The Business Behind Flipping Houses: Creating Systems & Streamlining Your Operation

Are you looking to start flipping houses but you are unsure where to start?

Have you read a couple books, listened to a couple podcast or even seen some TV shows on HGTV and seem to be overwhelmed with the process?

Maybe you took a chance and hopped right in to the game and ended up losing money (We have all been there, it is a good start)

When starting out in this business many do not realize the moving parts, different costs and risk associated with flipping houses if you are not prepared. While there is definitely risk associated with house flipping, there are specific systems, people and departments you can put into place to mitigate risk and maximize profits.

In this post I want to try and cut down the learning curve for you or help improve your already established business. Just like any business it takes hard work, education, the ability to take action and a limiting fear to fail.

If you want to create a real estate investment business and not just a hobby, we believe that we can add value to your goals.

Intro To Start Flipping Houses

As you guys probably already know, there is so much information out there on the internet, through books and on television that it is hard to decipher the best route to go and who you can trust. My goal is to cut through a lot of the confusion and show you how we have found success. Just remember that this just like any other business can be difficult to find great success but if you take the correct measures you will find this business to very lucrative for your family, employees, team and yourself ; ). So let's get started on getting on the track and building that profitable business.

Develop An Infrastructure To Support Your Business

Before you start taking action it is necessary that you build an infrastructure to support your business. Depending on where you are in your business will depict what level of infrastructure you will need to put in place to support the volume to meet your intended goals.

1) Determine Your Goals & Develop A Simple Plan

With every mission there needs to be a destination or goal. The way we reach out destination is through the plan we put in place to get us from A to B. This step will take you some time to determine exactly what we want, where we want this business to us and exactly what we want to achieve. Do you want to put yourself in a position to be your own boss because you just hate your 9-5? Do you want to create a business where you can go on vacations with your family and know that you are still producing profit while you are away? Or do you simply just want to create some extra income while still working your 9-5? Do you want to flip 8 houses a year to produce an extra $200,000 in income so you can pay for your kids to go to college? Whatever your goals may be, make sure you have them laid out before you start. This is going to help you determine your WHY which will help push you through the tough times of operating this business.

Depending on where you are in your business will determine the detail of your plan. Initially we do not recommend putting together a complete business but just a road map to keep you on track. The information that will come from the rest of this post will help you develop your road map or enhance what you already have in place. A plan is useful because it will keep you on track and always be a guideline for you to refer too as well as giving lenders a high level look at your model.

2) Develop A System Mindset

You are probably saying what the hell is a System Mindset? Believe me when I first started in business I couldn't wrap my head around it either. As you get more involved and begin taking action you realize that each process of your business needs systems in order to make that process run smoother. This will help you streamline each process and allow you to take on more volume and scale. We always say "where there is a problem, create a system". Throughout the life of your business you will be improving and iterating the systems you have in place.

3) Develop A Team

One of the most important components of your business will be the initial team you put together to reach your goals. When you first starting out, there is no need to hire official W-2 employees. I am talking about the 3rd party employees that you need to begin building relationships with to help grow your business. Some of your initial team members will be:

• Real Estate Attorney

• Real Estate Closing & Title Company

• Real Estate friendly Accountant

• Real Estate Agent/Brokerage

• Real Estate Investors (wholesalers, house flippers, birddogs)

• General Contractors

• Sub Contractors

• Inspectors

• Vendors

One of the biggest benefits to the real estate business is that fact that you can use so many third part independent contractors to help reach your goals and grow your business. As you begin to take action and build relationships you will also learn that the people you choose for your team will want to help you in any way possible because the more they help you, the more business they will be getting themselves. Once you prove yourself has an honest, trustworthy and reliable individual the sky is the limit.

4) Education & Action

Since you are reading this post, I have to believe that you find educating yourself on the topic an important factor to your success. Education is one of the key components of making you feel comfortable enough to take action to reach your goals. A lot of people have a fear of failure because they are overwhelmed and do not have a plan of action in place. The more prepared you are, the more likely you will take action and action allows you to reach your goals.

Now there is this little term you may hear a lot "Analysis Paralysis". This is the state of over analyzing a specific situation so that action is actually never taken. This actually happens to a lot of "could be entrepreneurs", they basically educate themselves to death. This can actually be very easy to do, due to the amount of information that is available to us today.

Here are starting tools to begin getting the education you need to start taking action:

• Books (The Book on Flipping Houses by J.Scott, Flip: How to Find, Fix, and Sell Houses for Profit, Fixing and Flipping Real Estate: Strategies for the Post-Boom Era by Marty Boardman)

• Podcasts (Epic Real Estate Investing by Matt Theriault, Wholesaling Inc Podcast by Tom Krol, BiggerPockets Podcast)

• Blogs & Vlogs

• Seminars

Remember do not educate yourself to death, you are going to learn the most by taking action and building relationships. The sooner you get to that comfort level, the sooner you will be able to reach your goals and seeing success.

5) Dropbox File Sharing System - One of the most difficult aspects of flipping houses is staying organized with your documents pre-purchase to sale. If you are an experience house flipper, you know that if you do not have the proper systems in place, the paperwork can become overwhelming. So before you start flipping houses you need to develop a standard file sharing system that you will use on every project. Dropbox also allows you to share vital information over the course of a project with team members that need access. Here is a high level look at our primary folders inside our sharing system. Within each one of these primary folders we have sub-folders to further track the specifics of each of our primary folders.

6) Set Up Your Company - When you are first starting out and this is the first business you have ever started, this question is easy to get stuck on. When you first begin your real estate endeavors , there is no problem with purchasing properties in your legal name as long as you are operating business in an ethical manner. When I first started out in this business,I probably purchased my first 3-4 properties in my legal name. For this portion of the article, we will discuss some specifics in regards to which entity type you should set up. Before we want to get one point across to you, that is do not let this hold you up from taking action.

NOTE: I am not an attorney, nor am I an accountant, and I don’t play one on the internet. I’m not giving legal or financial advice so take these suggestions for what they’re worth.

Develop A Marketing Plan & Execute

There are usually two areas investors have trouble with, one of them is financing (which we will get to later) and the other is marketing or finding deals where the numbers actually work. Through our experience we have found that the most deals are found off market (off the MLS) and marketing direct to sellers. We are firm believers in this and at this point you not exactly be looking for the right house but for the right seller. When first getting started, new investors believe that the best way to find there first deal is to get in touch with an "investor friendly" real estate agent and have him scour the MLS to find you a discounted property. In my opinion, the MLS is the last option for a successful real estate investor. If your only lead source is the MLS, I can bet that you are not having much success.

So how exactly do we find these motivated sellers and who are they?

Motivated sellers come in all different shapes and sizes. Some of the motivation that you will be targeting will be:

• House in a lot of disrepair and the homeowner does not have the money to fix it.

• Family has inherited a property a deceased loved one and wants nothing to do with it

• Homeowner is delinquent on there taxes and does not have the funds to pay the taxes

• Homeowner is behind on their mortgage and is facing a foreclosure

• Landlord is sick and tired of dealing with tenants and managing the property

• Owner is relocating due to a new job or change of plans

• Recently divorced

• Older folks (65+) looking to downsize

• Owner is just looking for a hassle free sale

• Landlord is currently going through an eviction

• Property has to many code violations on it and has become a hassle

These are just a few of the most common motivations that we find from homeowners. The longer you are in the business, the more crazy situations you will find.

1) Inbound Marketing

Inbound marketing is the process of attracting, converting, closing and delighting your customer through a variety of online mediums. The starting point for all inbound marketing strategies is a website. In our experience, a educational based website proving your credibility and authenticity goes a long way in building trust with your potential sellers. In today's current environment, we spend tons of time on the internet and seem to always google everything (and this is where they will find you :). Let's go over some of the inbound marketing mediums that you can be on to help gain exposure and attract motivated sellers:

A) Organic Search (SEO)

B) Paid Search (Google Adwords)

C) Social Media Organic (Facebook)

D) Social Media Paid (Facebook Advertising)

E) Blogs (Increase Organic Search Rank & Online Presence)

F) Vlogs (Increase Organic Search Rank & Online Presence)

G) Ebooks, White Papers & Infographics

H) Free Classified Ads (Craigslist)

2) Outbound Marketing

Outbound marketing is the process of attempting to initiate a conversation/exposure about a service by spreading the word through traditional marketing methods. While your inbound strategy may take longer to begin seeing success (organically), your outbound strategy has the potential to bring you deals within weeks (if done right). Here are some of the traditional marketing methods used to attract motivated sellers:

• Direct Mail

• Cold Calling

• Television

• Radio

• Newspaper

• Billboards

• Bandit Sings

• Banners

• Driving For Dollars

• Door Knocking

• Trade Shows

• Branded marketing (Key Chains, Pens, Newsletters, etc)

Before we move on from outbound marketing I want to touch on of the more popular outbound marketing strategies, that is Direct Mail. Direct mail is the concept of purchasing lists to further target your sellers and send them mail (letters, postcards) to either direct them to call a phone number or to your website to sign up. Direct mail has the potential to bring you numerous motivated sellers in a short amount of time (if done right). Let's go over some key concepts that you need to implement in order to be successful with Direct Mail.

A) Consistency - The name of the game is consistency. In order to find a lot of success with direct mail, you have to consistently mail your plan. Whether you are sending out 100 letters or 100,000 letters you need to create a mailing schedule and stick with it. We typically mail every 3-4 weeks, we found from testing that this duration has proven the most successful. The goal is to get your mailer in front of the right person at the right time and the more consistent you are with your mailers, the better chance you have of finding that deal.

B) The Lists - The second most important aspect of direct mail is the list that you are mailing too. As we previously discussed there are several different motivations out there that have the ability to produce a deal for you, as well as you being able to help the person out in that situation. Each market will respond different to the mailers that you send out, so what works well for us, may not work best for you. Here are some of the lists that you can consider mailing to:

• Tax Delinquent

• Absentee Homeowners

• Vacant

• 90+ Days Late on Mortgage

• Code Violations

• Bankruptcy

• Probate

• High Equity Lists

• Evictions

• Divorce

• Yard Sales

• Arrest Records

So now that you have the specific lists that you should be mailing to, we have to let you know where you can get these lists from. Some of the best list providers for real estate investors are:

• www.flipthisrealestatelist.com

• i.findmotivatedsellersnow.com

• www.myleaddog.com

• www.rebogateway.com

• www.propertyradar.com

• www.listsource.com

• County Clerks Office

C) The Message - The message on your marketing piece is very important to attract the right people and get your phone ringing. By communicating the write message on your postcard or letter you will increase your lead per closing rate which increase the amount of revenue you do, which in turn will help you reach your goals. The marketing piece that you use should be a filtering funnel for you so that you do not have to take so many calls to get 1 deal. One message that we use that has had some success is:

"My name is "NAME" and I would like to buy your house at "ADDRESS", If you would like a quick, NO-hassle sale at a fair price, please text or call me direct so that we can talk"

NUMBER

or visit our website at

"WEBSITE"

D) Choosing The Right Marketing Piece - When it comes to marketing pieces you have a couple options; 1) Yellow Letters, 2) Postcards, 3) Professional Letters. I personally am not a huge fan of yellow letters or professional letters because there are more steps involved for the seller to see your message. Also, investors tend to add to much verbiage on the letter which can dilute the message resulting in more calls but less qualified leads. Yellow letters are also more expensive to send out with any volume and consistency. With that being said, obliviously we are bigger proponents of postcards. Postcards allow you to cast a wider net and relay a more direct message. Postcards are much less expensive to mail at scale and will allow you to bring in better leads due to simple message portrayed on the card.

