Thinking of Flipping?

What should I know before diving in?

First thing you need to know is that it is nothing like it is on TV. Flipping or rehabbing as it is known in the states is difficult. It takes time, money and persistence. First thing you need to do is figure out what your good at. Are you good at organizing people, working with your hands, budgeting, estimating hours,etc.? Once you know that you want to flip properties, ask yourself if you have the time to do a flip. Do you have the down payment money for the home? If not, where will you get it? Can you qualify for a mortgage for the home? If not, do you know someone who can? Do you have extra money for the materials and labour?

It seems daunting but it can be the most rewarding of the investment types... if you do it right. It can make you 10’s of thousands more a year with not THAT much effort... if you do it right. It can be very rewarding, taking a rundown home in a nice community and make it shine....if you do it right.

You're only as good as the people around you. Get yourself a great accountant, a great corporate lawyer, a great handyman, a great Realtor®, a great contractor and so on. These people will help you from making very costly mistakes, I know I made them. Interview a few, do not settle on one just cause your cousin used them. Ask hard questions. Do they have experience in Real Estate? Do they own property? If not then what is their experience? Do they have investors as clients? And so on. Get a good team of people and stick with them.

Also think about starting a corporation. It is great for liability and for tax breaks. Please talk to that great lawyer you found earlier and the accountant. They will tell you the best structure to flip homes.

Lets begin

So you're ready to go. Now you need your financing in place. If you have little credit and not much money this can be difficult but not impossible. Find an investor. Mom? Dad? Anyone that can see the potential in you. You might have to give them 50% or more on the first few until you build up some cash. But by then you will be experienced and it will be easier to get money. Once you have the 5 or 10 percent down payment you need a good lender. Remember you want a short term mortgage cause this house will not be in your hands long.  Once you have the cash and you're pre-approved for your mortgage, you know your maximum you can spend. It’s time to look for a house.
 

What’s next?

Next you need a great agent. As mentioned before. Find an amazing agent that has experience in investing and knows what to do. Find one that is good with numbers and likes spreadsheets. This person will be your right hand in flipping. Not only will they find properties faster and easier then you but when it comes time to sell they will do it in half the time. I know I am biased because I am a agent but before I was or even thought of ever becoming one I knew I needed one on my team. Just like a lawyer or accountant you need a great agent on your side. Just make sure you add the commission into your expenses.

I have tried to find and sell property on my own. So have other investors I have spoken to. The headache, time, money and inexperience is not worth it. Realtors® are around for a reason. Use them and use them wisely. Do not worry if the Realtor® also flips houses on the side. There are more then enough deals for everyone out there.
 

What am I looking for now that I have the money and the team?

So there are 2 golden rules to flipping. One is that you buy the ugliest house you can find in the nicest neighborhood you can find. So get your Realtor® you hired to find you properties that are handyman specials, need TLC, foreclosures, motivated sellers, etc.

Rule 2 is that you make all your money when you buy the property, NOT when you sell. This means that you need to buy low. How low? About 15%-25% off the price of a comparable home that is all nice and done up. So if the nicest house on the block is $300,000 and it is very similar to the one you're looking at, you should be buying for $240,000. This is just a scenario. Don’t think this will happen on the first house or even first few that you look at. When your agent sends you a home, do the numbers quickly, maybe make a spreadsheet. Then if the numbers look decent, go and look at the place. Buy low and sell at market value. That is the key.
 

Found a house

You found an ugly house in a nice area and the buyer is motivated. Perfect. You bought if for a great price I assume. Now the part most people hate. The budget. Time and money. Make sure you pay yourself first. Take that spread of 15-25 percent and pay yourself. Please do not be greedy here. Take what you think is worth your time and investment. Now the rest is used for the repairs, labor and carry costs. Remember the carry costs. Not matter what stick to your time and money budget. Add 10% on top of it all for problems. Problems and issues always come up.

Also when you look for that house. Make sure you take on a project you can handle. If it is your first time maybe find a place that needs a little paint, some curb appeal and a couple other smaller items. Save the foundation work and gut jobs for your 3rd or 4th flip. Start slow, get your bearings and then ramp up.

As the weeks and months go by I will blog about the best thing to do in a flip. The things that get you the most money and tricks of making things look nice for little to no money.
 

End result

So your house is done. Get your Realtor® to market hard and fast. Get this place sold quickly. Price is very well, even a little below a competitor. A family selling the same home might have months and months to to wait and sell but you do not. 30 days and the place is sold. Another 30 and you have your money in the bank. And it took you less then 30 to find/fix and get on the market. So 90 days would be the perfect flip. 120 might be more realistic for some.
 

Conclusion

Remember that this is just an intro to flipping. I could write pages upon pages on this topic and there are a lot of books that do. This is a great sense of what it is like and how to do it. If you want some inside info and a personal account of jobs I have done then call or email me. I would be glad to talk to you and see if I can help in some way. I enjoy talking about investing...and I expect nothing back. Just a good conversation and a coffee.