, so feel out all three options and see what fits your budget and skills.
If you are hiring others to do the work, still show up the property often – especially if you are working with contractors you have not used in the past.
Contractors are notorious for not writing down your wishes and later forgetting what you wanted, messing up your ideas. Give them specific instructions – written down – and have them sign it.
Hire only licensed, bonded contractors. If they get hurt on your property- you don’t want to cover their medical bills for life.
Keep every receipt. Use a smartphone app to keep them organized.
Do not save your bookkeeping for the end of the project. Update your records daily if possible. The more organized you are, the greater your opportunity for success.
Contractors tend to not show up for appointments, so when getting bids – schedule group showings of the property.
When your contractors are finished and you’ve paid them, get them to sign a “Lien Waiver” so they can’t come back later and place a lien on the property.
Rehab Ideas
Curb appeal matters more than you think. Be sure to make it look INCREDIBLE from the street.
Change the front door. It’s the first thing people see when they come up to the house so make it count.
Use the same interior paint color on all your flips. It’s just easier. No need to get fancy!
A large fancy-looking shower head can be an inexpensive way to make your bathroom look high-end.
Put on an electronic keypad deadbolt on the front door so contractors can’t lose the key and when the home is sold, you can change the combination for the new owners.
Bark mulch is an inexpensive way to make the outside look new and fresh.
Cabinets can often be salvaged with just new paint (depending on the quality of the flip you are doing.) Paint and new hardware on the cabinets can totally transform them.
Try to buy your appliances around US holidays when appliances go on sale. My favorite day to buy appliances is “Black Friday” – the busiest shopping day of the year. Appliances can often be purchased for 1/2 price or less.
Install high-wattage light bulbs in all light fixtures. It will make the house appear brighter.
Home buyers are exceptionally nervous about faults in the plumbing, electrical, roof, and foundation. Be sure that these four systems are up to snuff. Are you enjoying this post? Why not Tweet it or share it on your Facebook?
Selling That Flip
Staging your home with furniture and nice decor can help you sell your home faster and for more money.
Some of the best staging stuff can be purchased cheaply at a Ross, Marshalls, WalMart, or Target.
Cheap plants, placed in the corner of the room, can totally transform a room.
Hire a professional real estate photographer to take photos of the flip. In a modern world where nearly all buyers are shopping online for homes, amazing photos will get more people to actually come check out the home in person. No – your iPhone is not good enough.
Always include a bowl of delicious chocolates on the countertop. Why? Because real estate agents like chocolates and will naturally think of your home when they are out showing properties to clients because they want that chocolate. At least that’s my theory.
When staging, air mattresses (raised up with buckets and covered with sheets and blankets) look just like real beds. But much easier to move in and out!
Find ways to minimize “awkward spots” in your flip using wall accents, plants, paint, and other bits of staging.
Consider pricing the home with different price points based on features. For example, “$199,000 as is or $212,000 with the furniture included.” This way, people will naturally compare between the two or three options, rather than compare with the house down the street. It’s an old marketing trick that works!
Send out postcards to all the neighbors inviting them to “pick their new neighbor” by referring their family and friends to come buy the property. For more information on Flipping houses, contact insource funding @ 800-805-3391
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