E) Tracking The Numbers - Knowing your numbers is an essential part of your marketing strategy. It is very important to know which lists are performing well, which message is performing the best and which piece is outperforming the next. This is essentially done through split testing or A/B testing. You will essentially be comparing 2 different direct mail campaigns in order to see which campaign is performing better. This will allow you to make invaluable business decisions because at this point you will be listening to the numbers. If you are only receiving 5 calls a campaign from you "Late Mortgage" list but you are receiving 100 calls from your "Delinquent Tax" list, then you should probably drop the "Late Mortgage" list and double down on the "Tax Delinquent" list. Seem's pretty easy right? It is easy if you have set up a system to track this information for you. (we will get more into detail with this topic later in the post). Long story short, make sure you create a system that allows you to track all of your mailing campaigns. A good start is create different phone numbers through CallRail and attach these phone numbers to the different campaigns in which you are receiving calls. We will talk more later on how to automate this process and make it much simpler to manage (It has to do with Podio hint,hint)

The Acquisition Process: Without Acquisitions There Are No Deals

In my opinion this is one of the funnest parts of being a real estate investor. This is the sales process of purchasing properties at a discount. We just went over how to get your phone ringing and sellers signing up on your webpage. Now we have to learn how to qualify these sellers to determine if we have a possible deal, set up appointments, run high level estimates, create offers, negotiate, accept offers, detailed due diligence (inspections) and getting the offers into our attorney/ title & closing companies (depending on the state) hands. Understanding this process and having the right systems in place will ensure that you never lose on a project as well as give you the ability to negotiate superb margins while still helping the seller out.

1) Homeowner Qualification - Once the phone start's ringing and leads begin to come in through the internet we have to have a system in place in order to qualify the homeowner. This is essentially the starting point of the Acquisition Process and will determine if the lead makes it to the next stage of the sales funnel. We recommend that you create a Homeowner Qualification document that will help you (or your admin) all the key questions to obtain the necessary information you need in order to determine if you set up an appointment to view the property. If you are looking for access to our Homeowner Qualification document, just shoot me over a quick email (dan@hspropertyfunds.com) and I will get it right over to you.

During this call you want to try to build a relationship with the seller, understand the root cause of their motivation and also get all the necessary information from them so your acquisition manager can determine if an appointment is necessary or not. This is a vital step in the process because you and your team can find yourselves wasting a lot of valuable time going on unnecessary appointments and evaluating deals that will never be deals, so make sure you get this step right.

2) Determine The ARV (After Repair Value) - The reason that we mention this step so early on in the process is because you will need to know this number to determine if you are going to set up an appointment or not. The After Repair Value is the price in which you will be able to sell the structure for after all the necessary improvements have been made to the property. The reason this number is so important is because it is going to determine if there is enough of a spread (margin) for you to take the time to set an appointment to visit the property. Now, there are a few different tools that you can use to get a high level understanding of the market value of the property.

A) The MLS - If you are a broker or agent then you already know that this is the best way to find comparables and determining the ARV of the subject property. The MLS is the multiple listings service and it is the most up to date service for displaying sold properties, pending sales and properties listed for sale.

B) Third Party Real Estate Sites (Zillow, Trulia, Realtor) - These are all sites that I am sure you are familiar with. These sites will give you a high level (z)estimate of what the subject property is worth. We advise you to not solely base your decision on the value that is supplied by these third party sites. As stated the ARV is the most important number and the starting point for all analysis on a property.

C) Access To An Agent - Since we are not brokers or agents ourselves we utilize a member of our team to determine these values for us. The real estate agent that represents us will run us a comparable analysis and tell us what he would list the property for if it was in excellent condition. Remember, stress the point to your agent that you are not looking for a price range but a specific number he is confident in. If this number is off by 10-20k it can effect your profit dramatically. The more accurate this number is, the less risk you have. Always shoot for a conservative number when running your analysis.

INVESTOR TIP: Here is a quick look into how we generate the ARV's for all of the properties that we analyze. As stated we utilize the third tool discussed above "Access To An Agent" but I want to give you a look into how we actually get the subject property over to our agent to help streamline the process. This is just a quick example of our systems that we utilize to streamline the Acquisition Process. We utilize the CRM, Podio (we will get into more detail later in this post) to manage all of our contacts and seller leads. Podio is very customizable, you can build in automation through a software called GlobiFlow. We built a field in Podio called "Next Action" (see below), essentially these are buttons that will trigger a certain activity within Podio. One of the buttons that we created is "Due Diligence: Pull Comps & Determine ARV", once we click this button an email and a text message will be sent to our real estate agent asking him to pull the comps and determine the ARV for the subject property. This allows us to get an accurate number from our real estate agent while giving our Acquisition Managers additional time to spend on follow up and setting appointments.

3) Appointments - If the seller makes it through the qualification process and you determine there is enough motivation and margin on the deal then you (or your Acquisition Manager) will follow up with the seller to set up an appointment to come out to meet the sellers, build more of a relationship, take pictures/video and gather all of the necessary information to run a high level repair estimate on the property. Depending on your infrastructure, you may be the one answering the phones. If this is the case, be in a position to set an appointment on the initial call. You can do this by being in front of a laptop or using your smart phone, just make sure you can have access to those third party sites to get a high level determination of the ARV of the property. An appointment has the potential to make or break a deal. This is your chance to gain trust with the seller and make them feel comfortable with the process.

INVESTOR TIP: We suggest that you create a sales packet to bring with you on every sales call to leave with the seller. This sales packet should contain some vital material that increase your credibility and give your seller some additional clarity into the process. Some material you can put in your packet are:

• Business Card

• Brochure

• Purchase Contract

• Testimonials / Referrals

• Accredited BBB information

Get creative with your packet and include any material that you think will add value to the customer, increase there comfort level, build trust and credbility.

4) High Level Property Analysis - Now that you have qualified the homeowner, understand what the property will be worth when your finished rehabbing, have walked the property and have photos, it is time to run a high level analysis on the property to determine what you can offer for the property (Maximum Purchase Price). At this point in time, you should have a good idea of all of your costs. One cost that a lot of new investors have trouble with are the repair costs. (we will get into more detail soon on repairs). For now, lets go over all of the analysis and all of the costs you will need to determine in order to come up with a Maximum Purchase Price.

• ARV (After Repair Value)

• Estimated Rehab Costs

• Purchase Closing Costs

• Sale Closing Costs

• Real Estate Commissions (On Sale)

• Holding Costs

• Profit

For now we are going to skip the ARV topic since we discussed above. If you have any further questions on the topic, please revert to the paragraph above explaining the topic in detail.

A) Estimated Rehab Costs - This is the second most important number for your analysis, so it is very important that are capable of doing so. I want to go over a couple different ways to determine the "Estimated Rehab Costs" based on the experience of the investor. If you are not familiar with construction and you are just starting out as a real estate investor, this part of the analysis can and will throw for a loop.

A1) Beginners - When you are first starting out, maybe trying to do your first flip or your second flip determining an accurate rehab estimate can be quite overwhelming. It is very easy to miss certain tasks and these tasks could cost you a lot of money if you do not account for them. For beginner real estate investors, we suggest that you build a relationship with an investor friendly general contractor or get in touch with a friend who is familiar with construction. Now, you may have to pay the general contractor a couple dollars up front but it will be well worth it. Once you begin giving this contractor some work, he will be more than happy to help you out. Now what you want to do is try and have your "GC" or construction friend as involved in this process as you can get him to be. This means for the first appointment that you go on with a seller, you will want them to tag along. We advise you to create a document, what we call a "Pre Acquisition Task List" or "Pre Acquisition Scope of Work" and while you are on your appointment begin to document all areas of the property that you think need repair. These notes will help to create a more accurate rehab estimate once you begin your analysis as well as get you more comfortable with the construction terms associated with a rehab. If you can get your "GC" to come on the appointment that is great, now if you can get him to sit down with you to help with high level labor and material costs for the tasks associated with the project, even better. The more times, you can walk through the pricing with your "GC" the better you will get at determining construction costs yourself.

A2) Experienced - For the purpose of this post, if you have completed 8+ deals, we will consider you experienced. The reason you need to have completed this many deals is because you will need to use the data from your past deals to create the tool we use to streamline our rehab cost projections. This is a tool that will save you or your Acquisition Managers invaluable time and they will love you for it. Remember at this point in the process, you just want to be able to produce a high level, fairly accurate rehab cost to plug into your numbers to come up with an offer (Always be on the high side, if possible). Ok, so the tool that we have created is called the "Quick Estimate Tool". I want to go over the steps you need to take in order to create the tool based on your historical costs for your projects.

a) Create an excel file and create rows on the top of document labeled; Property, Level Of Renovations, Property Square Footage, Renovation Costs and Construction Costs Per Square Ft.

b) Add all of the properties that you have rehabbed and sold into the document

c) Determine the Level of Renovations for each specific property that you rehabbed. (see below for Renovation Levels & definitions)

d) Input the square footage for each of the properties that you rehabbed

e) Input the renovation costs for each of the properties that you rehabbed

f) In the last column you want to divide your Renovation Costs / Property Square Footage

g) Determine your "Construction Costs Per Square Foot" for each "Level Of Renovation". Try to create an incremental range of about $7.00 for each Level of Renovation. For example if you are re-plumbing and rewiring the entire house, your "Construction Cost Per Square Foot" will be at the top of that range.

h) After you have compiled all of this data, create a "Quick Estimate Pricing Chart" (see below for an example of what it should look like)

i) Create "Quick Estimate Calculator" (see below for an example of what it should look like)

j) For your subject property, insert the "Level of Renovation Price" and the "Square Footage" of the property and KABAMMM out pops your "Quick Estimate"

This is a great tool for you and your Acquisition Managers to use to simplify the initial repair estimate and to produce more offers in an efficient manner.

B) Purchase Closing Costs - The closing costs on a deal are additional costs that investors tend to overlook. Depending on your business model will determine if you are offering to pay for your buyers closing costs are not. By offering pay for your buyers purchase closing costs, you are offering an additional benefit that can possibly persuade your seller to go with your offer over a competitors. If you do plan on including to cover the purchase closing costs for your seller, we just want to make sure that you capture all of the costs associated with a closing so you are not caught off guard. These additional costs have potential to eat into your profits if you do not fully understand what to expect.

• Prepaid Property Taxes -Depending on when you close & if property taxes are paid yearly or quarterly will determine your prepaid tax amount

• Abstract & Survey Updates - The average cost to update an abstract and survey in our area is $650

• Attorney Fees - The average cost per attorney is anywhere from $450 - $650

• Government Recording Fees - The average cost to record documents with the count is $500 - 700

• Transfer Tax - The average transfer tax cost is $450 - $750

• Origination Fees / Points - The % of the loan you will have to pay at closing, Typically 0 -4 points depending on your lender (will discuss more in detail later)

• Title Insurance - The average cost for Title Insurance is $450 - $650

These are the typical closing costs that we commonly come across when we close on properties. Depending on where you are investing will determine if there are more or less closing costs that are associated with closing on a property.

B1) Orgination Fees/ Points - I wanted to take a minute to elaborate on how points work and what they are. If you have every used Hard Money or Private Money in your investing endeavors then I am sure you are very familiar with the concept of points or origination fees. A point is a fee equal to 1 percent of the loan amount. So if you had a lender that was willing to issue you a loan for $100,000 at 3 points, then your origination fees/points for this specific project would be $3,000. Origination Fees/ points can become some what expensive but the more deals you do with that specific lender, the more likely you will be to lower these rates. If you account for this price in your analysis and these costs are based on your offer, then the points really do no matter.

C) Sale Closing Costs - As the sellers, you will also accrue some additional costs when it is finally time to collect your profit. There are not nearly as many sale closing costs as there is purchase closing costs but we do want to give you a high level look into some of the costs we typically pay when we go to sell our properties.

Transfer Tax - Taxes imposed by states, counties and municipalities on the transfer of the title of real property within the jurisdiction. The average transfer tax cost is $450 - $750

TP-584 Form - The average TP-584 Form cost is $5 - $10

Survey Fees - The average survey fee costs are $250 - $400

Attorney Fees - The average attorney fee cost is $450 - $650 depending on your lawyer and state.

D) Real Estate Commissions (Sale) - These are costs paid by the seller to the real estate agent/brokerage who are representing both parties for the purchase and sale of the property. The typical commission for the sale of a property is 6% of the sales price of the property. For your upfront analysis, be sure to account for these costs because they can be some what pricey. As always, if you account for these costs in your upfront analysis, you are mitigating your risk and ensuring your profit on the back end.

E) Holding Costs - If you have ever watched any of those TV shows on HGTV, you probably have never seen these costs accounted for when tell you the numbers during the show. Holding costs are the costs that you will accrue throughout the life of the project, from purchase to sale. Holding costs are one of the main costs that investors tend to forget about when running the analysis on their property. Depending on your financing, these costs have the chance to spiral out of control.

Property Taxes (monthly)

• Gas & Electric - The gas & electric bill that will have to be paid each month

• Water Bill - The water bill that will have to be paid each month

• HOA Fees - When you purchase a condominium, townhouse or another type of property in a planned development such as a leased land property or a gated community, you are obligated to join that community's homeowners' association (HOA)

• Insurance - The hazard insurance or any additional insurance that you will have to pay throughout the life of ownership of the property

• Lender Monthly Interest - The interest that you will have to pay to your lender every month throughout the life of the project.

E1) Lender Monthly Interest - The interest that you pay to your lender on a monthly basis will depend on the financing that you have in place. If you are using a Hard Money Loan you can expect to pay anywhere between 12% - 15% throughout the life of the project. This is typically based off of the total loan amount which would be the purchase and repairs of the property. As stated every lender is different and some Hard Money Lenders will only make you pay interest on the funds that are drawn. For example, If you are purchasing a property for $50,000 and the property needs $50,000 in repairs, your lender will lend you the $50,000 for the purchase, at this time you will only pay interest on the $50,000. You will then be required to submit draws on the repairs of the property in order to get reimbursed for the work complete. So if you were 25% complete with your rehab, you would be able to submit a draw request and you would be reimbursed $12,500. At this point you would not be paying interest on $62,500 until you submitted another draw request, at that point that amount would be added to your previous outstanding loan amount.

The more properties you rehab and sell with this specific lender the lower your interest rates will become. When using Private Money, there is a possibility that you can negotiate much better terms. Monthly interest for Private Money Loans can typically range from 7% to 12% depending on your relationship with that person and there goals.

F) Profit - Last but not least we have to account for the profit that we want to make on the project. Each investor will have different profit requirements per project. This is something for you to decide on. I have seen some investors use a rolling scale based on sales price and other investors just use whole numbers per project. An example of the rolling scale model is:

Sales Price Profit

>$100,000 $20,000 - $25,000

$100,000 - $150,000 $25,000 - $27,500

$150,000 - $200,000 $27,500 - $30,000

$200,000 - $250,000 $30,000 - $32,500

<$250,000 $32,500 - $40,000

Property Analysis Example

After Repair Value - $204,900

Closing Costs - $7,512.25

Holding Costs - $12,894.50

Commissions - $12,294.00

Rehab Costs - $87,075.00

Purchase Price - $55,000.00

Profit - $30,124.25

5) Creating Offers - Congratulations, you have completed the analysis on the property and you have determined that you think you may have a deal. Pretty exciting, huh? You want to know why it is exciting? It is exciting because if you followed the guidelines above and continue to follow the guidelines in the coming paragraphs then that $30,124.25 is a pretty safe profit for you to book for the year. Think about that, all you have to is 4 of those deals a year to make $120,000 extra dollars a year, thats pretty good stuff right there.

Ok, let's get into the next step. Before you completely celebrate, we have to get an offer into our seller's hands have them accept. For this topic we are going to pretend that you are dealing directly with the seller and not with an on market deal. (For on market deals, you will typically have to submit your offer and gain access through your real estate agent). So, the next question I am sure you have is how do I obtain a purchase contract and are there any other documents that I need to submit to the seller with my offer? This is a good question, depending on your state you will just need to obtain a standard purchase document that obides by all your states laws. We do advise to have your real estate attorney review the purchase document to verify all the language in the document is correct. You can typically obtain these standard purchase agreements on the internet or ask the real estate agent you have built a relationship with for a copy. Now, in the State of New York, there are 2 other documents that are required to have to be submitted with your Purchase Agreement.

When it comes to creating offers, contingencies usually get a bad wrap in this space. We do agree that the less contingencies you have in the contract that effect the seller, the more clean the deal actually is. However, we do want you to always place atleast one contingency within the contract (unless you are very experienced and you have done all of your due diligence on the "High Level Estimate"). The contingency that we want you to include is the Home Inspection Contingency. We recommend that you make this contingency at least 7 days. The reason that we want you to add this contingency is because you will not have an out, if when you do your "Detailed Analysis" you find a major repair that you may have missed when you first ran your numbers. This contingency will basically give you a legal out for any reason up to those 7 days after the contract was signed.

5A) Property Disclosure - A Property Disclosure is designed to assist the seller in disclosing to a buyer all known materials or adverse facts relating to the physical condition of the property that are not readily observable. In the State of NY if this document is not submitted by the seller at closing, they will be deducted $500 off of the sale of the property at closing. This document can typically be obtained by you (the real estate investor) in the same manner as the purchase contract, either through your agent or a simple google search.

5B) Lead Paint Disclosure - A Lead Paint Disclosure is a simple document meant to protect or advise the buyer of any exposure to lead from paint, dust and soil.

Now that we know the documents that we need (please check with your local agent to verify these are the only forms you need to submit an offer), let's discuss how to make an offer. There are 2 different options that I want to discuss; Standard and Advanced. These methods are based on the time you will have to spend to generate an offer. The Advanced method is just another system that we have put in place to help streamline our offer system.

5C) Standard Method - This is the method that most new investors start off with but it can be very tedious. You will simply print off all of the necessary documents and fill out all the necessary information for the property seller. At this point you will either mail the offer to the seller, drop off in person or email the documents. You can also use a software like Adobe or Bluebeam to create text boxes, fill in the necessary information and either mail, drop off or email your potential seller.

5D) Advanced Method - Once again this system will revolve around the customization an automation that you can build into Podio. I will go over the step by step process to automate this system using both Podio and Globiflow.

a) Open up Podio and create a workspace called Acqusitions

b) Within your Acquisition workspace, create an app called Offers

c) Create fields within the Offers app for all of the blank spaces that would have to filled in within your contract.

d) Create a category field within the Offers app, labeled "Actions". Label one of your "buttons" "Create Offer" (see example below)

*As you can see we have created different buttons for each type offer that we tend to submit - for this purpose just worry about the first button "Create Offer"

e) Open up Globiflow and login

f) Go to the Acquisitions Tab & then the Offers Tab (see example below)

g) Click Add New & New Flow

h) Fill in necessary information - Trigger - When an Item is Updated

i) In App - GLOBIFLOW NAME > Acquisitions > Offers

f) Filters - If Field ACTIONS value has just changed AND if ACTIONS EQUAL To CREATE OFFER

j) Actions - Create a PDF and attach it to this item

k) Filename - Create your file name

l) Paper & Orientation - Letter

m) Save to - Podio Item

n) PDF Content - If you have a microsoft word document just copy and paste the language, if you do not, you will have to type the content.

o) Insert all field token in there designated positions (see below for example)

p) Save your work within Globiflow and go back to Podio

q) Input all necessary information within the fields (Field Tokens) that you have created.

r) Click your action button "Create Offer"

s) A PDF should now be created on the right side of your screen with your completed purchase agreement,

INVESTOR NOTE: You will need to mess around with the formatting a bit in Globiflow in order to get your purchase contract to show exactly how you want it. This will take some time but you will be able to make it formattable.

6) Accepting Offers - The next step in the Acquisition process will be accepting offers. Any time we receive an accepted offer, obviously it is a great feeling. Make sure that you always get the purchase contract signed prior to the seller reviewing the contract with there lawyer. By doing this, you are not trying to hide anything from the lawyer, we just know that lawyers can take a long time to process paperwork. The sooner you get the signed contract, the sooner you can get it into your attorneys hands for processing and the sooner you can begin your detailed analysis on the property. Signed contracts will come in a few different ways; you will either receive the copy through email, mail or in person. Once you receive the contract make sure all areas of the contract are signed so you do not have to go back and get signatures at a latter date.

7) Detailed Property Analysis - As we spoke about in the "Creating Offers" section, we always include a home inspection within our purchase contracts to give us time to reevaluate all of our numbers and continue our due diligence. During this stage of the process, you are going to begin assembling your final scope of work & estimate (we will touch on these later under the Construction topic). Depending on your experience level you will also want to get in touch with your inspector (no matter your experience, we recommend that you work with the best inspector. You will want to coordinate one time for both your whole team to meet at the property. Some people that you may want at this appointment are:

• Acquisition Manager

• Head Foreman / Project Manager

• General Contractor Owner

• Inspector

• Real Estate Agent

By including your whole team during this one meeting you getting several different eyes on the property with all different types of experience levels in the real estate agency. This is your final insurance that you did not miss anything on your initial due diligence. If they do find something major (such as a foundation issue), you can now go back to the homeowner and explain to them the issue and that you will need a reduction in price for the estimate you get to make the fix. Each member of your team will have specific duties on this "Inspection" because you do not want to waste the sellers time or your teams time.

A) Acquisition Manager & Project Manager / General Contractor Owner - This is the handoff between your Acquisition Manager and your Project Manager. Since your Acquisition Manager was the one involved with the initial walk through, you want him on site for the Final Inspection. Your Acquisition Manager and Project Managers sole purpose of this inspection period is to get exact measurements and exact counts so you can finalize a detailed estimate when you are done with inspection. Some areas of focus for these team members will be:

• Fixture Count / Types

• Outlet & Switch Count / Types

• Room Measurements For Flooring

• Kitchen Dimensions

• Door Size / Types

• Bathroom Floor Measurements

• Mirror Sizes

• Vanity Sizes

• Square of Siding (if necessary)

• Square of Roofing (if necessary)

• All Tile Measurements (Bathroom, Kitchen, Showers, Backsplashes)

• Square Footage of Door/Window Moulding (If Necessary)

• Square Footage of Base Moulding (If necessary)

• Linear Footage of Soffit & Fascia (If Necessary)

• Sheetrock Count / Locations

• Door Knob Count / Type

• Door Hinge Count / Type

• Layout Design / Load Bearing Walls - Header Length

• Interior Paint - # of Walls, Linear Ft of Trim

B) Home Inspector - Your Home Inspector plays a major role in your due diligence period. We recommend that you find a very qualified home inspector that offers "Investor Inspections". These inspections will not be as in depth but they will inspect all the major components of the property. This $175 - $200 is a great insurance policy on your investment and recommend that you get a Home Inspection on every property that you are considering purchasing. Some areas of focus for you home inspector will be:

• Foundation

• Heating System

• Plumbing System

• Electrical System

• Windows

• Roof System

• Gutters

• Exterior

• Fireplace / Attic

• Basement / Crawl Space

They will issue a fairly thorough inspection on all of these different divisions of your project. You want a highly qualified inspector because you want to make sure that he catches any serious repairs that you may have missed.

C) Real Estate Agent - I am sure you are asking why a real estate agent would come along for your Home Inspection period. Well as we stated before your real estate agent is in charge of the most important number for your project, the ARV. So this will give your real estate agent the chance to walk the property and offer up any ideas of value add repairs that he may have. This is also the time for you to communicate with your real estate agent all of the repairs that you are going to make to the property. At this point your real estate agent should be able to give you an exact price that property will appraise for you and he feels comfortable listing at.

The more team members you can have involved in this due diligence process the better. You want to get your team on the same page at any point possible so there are no hiccups before, during or after renovations. Once you finalize all of your numbers and determine that you want to move forward with the deal, next you just have to get in touch with your attorney and tell him that you are ready to remove the home inspection contingency and have him finalize the paperwork for closing.

Understand The Construction Process & Streamline It

A lot of people who are looking to get involved in real estate investing believe that you have to know a tremendous amount about construction or actually be able to do the work yourself. I am actually of the understanding that it is better if you do not know how to do any construction. You ask why? The reason is because you have no choice but to put a team together and systematize the process to get the project completed. I believe that this sets you and your business up to do far more volume as your business continues to grow. With that being said, the construction process can seem very daunting and this is why it is important to put together a team that is experienced and has buy in. The construction process will require a decent amount of up front work but if you plan accordingly, complete all the documents we are going to discuss and get your team on the same page, the actual renovation should run very smooth.

A) Your Construction Team - There are a couple different ways that real estate investors choose to complete a rehab when it comes to assembling a labor force to complete your projects.

A1) General Contractor & Subcontractors - The most common way to complete a renovation is to hire one General Contractor who will complete 60 -70% of the work and then have a hand full of Subcontractors who complete the remaining work. In my opinion this option is the smoothest way to complete a rehab and also the least management intensive. Lets go over some of the tasks your General Contractor will commonly complete and some tasks you would probably sub out. Depending on the skill level of your General Contractor some of these tasks will vary.

Investors Tip: Through our experience we feel that is always best to utilize subcontractors because it will speed up your rehabs and bring relief to your General Contractor. It is a win-win situation.

a) General Contractor Tasks

• Demolition

• Roof Replacement

• Siding Replacement

• Wrapping Fascia

• Installing Soffit

• Interior/Exterior Paint

• Power Washing

• Kitchen Remodel

• Bathroom Remodel

• Electrical Finishes

• Installing Hardwood/Pergo/Laminate Flooring

• Hanging Doors

• Installing Base Moulding / Door & Window Moulding / Quarter Round

• Hanging Sheetrock

• Installing Insualtion

• Installing Doorknobs

• Installing Hinges

• Garage Door Replacement

• Garage Door Opener Replacement

b) Subcontractor Tasks

• Installing Tile

• Installing Hardwoods/Pergo/Laminate Flooring

• Electrical Rough In

• Plumbing Rough In

• Water Heater Installs

• Furnace Installs

• Roof Replacement

• Siding Replacement

• Gutter Install

• Interior/Exterior Painting

• Chimney Work

• Concrete/Masonry

• Garage Door Opener Replacement

• Installing Base Moulding / Door & Window Moulding / Quarter Round

• Installing Insulation

As you can see there is a lot of over lap between General Contractors and Subcontractors. This will all depend on the skill level of your General Contractor and what tasks he is actually comfortable with. It will take some time to determine what tasks you want your General Contractor to take on and what tasks you will sub out. Once you figure this piece out, your projects should run on budget and on schedule.

A2) Do It Yourself (w / Subcontractors) - The do-it-yourself model is another popular way to "Flip A House". Basically you would be taking the roll of the General Contractor that we spoke about above and you would hire out the tasks that you were comfortable with doing. This is a great model if you only intend to 1, 2 maybe 3 rehabs a year. However, if you do want to create a business, this is not the way to go. In my opinion it is very hard to scale and grow if you are the one doing the majority of the work on the houses. When completing a rehab yourself, it could take anywhere from 3-6 months depending on how extensive it is and your available time. Now I am not saying this is not a good way to start your business, if you are short on cash and have the construction background to accomplish such a feat. If you are interested in doing any type of volume you will need to either utilize method #1 or the third method we are going to speak about next. In the mean time, let's go over some pros and cons of utilizing this method to complete a rehab.

Pros

• Decreased Labor Costs

• Increased Margins Per Job

• Increased Construction Knowledge

Cons

• Limited Volume Capacity

• Time

• Opportunity Costs

• Creating A Job - Not A Business

• Increased Holding Costs

• Difficult To Find Financing

• Reduced Sale Price If Not Skilled

Here are some questions you should ask yourself before you decide to jump in and renovate a property by yourself:

• Do you enjoy physical work?

• Are you patient?

• Do you finish what you start?

• Are your skills at the needed quality level?

• Do you have enough time?

• Is your family on board with this project and the time commitment?

• Do you understand everything that needs to be done?

• Are you familiar with local building codes? What do you need a permit for? How do you get a permit?

• Do you have a plan if things don't go as expected?

• Is it safe for you to do this project?

• Do you have the financial means to absorb time and cost overruns

(Rehab Financial, 2017)

A3) Hire Your Own Crew- The last option to find labor to rehab your properties is hiring your own crew. This option works best for the experienced house flipper that has more than 3 rehabs going on at a time. As you know whenever you hire your own employees you can either be creating a headache or a benefit and hiring your own construction crew is no different. The reason we suggest that you have to have at least 3 flips going on at a time is because you want to always have a project for your employees to bill there time to. As with anything else there are pros and cons to hiring your own in house crew to renovate your properties.

Pros

• Decreased Labor Costs

• Increased Alignment

• Availability

• Increased Scalability / Growth Potential

• Hiring Project Manager

• Increased Renovation Speed

Cons

• Increased Management

• Hiring Project Manager

• Added Pressure

• Hiring Process

• Increased Overhead

• Added Insurance

Once your business gets to a certain a position, it may be a wise decision to start your own construction company. This will depend on if you are looking to grow, have the property systems in place, have the property management in place and if you are willing to take on the challenge.

Locating General Contractors

As we have already discussed, your General Contractor is an integral part of your team. A great General Contractor has the potential to make your rehabs run very smooth and on budget while a poor General Contractor can make your rehabs a nightmare. With that being said, let's get a high level look as to where you can find a good, reliable and reasonably priced General Contractor.

A) Real Estate Investment Club - The first place to start would be through referrals from other investors who are already doing what you are trying to do or have been doing. A good place to find and network with other investors is at your local Real Estate Investment Club.

B) Big Box Hardware Stores - I am pretty sure that there is a Lowes or Home Depot in every city in the US. A good way to find your General Contractor is to get to these Big Box Hardware Stores when they first open and introduce yourself to the contractors who are gathering material for the day. Typically if you find a General Contractor at these stores at 6 - 6:30AM it is a good indicator that they are hard workers.

C) Local Area - Just like the marketing medium "Driving for Dollars" instead you are "Driving for Contractors". Take a quick stroll around your local farm area and document all the contractors signs that you see in any of the yards and give them a shout.

D) Online - Google is a powerful tool and it can play to your favor in this instance. We now have tremendous exposure to small businesses local and can see how other customers have rated some of the contractors in our area.

E) Social Media - Similar to Google, hop on Facebook and you will be able to check out several photos of work from local contractors.

Investor Tip: When first starting out, aim to get atleast 3 bids from Contractors for a project that you have. If you are fortunate enough to already have work going on, start them off on a small project. This will allow you to see how they perform and how there pricing is. This is also a good learning exercise for you to go through to better understand the costs associated with a rehab.

Pre-Construction Documents

1) Scope of Work - The Scope Of Work is a document that you will create that describes the work/tasks that will be performed on your project. We finish our walk through, we crunch the numbers, we make an offer, we negotiate and purchase. Our next step would be to do our due diligence during our inspection period. As we discussed above you will use your Contingency Period to finalize all of the tasks that are associated with your rehab. We are going to use the information that we produced from our first walk through to further validate and expand on the work that needs to be performed on the property. We will get a more detailed look into what the exact tasks are that are going to be involved in this project. Through this final scope of work we produce, we should have a very detailed look into exactly what this project will entail broken down by each division or component of the rehab. This detailed document will be the starting point to begin collecting estimates, putting together our budget, creating our material list and developing a schedule. So as you can see the Scope of Work is one of the most important documents that you will create for your project.

2) Project Estimate - The Project Estimate is an approximate calculation or judgment of the value, number, quantity of the tasks associated with your project. Having an accurate Project Estimate is very important because this is a key number in determining the offer price on your investment property. In order to produce the most accurate estimate (depending on your experience & understanding of construction), you are going to have to take the information from the walk through, the scope of work that you produced and sit down and create an initial estimate. This is not going to be a finalized budget for your project but will be the initial estimate that you produce your offer from. This is where you are going to sit down with your scope of work, photos and general contractor (if accessible) and work through all of the tasks associated with the project and assign labor and material numbers to all of them. Here is a quick look at how our excel document is set up:

INVESTOR TIP: Always include a contingency in your initial estimate. Your contingency amount will depend on how comfortable you are that you have accounted for all of the repairs on the project. We typically leave a 5%-8% contingency for any change orders that may occur throughout the life of the project.

3) Material List - A material list is a list of all the material that you will need for your specific project. You will gain the majority of your material list through the creation of your scope of work which will lay out the tasks that your General Contractor & sub contractors will be performing on the job. From the scope of work that has been created, you will know what material is needed for what tasks. This will allow you to compile a detailed list of material for your specific project. We have created a master material list document along with separate vendor material list documents. The more rehabs you do, the more relationships you will build with specific vendors. This will streamline the project design process and the choosing of specific materials. We have also created a material list binder that describes a couple different options for all finish & construction material that we use on our jobs. This material catalog allows us to more accurately estimate jobs, create accurate budgets and mitigate our risk on projects. Here is a very brief example of what we mean when we speak of a material list. It is not a complicated process, you just need to ensure you have a system where everyone who is involved understands.

For example)

10 gallons of interior wall paint

(4) (24 in) RH doors

(2) Toilets

(100 sq ft) of laminate flooring

(4) Pendant lights

(8) Recessed lights

(4) Exterior lights

How Do We Create A Material List System For Your Renovations?

So now you have a basis for what your material list will be on this specific project. You have a pretty good idea of what material you will need for each of the tasks your contractors will complete. Now, I am going to give you guys the basis for how I set up my material lists for my projects so they are very repeatable (scalable) to streamline this process.

1) Create a binder / Excel Document- Project Material Lists

2) Create tabs for this binder/Excel Document for each piece of material you use on your projects (examples) doors, interior lights, exterior lights, interior wall paint, interior bathroom paint, bathroom flooring, kitchen flooring, carpet, hardwood flooring, kitchen cabinets, kitchen counter-tops, toilets etc..

3) Figure out 3-4 different items that you want to use on EVERYONE of your houses you will rehab.

4) Print out/ Copy & Paste Product data & Specs for each of the items you choose and plug them into your binder, under appropriate tabs.

5) Your Material System is underway - This binder will be a working document that is accumulated through out the life of your business. By creating this binder you will become much more organized, due diligence periods will be more accurate, projects will be on budget and on schedule. Your project manager will be in charge of assembling all the material for the specific job and your administrative assistant will be in charge of putting together the final document and uploading it to the specific file folder for this project. You have just created a system for this specific task of work for your projects. Now for every project you start you will know exactly what products you will be using. This will make it much easier on you and your contractors to finish your projects on schedule and on budget.

4) Project Budget - We are making good progress here. Now we have a great idea of what it is going to cost us for the labor and material on the project. Our goal is to get these numbers compiled before our 5 day inspection period is up, just in case we underestimated the project originally, we still have time to back out. After we have created our material list and scope of work, we want to combine these figures to determine our total cost of the project, this is where we turn to the budget. Our budget is a simple excel sheet that we put together that separates each task and the labor and material associated with that task. Once the budget is in place, we can determine how much money can be spent on each task of the project. Since we have a good idea of what each task is going to cost us from our material list and scope of work, we should be able to put together an accurate budget and completely understand that costs associated with the project. Another advantage of having a budget is that we will be able to prioritize which tasks are most important, which tasks have to be done and which tasks we may be able to eliminate due to cost. If the funds we have available for the project indicate that enough money may not be available to complete all aspects of the project as desired, our budget will allow us to prioritize which parts of the project can be completed and which parts need to be eliminated.

5) Schedule - Next up on our list is the project schedule. Today there are bunch of different free schedule software's that allow you to put together project schedules. (Microsoft Project, Smartsheets, Excel) Our schedule will be created using our scope of work. When creating a schedule, you will have to understand the order of operations of a project and also be familiar with how your contractors work. We suggest that you create your project schedule with your general contractor who will be taking on the majority of the work. Just like we did with our material list, we want you you to go line item by line item and create your schedule. Your schedule will force detailed thinking and planning among your contractors and allow you to hold your contractors to a specific start and finish date on the project. You will also see an improvement in communication between you and your contractors as everyone will or should be on the same page when it comes to specific tasks starting and ending. Most importantly, your schedule will let you know when your project is going off track and will allow you to make adjustments to put your project in a position to finish on schedule. With a good solid schedule, you will reduce holding costs, increase productivity and see problems early. This is one of the most important documents that you will create during your due diligence period that will allow your rehabs to excel.

(J.Scott The Book on Flipping Houses : How to Buy, Rehab, and Resell Residential Properties, 2013)

6) Cost Report - Next up on our document list is the Cost Report document. This is a document that we created in order to track and compare our estimate and our actual costs. This will be used as a pre-construction document as well as mid-construction document. This means prior to construction beginning you should have all of your labor costs determined and the majority of your material costs. However, as well know there are always unforseen conditions during a rehab and you will be tracking theses costs throughout the duration of the project. This document will also let you know if you are staying how well you estimated the project. see below for an example of what our Cost Report looks like.

7) Contractor Estimates - As stated previously, it is always a wise decision to get at least 3 estimates for the tasks related to your project. As you begin building relationships with contractors you may decide that you will just give some of these tasks away without shopping them but when first starting out get those 3 bids. From your scope of work, you will determine which tasks you will bid out to your General Contractors and which tasks you are going to leave for Subcontractors. This document will allow you to track all of the estimates you received so you can make a business decision as to which contractor you will go with. See below for an example of our Contractor Estimate document.

Mid-Construction Documents

1) Project Costs - One of the most difficult aspects of a rehab and sell is keeping track of all of the contractor payment applications, holding costs, invoices and material receipts. This is exactly what this document was created for. We advise you to block off time once a week (Friday mornings) so that you can track all the costs from your project costs for that week. It is very easy to fall behind on tracking your project costs and when you are finished with your project it shows that you made more money that you really did. This document also gives you the ability to forecast your labor and material costs. Below is an example of what our Project Cost document looks like.

Before we move on to the next document I want to discuss how we track our labor and material costs on a weekly basis. Some investors use QuickBooks to track their costs, we have not yet made that jump. I will give you some insight as to how we track our receipts and labor costs to date.

1A) Tracking Labor Costs - Before we start each project, we set up a specific checking account for that project. When we set up that bank account we will order a set of checks. By creating separate checking accounts for all of our projects we can track what the check was written for and which project it goes too. This way at the end of the week, we can go into each bank account, review the checks that were cashed and document all of the labor costs for that specific project. We found this to be a pretty fair way to keep track of our labor spend on each project. All of our invoices will be stored in our file sharing system that is created within Dropbox for each project. Please see introduction for a high level look into our Dropbox file sharing system.

1B) Tracking Material Costs - Tracking your material costs are far more difficult compared to tracking your labor costs. The main reason for this is because you will make far more material transactions on a job compared to labor invoices. Before we get into the tracking mechanism we use for our material costs, I want to touch on what material you should purchase and what material you should have your contractors purchase. At a high level we advise that you as the owner purchase all finish material and your your contractors purchase all building material. Depending out which route you determine feasible, just make sure you clarify this with your contractors when they are pricing your tasks. Ok, now let's get into it. Here is the step by step process we use to track our material costs for any given project.

a) Create your initial bulk "Vendor Material List" - This will typically be with your choice Big Box Store (Lowes or Home Depot)

b) Go to the Big Box store and speak with Pro Service. Explain to them what you're doing and explain to them you want to be set up with there discount pricing program. (At Lowes this is there QSP Pricing)

c) If your currently have an entity established, now is a good time to think about signing up for one of there credit card programs. This will allow you to begin building credit for your business, extending cash flow and getting additional discounts.

d) Submit your bulk "Vendor Material List" for pricing

e) Establish 3 different delivery periods for specific material that you are ordering. This way you will not have unwanted material on site that you do no need at that time. You can always move up delivery dates if you are ahead of schedule.

f) This part requires some trust and a relationship and may come with time but if you want to delegate this task, we found this to be the smoothest way to operate. You are going to supply your Pro Service account manager with the details to the debit/credit card for the property. You will also supply your head General Contractor/Project Manager/Foreman with a copy of your debit/credit card.

INVESTOR NOTE: If you have been investing for sometime, you know that there can be a lot of running back and forth to pick up material throughout a project. This is not a task that you want to have to handle as the Owner of the company.

g) Share your receipts folder within Dropbox for that specific project with your Project manager/ Head GC/ Head Foreman.

h) For every purchase your Project manager/ Head GC or Head Foreman makes, they will upload the corresponding receipt to the "receipts folder" for that specific project.

i) Similar to your Labor Cost Tracking, you will block off an hour or 2 a week and compare your bank statement for that property to your receipts for that property to ensure that you have captured all of the receipts for that week for that specific project.

INVESTOR NOTE: As you progress, you can hire a Virtual assistant to take care of this task for you.

j) If you find that you are missing multiple receipts a week, make sure that you hold your Project Manager / Head GC/ Head Foreman accountable and explain to them that you need this information for tax purposes at the end of the year.

2) Contractor Commitment Report - A document that we created to separate and track contractor contracts throughout the life of a project. Some of the key metrics that we track and organize from our contractors are:

• Original Contract

• Change Orders

• Revised Contract

• Invoiced Amount

• Paid Amount

• Payable Due

Within this document, you also have the ability to track your purchase orders/vendors as well as forecasting any future contracts you may be expecting throughout the project. Here is a quick example of what our Contractor Commitment Report looks like:

3) Change Order Proposal - It is inevitable, no matter how much due diligence you do prior to construction, you will always have change orders on your project. The due diligence phase just minimizes how many you will have. Once again, this is why we add a contingency at the end of every estimate and budget that we complete.So what exactly is a change order proposal? A change order proposal is what your contractors will put together when they feel they have to do additional work outside of the scope they are under contract for. We recommend that you print this document off and give them to all of your contractors prior to work beginning. This will be the standard change order proposal document that you use on all of your rehabs. See below for an example of what this document looks like.

4) Change Order Log - Well since we know that we are going to have at least one change order on our rehabs, we need to have a document to track our change orders throughout our projects. This is a document that we suggest that you review with all of your contractors and explain to them how the change order process works. Your contractors will use your change order proposal document to submit there change order requests. You will review the proposal and either deny, accept or negotiate. Once the change order is accepted, you and the contractor will both sign the proposal and you will track this change order on your change order log. Here is an example of what our change order log looks like.

Post Construction Documents

1) Punchlist - Last but not least of your construction documents, is Punchlist. Punchlist is a document prepared near the end of a construction project listing work not conforming to contract specifications that the contractor must complete prior to final payment. In the final days of the rehab, you will begin completing your Punchlist document, so you can have it ready before construction is complete and so there is no hold up to get your property on the market. We created this document so that we can track what tasks we need completed, what contractors are responsible, what room the task is in, and the current status. Here is a quick look at what our Punchlist document looks like.

All of the documents above will add value to the management of the construction process. We are not saying that these documents are the end all be all or that you cannot make adjustments to improve them. However we do feel that these documents are a great starting point to improve the construction process within your business. Give them a try and let us know what you think. We promise that they will add value to your company and streamline the construction process.

Finding Financing : Why Using Other Peoples Money Is The Only Way To Scale

Flipping houses is a very capital intensive business and is one of the areas most new investors have trouble with. In order to scale your house flipping business you will need access to capital, so you have the ability to act on a great deal when it comes through your funnel. We have to admit, when you are first starting out it can be difficult to find this capital. The reason being is that most lenders are looking for experience to protect there money. With that being said, it will get easier to access capital the more flips you get under your belt.

A common theme we find among real estate investors or individuals looking to get into real estate is the lack of funds they have or the lack of ability to find funding. We want to let you know that one of the main reasons real estate can be so lucrative is because you can use other peoples funds to reach your goals.

Is it better to have some of your own cash to invest in real estate? Yes, but do you have to have your own money to begin investing in real estate or grow your real estate business? No.

No matter what real estate investing vehicle you decide to use, there are numerous strategies you can use to leverage your ability to invest in real estate.

With that being said, lets touch on, what we believe to be the 5 best ways to funds your next real estate investment.

5 Ways To Fund Your Next House Flip

1) Private Money Lenders - An individual who provides you a loan to fund your real estate investment.

This individual can be virtually anyone - from family members, friends, business associates or anybody who has money that would be willing to offer it to you for a return.

In our opinion private money lenders will be your best option to build or begin investing in real estate. With private money, there is not many qualifications or requirements needed, it is probably your least expensive option and the fastest way to obtain funds.

Why Would Someone Choose To Invest As A Private Money Lender

There are only so many investment vehicles people can put their money into and there are only so many that people are aware of or feel comfortable using. Individuals decide to put their money into the stock market but with the stock market they have no clue what their return will be. This is a much riskier investment because you are not in control of your money.

People also put their money their money into banks or low yielding investments, such as CD's or bonds. These investments are much less risky but the return on these investments barely earn enough interest to cover inflation.

When someone decides to invest their money being a private money lender they can earn both a high and consistent return in a short period of time. Their investment will be secured and will be collateralized by the property being loaned on. Typically a private money lender will charge anywhere from 8-12% with a balloon payment after a certain number of months. This means that after the terms for repayment, you will be required to pay back the principal (initial) payment after 6 months plus the interest of the loan.

How Much Will Private Money Lenders Loan On Your Real Estate Investment

This is a great question and will be different for every private money lender that you deal with. To keep your private money lenders investment protected, never let them loan more than 70-75% of the ARV of the properties value. If you are able to bring in deeply discounted properties, you should still be able to obtain funding for the complete purchase and repairs of the property.. On a good buy, you will be purchasing properties anywhere from 20-50% of the ARV.

Once again there is no rule to what percentage you should allow your private money lenders to lend on your properties. This will be completely up to the agreement that you two settle on. However, if your lenders know that you are looking out for their best interest, they will feel more comfortable investing with you on a consistent basis.

Private money is a great way to leverage your house flipping business and if you can prove that you can consistently pay back your investors within the agreed upon time frame, you should have no problem getting private money lenders on your team.

2) Hard Money Lenders - Financing that is obtained through a private business or individual for the purpose of investing in real estate. This is typically a short term loan that is secured by real estate.

This type of loan is conceptually similar to private money lending except the terms differ.

So how does Hard Money work?

• Loan is based around the value of the property

• Typically short term loans (6 - 36 months)

• Interest payments will be higher than private money ( Typically 10 -16%)

• Will contain loan points on purchase ( 1 point = 1% of the total loan) - Will be paid at purchase closing

• Monthly payments of interest only or interest + principal payments

• Balloon payments due at the end of the loan

• Credit & Experience can determine lending. Lending subject to investment or property value

When Should Hard Money Be Used To Fund Real Estate Investments

Hard money lending is not a good idea for every situation. If you are looking to purchase a primary residence and you have good credit, good income and you have never been through foreclosure then traditional lending will be best for you. Hard money lending is a good source of funding when you can not get a traditional loan, pay for properties in cash or get funding through private money lenders.

However, with that being said, sometimes Hard Money Lending gets a bad wrap. We do agree that it is riskier to use Hard Money when you are first starting out because the costs can escalate quickly but if you utilize all the systems we have talked about and account for all of the costs for Hard money in your analysis, you should be fine. This will be a good way for you to gain that experience and credibility needed to gain access to more funds. .

Hard Money is a quick and fast way to obtain funding. Funding can sometimes be obtained in around 5-10 days compared to traditional financing which can take anywhere from 45 - 90 days. This is the main reason that investors choose this medium for funding. If you are an experienced investor and work your investment in an efficient manner then hard money can be a lucrative way to do more deals and leverage your investment business.

As we spoke about earlier, hard money loans can become very expensive. Typically hard money lenders will lend up to 65-75% of the ARV of the property with interest rates teetering anywhere from 10-16%. They will also charge anywhere from 2-4 points (loan fee) on the total loan at closing. In some instances hard money lenders will also lend on the repairs of the project.

Make sure you understand all of the terms required with a hard money loan. Know exactly how much money you will be required to pay and make sure your margins are large enough to cover these payments and still make a good profit. Use these loans with caution and before you decide to go this route, make sure you are account for all of the costs associated with this type of loan.

3) Equity Partnerships - Funding obtained through an individual with a return based around the % of profit on the project. Typically individuals who will lend their funds and good credit to help finance your real estate deals.

These partners typically do not have the time or knowledge to complete an investment deal so in return they offer their finances to get involved in the game.

These partnerships can be another great way to leverage your real estate investing business and increase your ability to complete more deals.

With any loan, the primary concern of any lender is ensuring a high return on investment. In this specific situation, typically you will be able to obtain all the money needed on the purchase of the property and repairs.

With this specific type of funding you will be paying your funding partner a percentage of the total profit made from the investment. The percentage that will be due when the property closes will depend on the equity partner you have. Some equity partners will require a 50-50, while others will take a 70-30 split. Each equity partner will have different requirements.

There investment will be secured by the profit that is generated and in the insurance on the property. These equity partners want to participate on the upside of the investment rather that requiring a set interest return on their money. This means that they are taking on a little more risk to obtain a higher return.

In order to obtain this type of lending, you will need to be organized and have good idea of all the numbers on this specific project upfront. If you are organized and can explain the return that your equity partner should expect, you will be more likely to obtain this type of funding. If you are able to make your partner feel comfortable and explain to them the benefits of this transaction and ownership you will be far more likely to obtain equity funding.

4) IRA's & 401K's - These are long term savings account that offer tax advantages if you comply with IRS standards. Not all financial institutions will allow you to invest in real estate with your IRA and 401K due to increased paperwork, the IRS does not forbid using these vehicles to invest.

So can you use your IRA or 401K to invest in real estate? The short answer is yes, as long as you turn your traditional 401K or IRA into a self directed 401K or self directed IRA.

Many individuals have become very disappointed with the unpredictability of returns from investing in the stock market. Therefore more and more people are educating themselves on how to pull money from these investment vehicles and push them into real estate.

In regards to your 401K, you will basically be borrowing from your 401K to purchase real property and your repayment terms will differ depending on your specific requirements. Typically you will be able to borrow $50,000 or 50% of the total value of your 401K.

Be aware that if you quit or lose your job then you will be required to pay this loan off in full at the time of the job loss. So if you do not plan on staying at your job for long or think that you may be getting fired sometime in the near future then really consider if this option is right for you.

So if you have some money saved up in your 401K or IRA accounts and want to borrow from these accounts to invest in real estate, be sure you do your homework and further educate yourself on the process. Be aware of all the requirements and guidelines involved in this transaction and vehicle being used to fund your next real estate investment.

Private Money Lending Details

I want to focus on the concept of Private Money a little more in detail because we believe this is the best source of capital for any house flipping business. When you a proposing this opportunity to potential lenders, you will have to understand how it works, there returns and how there investment is secured. Generally, your lenders investment will be tied to a specific project with a timeline ranging from 5 - 12 months. You will work directly with the owner to select a term that suits your strategy.

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1) Funding Details & Definitions

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First Lien Position: Your lender and/or there company will receive a First Lien against the property there funds will be used towards. This means that if for any reason you failed to pay them back, they would gain ownership to the property. This is treated the exact same way as if a bank was going to lend on your personal residence.

In Person Inspection: The borrower will be able to take a personal walk-through of the property with the owner and project manager to get an explanation of layout, repairs and comparable properties.

Letter of Intent: A formal document that ensures all parties are on the same page. It will outline the agreement between parties before the loan is finalized.

Title Report / Title Insurance: All of your deals will be sent through a title company to acknowledge clean title and protection of ownership of the property.

Added To Hazard Insurance: To ensure increased protection, you will add your lenders name to the hazard insurance policy. This will give your lender additional security on there investment.

Loan To Value: Typically we will ask our lenders to lend 60%-70% ARV (After Repair Value). This will provide equity and security for our lender's investment. This loan will typically cover the purchase and rehab costs of a project. For example, If the property is worth $100,000 then you would need to make sure that the purchase and repairs are under $60,000 - $70,000.

Interest Rates & Points: Interest rates normally range from 6%-12% APR, depending on the deal. To further convince your private lenders to work with you, you can offer origination fees or points at the time of closing. For example, If you were asking for a $100,000 loan at 10% and 2 points, your costs would be $833 a month in interest and $2,000 at closing.

Asset Based Lending: This means the lending will be determined by the underlying value of the subject property, not necessarily on your credit.

Credibility Package

A credibility package is just that, a package that legitimizes your credibility and there services. A credibility package gives potential investors insight into your business, yourself and how you can add value to your investors. This package, when complete can be used for a variety of reasons but it is generally geared towards private money lenders. This package will help show your investors how serious you are about your business. So what should you include in your credibility package? Here is a quick guideline of what we include:

1) Cover Page - The first page your investors will see. This page should give your package a professional look and insight into the product that you deliver. We have chosen to include pictures of the last 4 rehabs that we have done , along with the purchase and sales prices of these properties.

1A) Table Of Contents - You remember learning about these things in English class don't you? This is just a list of section titles that you will be delivering throughout your Credibility Package.

2) Executive Summary - A short document that will give your investors a high level look into your business and strategy. It is essentially the spark notes page of your business document. Since most of the investors you will be selling to are busy, this short document will give them a chance to learn about your business. What to include:

• Brief Business Intro

• High level Business Model

• Mission statement

• 3 Year Forecast

• Plan to scale and grow

3) Personal Bio - Investors like to get some insight into your life on a personal level. Your personal bio will allow your lenders to grow comfortable with you and your history and credentials will help with that.

4) Subject Property Details - A high level look into some of the specifics of the property you are looking for funding on. (if not a current project , a completed project). This will give potential investors a better look into the area the property is located at and once again bringing a level of comfort to the deal. Some items to include in your subject property details are:

• Property Address

• City

• Town Zip Code

• Type of Housing

• Year Built

• Bedrooms

• Bathrooms

• Square Footage

• Lot Size

• Taxes

• Insurance

• Schools

• Assessed Value

• Previous Sales Date

• Previous Sales Price

Property Analysis

• ARV

• Repair Costs

• Closing Costs

• Holding Costs

• Real Estate Commission

• Purchase Price

• Projected Profit

Terms

• First Mortgage Position

• Added To Hazard Insurance

• Loan Amount

• Interest Rate

• Loan Duration

• Prepayment Penalty (No)

• Monthly Payment

5) Comparable Market Analysis - As we previously discussed the ARV is the most important number to you as an investor, but is equally important to a lender. A comparable Market Analysis will give your investor insight and confirmation as to what the property will be worth when you are done rehabbing. As we stated previously, you can obtain this number a couple of different ways. Let's go over what you or your agent/broker will be looking at to find comparables to determine the After Repair Value of the property.

• Pending Sales

• Sold Properties

• For Sale Properties

• Date of Sale (if possible 6 months or less)

• Bedrooms

• Bathrooms

• Garage

• Porches/Decks

• Fireplace

• Finishes Basement

• Overall Condition

• Property Finishes

• Curb Appeal

• Square Footage

• Age

• Style

• Price Per Square Ft

6) Detailed Property Analysis - Your lenders will want to know that you have captured all of the costs associated with a project to ensure that there LTV (loan to value) is a true number. Within our Construction Document packet, we supply you with an automated Property Analysis document. For this section of your credibility package, you will essentially create a PDF of your excel document and add it to this section. Your Property Analysis will give you a very detailed look into all of the costs associated with the subject property.

7) Scope of Work - As we previously discussed, the scope of work is the most important document for the success of your rehab. This document gives you a high level look at all of the tasks associated with a project. By including your Scope of Work, you give your lender insight into the work that is going to be completed on the project. For a more detailed explanation of the Scope of Work, please revert back to the Construction Process section.

8) Material List - Similar to the Scope of Work, this document will provide clarity into rehab process for the lender. It is almost impossible to capture all of the material that you will need on a project, but you should be able to capture all of the finishes associated with the project.

9) Project Estimate - Provide a high level look into the complete estimate of the project. This estimate will account for both the labor and material costs on the project. This estimate should equal the proposed construction costs associated with a project. Remember this is just the estimate of the project, this is not the complete budget for your project. At this point in the process, you will probably not have the opportunity to "buy out" all your subcontractors or even receive quotes from your contractors.

10) Lender Returns - The reason Private Money Lenders are working with you is because they are looking for some great, limited risk returns, right? That's right. So in this portion of the Credibility Package, you are going to give them a high level look at your proposed returns, break down of there monthly returns and a total for what they will make when the project is completed. This is a look at the document that we have created to portray the returns for a specific project.

How To Sell The Property You Rehabbed

Traditional Sale | Using A Real Estate Agent

As the old saying goes “20% of the realtors do 80% of the business”.

When beginning the process to selling the home you rehabbed, one of the most important individuals on your team will be your real estate agent. The search for the perfect agent that will fit your needs, timetables and expectations can be daunting and exhausting. Selecting the right agent can determine how successful your house flipping business will be if you so choose to go this route. Hiring an experienced local agent, who understand your local market, prices your property right and has a proven marketing plan will prove to streamline the selling process.

Hiring An Agent

So how do you go about hiring the right agent for the sale of your property?

There are specific steps you should take in order hire the right agent to sell your property. These steps will help narrow down your candidates and allow you to select an agent that you feel comfortable doing business with.

1. References - Ask family and friends if they have had success with any realtors in the area. You want to create a list of 3-5 potential candidates that you are going to consider. Try to obtain as much background information as possible on these specific candidates.

2. Licensing- Make sure that the agent is licensed by the state and that working as a real estate agent is their full time job.

3. Interview Prospects- Now that you have your list and have verified that each are licensed, you now want to interview each of these prospects. As with anything you want to shop around a little and see what each agent has to offer and if they are going to be able fit your needs.

4. Investor Friendly - Make sure that your chosen agent is familiar with your business model and understand your expectations moving forward. Here are a couple questions that you want to address in your interviews.

• What areas do you do the majority of your work?

• How long have you been in the business?

• Do you have any references?

• If selling, what will be the commissions for the sale of my property?

• How many sellers are your representing now?

• At what price do you think my home will sell in the current market & why?

• What is your advertising and marketing plan for my home?

• How often do you plan to communicate with me?

• What is your average listing time?

Select an agent with the right credentials

CRS (Certified Residential Specialist): Completed additional training in handling residential real estate.

• ABR (Accredited Buyer's Representative): Completed additional education in representing buyers in a transaction.

• SRES (Seniors Real Estate Specialist): Completed training aimed at helping buyers and sellers in the 50-plus age range.

If the agent calls himself a Realtor with a capital "R," that means he's a member of NAR. By hiring a Realtor, "the most important thing you get is an agent who formally pledges to support the code of ethics."

1. Look at their current listings - Verify that the agent is selling in the area that you are looking or has directed clients to buy in areas you want to buy.

2. Connection- Make sure the realtor you choose is somebody you connect and communicate well with. You will be connected for the next 6-12 months so be sure this individual is somebody who you are compatible with

3. Hire your Agent- After you went through all the proceeding steps you will now sign a contract with the selected agent. Here you will let the agent know how long you want them to represent you and they will tell you the commission price they will require (negotiable)

Be sure to follow all of the steps mentioned above and take them seriously. As stated before, your agent is one of the most important people on your team and may be the deciding factor on if you meet your timetable and get the right price. Do your due diligence and use your instincts. You will be able to tell who will be the best fit for you after the interview process is complete.

The Benefits of Working With A Real Estate Agent

Finding a great real estate agent that fits your needs can be difficult. However, if you follow the process above you should be able to narrow down your candidates and find an agent that you feel comfortable with and will bring you a hassle free sale. Working with a qualified, professional agent does have its benefits. These benefits will allow you to higher price for your home and should create a quick sale. These benefits are:

1. Market knowledge - Real estate agents have access to the most recent housing data for your local area. They are able to give you comps based on actual listing prices and home sales. They will also understand the current market conditions and be able to you if we are in a sellers’ market or buyers’ market. This knowledge will allow them to price your home right which is one of the most important aspects of selling your home with a real estate agent.

2. Negotiations – Some homeowners are willing to negotiate and like it, while others want nothing to do with this process. Real estate agents handle all of the negotiations throughout the sale and should be able to get creative with the terms, so the deal works in your favor

3. Open Houses – They do all of the leg work for you. They schedule the open house, walkthroughs and meetings. We are all busy with life and sometimes it can be impossible to coordinate these showings around our busy schedules. They offer the convenience of controlling this part of the process for you.

4. Marketing – A professional real estate agent knows how to sell your home. They understand that they need a proven marketing plan to get the exposure your house needs to sell. They also have access to the MLS (multiple listing service) which allows them to leverage their networks. The NATIONAL ASSOCIATION OF REALTORS® studies show that 82% of real estate sales are the result of agent contacts through previous clients, referrals, friends, family and personal contacts.

5. Connect You With Partners – A real estate agent is not the only person on your team that is needed for a successful sale. Since these agents have been in the business for a long time, they should be able to connect you with quality attorney’s, inspectors, moving companies, cleaning companies and contractors.

6. Closing Process – Most home sellers are unfamiliar with the closing process and what it entails. A professional real estate agent will guide you through the closing process and makesure you have filled out all the necessary forms and have all the information that is needed to close. This will make you feel more comfortable with the process as they explain the paperwork to you.

7. Price Your Home Right – The most important part of the sales process is pricing your home right. Each home has a specific value that it should be sold for based on the location, condition, market conditions, homeowner’s motivation, finishes and amenities. Your agent will be able to price your home right so you can maximize your profit and enjoy a quick sale.

The Disadvantages of Selling The Traditional Route

Hiring and working with a real estate agent is not the right decision for every homeowner. Depending on your motivation, home condition or reason for selling, working with an agent might not work for your goals. Even though they do offer sufficient benefits there are also disadvantages to listing your home with a real estate agent. Here are some of the potential issues that can arise when choosing to list the traditional route.

1. Market Conditions- This can be a challenge that takes place prior to putting your home on the market. If there is a very large supply of homes that are up for sale and not a lot of demand for these home it is possible that your home will sit on the market just because there is not a sufficient amount of people looking to buy. Now this is something you have no control over but could possibly effect the speed and price of your sale. When you decide to sell your home, you should do some research on what state the market is in (buyers’ market or sellers’ market)

Buyers’ Market - a buyer’s real estate market is one in which the home buyers who are in the marketplace have an advantage over the seller’s (supply greater than demand)

Sellers’ Market- Home sellers who are in market place have an advantage over the buyers (demand is greater than supply)

1. Choosing a Realtor- If you are selling your home the traditional route, your choice of realtor has the ability to make or break your sale. The process of choosing a realtor is not difficult but can be time consuming. You need to go through interviews, get referrals, ask questions and pick the perfect realtor for your situation. You also have to avoid the realtors who promise the world, promising the highest price for your home and the quickest sale. These are the individuals who usually rarely deliver on their promises.

2. Getting your home ready to sell- If you want top dollar for your home, you will have to put the necessary money or time into making the needed changes within your property to produce top resale value. This part of the process can also take a lot of time and money. If you are unfamiliar with construction and have trouble doing things yourself you could be out thousands of dollars to make these changes. Changes like repainting the interior, landscaping, changing/ cleaning the flooring, replacing fixtures, replacing doors, making renovations to bathrooms/ kitchens. All of this rehab costs money and will hold up the sale on your home if you are looking for top dollar.

3. Pricing your home- Finding the perfect price for your home is a difficult challenge and a challenge that not too many people can master. Without the proper pricing of your home, you face the challenge of having your home sit for a long amount of time. Overpricing your home can be devastating. An overpriced home will usually not receive many showings or inquiries and this will affect how long your home sits on the market.

4. Maintaining a show ready home- Now if you have decided to sell your home the traditional route, you now face the challenge of having to maintain your home while still living there. This can be very difficult if you have children or just don’t clean your home on a consistent basis. The longer your home sits on the market, the longer you will have to TRY to keep your home show ready.

5. Unrealistic Home Buyers- One of the top challenges that homeowners face when they are trying to sell their home is unrealistic home buyers. The trouble with these home buyers is the offering price. In today’s market no matter if your home is priced right or not, you will have home buyers that offer you disrespectful low ball offers. Another challenge that arises from these unrealistic home buyers is the fact that they want the home in perfect condition. So if you do not want to make the necessary updates to your property it will be hard for you to find a buyer that is willing to pay top dollar for your home

6. Commissions- Now that you already had to put a bunch of your own money into making the proper updates to your home, maintaining these updates throughout the sale, if you ever do sell your home, you will have to give your agent & broker about 7% of the sales prices. Now these commissions are negotiable but you will have a very hard time finding a great agent if you are offering anything less than 7% in this area. The only way to avoid these commissions is to either sell the home by yourself or take a cash offer from a buyer before you list the house.

7. Passing Inspections- A top challenge for home sellers is dealing with the laundry list of repairs the home inspector issues. Whether its home inspections, pest inspections, or radon tests, a home buyer wants to ensure everything is perfect when they purchase a new home. There are no set guidelines on if a home passes inspection or not. The home buyers have the final say in if they are satisfied with inspection process or not. Believe me when I tell you, they will have a nice extensive list for you to take care of.

8. Closing the Deal- So you made it through all the difficult challenges, the closing should be easy right?? Just sign a couple papers take your check and your headache is over with... Wrong!! There are many different things that can de- rail a property closing. One of the main issues that can arise is the buyer getting disapproved. Now this is nothing that the seller can control but can still be a deal breaker. Some other items that can derail a deal at closing are title or survey issues.

Is Selling The Traditional Route Right For You

So what home seller is the traditional route for?

So now that we have discussed the pros and cons of selling your home with a real estate agent, let’s go over what home seller should choose this route. The major variable is the condition of your home. If your home is in good to great condition then you should choose the traditional route. The traditional route will benefit home sellers who:

• Are looking for full market value for their home

• Do not mind waiting to get full market value

• Do not mind making the necessary repairs to be able to list your home for full price

• Are ok with giving up 7% commission

• Do not mind maintaining their home through the sales process

• Working with a professional agent, with local real estate knowledge

• Are moving out of town

The traditional sales route is not for everyone, however it is beneficial to several homeowners.

Understand what the traditional sales process offers, how it works and if it meets your goals and decide if this option works best for you and your family.

Selling For Sale By Owner (FSBO)

So you want to sell your home buy yourself and avoid those dreaded commissions? You do not want to deal with a real estate agent or try and find the perfect one? Or maybe you do not have enough equity in your home to sell with a real estate agent. No matter your situation, selling FSBO statistically is difficult to be successful with. However there are specific tools and marketing tools you can use to increase the odds of a successful sale.

Everyone that is selling their property would love to save that 7%, but there are several factors that you need to take into consideration when choosing to sell FSBO.

Here are some stats about FSBO that display how difficult it can be if you do not know what you’re doing.

• 5% of all property sales were sold FSBO to someone they didn't know.

• FSBO take about 25 more days to sell, if they sell at all

• Realtor properties sell for $41,000 more than FSBO

• In the last decade FSBO sales have dropped from 20% to 9%

• 70% of FSBO said that have difficulty selling

The main advantage realtors have over FSBO's is that they know other real estate agents/brokers.

This means that they may be able to connect your property to a buyer. But as we know by them making that connection, you will cough up that 7%. Now if they can make that connection quick, in my opinion it is worth giving up that 7%, it’s a no brainer. But if your property is going to sit on the market for months, while your agent put a sign in your yard and an ad in the paper, and then we should not be giving them 7% of our home sale... not a chance.

Marketing Tips (FSBO)

Realtors are professional's and they know the market much better than the average person.Most likely they have been in the game locally for a while and understand the market conditions. That being said, the average realtor is 57 years old & in 2016 we have tremendous mediums to market our properties through the internet. Digital marketing is a powerful tool and if used right can give your property the necessary exposure to sell your home.The old tactics of putting a sign in your yard, passing out fliers or brochures or putting you ad in the newspaper are long gone. Now we have access to websites, social media, blogs and a whole assortment of inbound marketing techniques to drive target home buyers/realtors to our properties.

1. Website/Landing Page/ Main Hub - The first step we need to make in this process is to create a dedicated website/landing page specifically for your property. This webpage is going to be the main hub that we will push all of our marketing to. On this page we will have video, high quality pictures, property descriptions and all other important details of your property (location, amenities, property size, beds, baths etc.). The most important item on your website is going to be your CTA (call to action's) or your opt in forms. These forms are going to allow qualified, interested leads to sign up for a personal tour of your home. On these opt in forms we ask their names, address, phone number, email, if their pre-qualified and their level of interest. Remember all of the digital marketing we discuss next will be pushed to your main website and landing page with the main goal of converting these qualified leads.

2. Facebook Paid Advertising - This is the most powerful digital marketing tool on the internet to date. Facebook paid advertising gives you the ability to put your ad (pictures, video footage of your property) in front of a very targeted set of people. You can target people based on their behaviors, interests, life events, demographics, income level, age, gender and much more. Now the secret with this is targeting the right people. If you are selling a home, in the price range of 100 - 150k, I would say new home buyers would be a great market to target. Personally, I would put the ad in front of females, ages 28-40, income levels 50-75k, 75-100k, with behaviors just married, engaged, moving. This would be a good initial group to target. When these folks click on your ad they will be directed back to your main website so they can sign up for their personal tour and show their interest.

3. Facebook Organic Advertising - Another powerful advertising tool which allows you to target a specific market. You will want to do this marketing from your personal Facebook page. This will allow you to put up specific ads and connect with friends you may have who may know people interested in a house in your area. You can put photos or a video up of your home to direct them to your web page. You can even offer a couple hundred dollars to anyone who brings you a lead that you close on. Now is the time to get creative and try and drive as much traffic to your main hub as possible.

4. Instagram- 70% of Instagram’s users are from the ages of 21 - 45. This is a good medium to find new home buyers or people interested in buying homes. You need to create an Instagram account with the address of your property. The first step you are going to take is to search local landmarks in your area. You want to friend request every single person that has checked into these land marks. About 50% of them will follow you back. Now every video or picture you post will be in front of them. On every single one of your posts direct them back to your website link in your bio.

5. Craigslist - Now many people selling FSBO use this medium but they don't use it right and it amazes me. Constantly I see people posting all of the things that are wrong with their property. Why would someone go to your home when they know there are a million things wrong with the house? This goes back to the photos you take. Take great photos of the highlights of your home. Don't put pictures of your homes on these ads they wouldn't bring interest from a buyer. Now creating a great craigslist post takes time (another blog post later about this topic) but you are able to use some html code to make your craigslist ads stand out. You can bold, italicize, underline, increase font size, change font color, and put videos in your ads and much more. I want you to maximize the limit of pictures (24) you can put in your ad. Make sure you highlight your website link in these ads. I also want you to post no less than 5 times a day to craigslist with all caps, attention grabbing headlines. There are hundreds of homes on craigslist; we need these folks to click your ad.

These are just a few tools that you need to be using to get your FSBO in front of the necessary amount of people to increase your chances of selling. Some other tools that you can use are YouTube, twitter, fizber, google maps, my maps and some more. (Email me to find out). I’ll tell you what, about .05% of real estate agents are using these tactics and about .01% knows how to use them. I would suggest before you decide to sell your home FSBO, you start researching all of these topics, especially Facebook paid advertising. Do some research on how to use this tool? It is the most cost efficient way to target a specific market and can be very powerful if you have any clue how to use it.

The Disadvantages of Selling FSBO

We have touched on some of the difficulties you may experience when you try and sell your home by yourself but I just want to touch on some more topics for you to consider. Perhaps the greatest disadvantage when it comes to selling FSBO is the amount of time that you have to put into the sale. It is a very time consuming process to handle all the paperwork, field all the calls, create a marketing

plan, advertise and handle the showings. You are essentially taking over the job of the real estate agent. Here are some more disadvantages to selling FSBO.

1. Costs of Marketing and Advertising – If you are unfamiliar with the process and how to market, you can find yourself spending money in unneeded areas. Follow the plan above to gain the necessary exposure that is needed at a good price.

2. No Access To The MLS – If you are listing the property FSBO, you will not have access to the multiples listing service. Now days there are companies that will charge you a flat fee to get your home listed on the MLS. This is an option that you should consider if selling by yourself.

3. Market Knowledge – If you are not familiar with the market conditions and if it is a good time to sell you will have a hard time pricing your home right. As we spoke before the most crucial aspect of a successful sale is your ability to price your home right. If your home is priced right you will have more traffic and a better chance of a quick sale.

We suggest that you do your homework before you decide to sell your home by yourself. If you educate yourself on each step of the process, we do believe that you will be able to sell your home. Understand that selling process put together a marketing plan and speak with experts in your area so you can create a hassle free sale.

Is Selling FSBO Right For You?

What type of home owner would benefit from selling FSBO?

As we have learned so far, each option offers benefits to different home owner situations. Selling FSBO owner may be right for some but not for others. You have to evaluate your specific situation and understand what selling FSBO entails and make a decision. Here are some of the situations where selling FSBO would benefit the home seller:

• If the homeowner does not want to pay 7% commissions

• If the homeowner does not have equity in their home

• If the homeowner is in no rush to sell

• If the homeowner is comfortable with all the paperwork, planning and negotiations

• If the homeowner is willing to take less on the home sale

Evaluate the pros and cons of selling FSBO and decide if you’re time and energy is worth saving on the commissions. Selling FSBO can be difficult but it is not impossible. Follow our marketing plan and begin implementing the new rules of marketing. This will help you gain the necessary exposure to sell your home.