5 Tips To Flip A House: The Ultimate Guide
Updated: Feb 26, 2019
Are you looking to earn some extra money? Have been hearing a lot about the real estate industry? Or maybe you just want to flip a house because you have seen the TV shows. Whatever the reason may be, I congratulate you for making the decision to begin learning more about the industry.
A lot of new investors have a skewed perception of what it really takes to earn a consistent profit in this business. There several different systems and processes that need to be implemented in order to operate a business that generates consistent profits. Within the process as a whole, there are several variables on the acquisition, rehab and sell that can profit erosion, diluting your profit.
When first starting out, we do not expect you to have all of these systems and process in place but you can have an understanding and a plan. The systems and processes will be created and iterated off of throughout the life of your business. The more projects you complete, the more streamlined your business will become if you are aware of the deficiencies and make the proper adjustments.
Your operation will consist of several key components that systems and processes will have to be built around in order to scale and grow (if that is your goal). Your goals will determine the complexity of your operation. If you only want to Rehab and Sell 1 property a year to make an additional $25,000, your hobby will look much different (with the same fundamentals).
We will not touch on all of these components, area of focus are:
Market Research / Property Criteria
Marketing - Finding discounted properties
Acquisitions - Ability to negotiation and put properties under contract to fit your profit requirements
Construction - Systems to manage and streamline the rehab process
Accounting - Systems to track all costs associated with a project
Financing - Ability to raise capital to fund the purchase and repairs, use your own capital, use other creative mediums or a combination of all three
5 Tips To Flip A House
1) Market Research / Property Criteria
A big decision that you will have to make before you start your house flipping business is where you will invest. Many investors refer to this targeted area as your “farm area”. When first starting out, recommend that you choose a smaller targeted area. This targeted area can be anywhere from the neighborhood you live in, to 1-3 zip codes.
Even though choosing a targeted area can seem overwhelming, it should be one of the easier decisions that you make. No matter what market you invest in, you will have motivated sellers. Some areas will have more competition that others but if you execute your strategy, you will still find success.
When it comes to your initial market analysis, you should always start with the area you are most familiar with. If you have lived in the same town/city for several years, you probably have a good idea of the makeup of these areas. This will help you determine which locations are high crime risks, which areas are higher priced and which areas tend to hold their prices.
Investing in your own local market offers several other benefits as well. Once you begin your rehabs, you will find it very convenient to only have to drive a couple miles down the road to look at properties you want to acquire, run your due diligence, check on renovations as well as keeping an eye on the property when it is listed for sale. As you can imagine all of these tasks become much more complicated, the farther you get away from the investment property.
As stated, this is the best place to start your analysis and test your marketing. If after your analysis and testing, you determine that your local market may not be the most profitable real estate investing hub, you can begin analyzing and testing a different targeted area. I do want to reiterate, there are always deals to be found, no matter your specific location. The strategies that you will learn in this book will help you assemble a plan to execute to find success, no matter the market.
One of the key members of your team, your real estate agent/broker will be offer some valuable information on this topic. They should be able to answer a lot of the questions that you have to help you determine if your local market is a profitable market to flip houses. Still, take this with a grain of salt because if the real estate agent is only used to clients purchasing off of the MLS, then they may say it is tough to find deals. You will learn that in this business, you make your profit when you buy and we will be buying where there is less competition.. off the market!
Here are some of the key points/ concepts to consider when analyzing your market
1) Target Area Real Estate Supply
Your monthly real estate supply is common verbiage among real estate professionals. This essentially means how long it will take a property that is currently listed to sell given the current rate of sales in your area. If the monthly supply is high, this means that sales are slow, and it is taking several months for a property to sell in the current market. This is commonly referred to as a “buyers’ market”. Essentially if the number of months of supply is large, you will have a market that has more sellers than buyers, thus giving buyers more houses to choose from. On the opposite side of the spectrum, if the number of months of supply is small, you will have a market that has more buyers than sellers, giving buyers less houses to choose from. This is commonly referred to as a “sellers’ market”. This principle follows the guidelines of simple supply and demand concepts.
Since we are house flippers, we primarily want to be working in a seller’s market. This means that there will be much more demand for the properties that we renovate. Remember, you are renovating these properties, so you will have the leg up on a lot of your competition (other houses on the market) when it comes time to sell, no matter if you are in a buyers’ market or a sellers’ market.
If you do not have access to the MLS, you can utilize sites like Zillow, Trulia, Realtor etc. Let's take Zillow for example.
a) go to www.zillow.com
b) We want to find out the total number of listings for a specific zip code.
c) Type the zip code in the search box, and click only listings for sale.
· Zip Code = 11111| Total Houses for Sale = 73
d) Determine how many houses were sold in the past 30 days
e) Change for Sale Listings to Recently Sold Listings
f) Click More - Move to Sold in last 30 Days
· Zip Code = 11111 | Total Houses Sold in Last 30 Days = 8
g) Divide the total number of houses with active listings by number of houses sold in last 30 days
· For Sale = 73
· Sold Past 30 Days = 8
· Month Supply = 9.125
2) Number of Active Investors in Your Area
In any business, you must know and study your competition. Your competition will tell you a lot about the opportunity in the specific area that you are researching. By discovering your competition and determining your success, you will feel more comfortable that the location you are researching can be a potential targeted area for your investments.
This is just one of the tools that you will be using to determine if the targeted area that you are researching offers opportunity. Do not get discouraged if you only find a small pool of investors that are working in this specific area. You need to use some of the other metrics, so you can cross-reference your data to make a final decision.
A quick google search of “We Buy Houses + Targeted City” will give you a good idea of local investors who are marketing to distressed home owners in your area. There are always going to be a hand full of investors who are not actively marketing to purchase off market deals, but count on having relationships with agents and purchasing off the MLS as there only stream of potential rehabs.
1) Create an excel document with columns labeled: Company Name, Owner, Address, Website, Email Address, Phone Number, Facebook Page
2) Do a google search for “We Buy Houses + Targeted City” or “Real Estate Investors + Targeted City”
3) Fill in all of the information on your excel document for the competition in your area
3) Does Your Targeted Area Have the Necessary Information
One of the biggest hurdles I have discovered is that the area you are looking to invest in does not have the information you need to successfully market to distressed home owners. To be successful in finding off market deals, we have to make sure our the list sources (which we will elaborate on later) have a good number of counts for the lists we are looking to market too. In some smaller cities, this information may be less prevalent. If this is the case, it will be much harder for you to scale within this local city you are researching.
4) How Much Are Homes Selling For
In order to understand if you have a great deal on your hands, you must be familiar with the market resale value for homes in your targeted area. To further break this down, we want you to understand what style, size, bedrooms and baths are the most desired in your targeted area. This will help to quickly determine an estimated purchase price that you need to be around when buying at a discount. Also, as we get into the financing aspect of this book, you will learn that you will typically still need to have liquid cash to flip houses (real no money down deals are hard to come by).
2) Marketing Plan / Strategy
The success of any real estate investor will lie on his ability to get deeply discounted deals off market. Now I am not saying that you will not be able to find a property to flip through a real estate agent on the MLS (foreclosure | REO's) but these avenues are very saturated, competition is very high and deals that fit your model may be hard to come by. I am going to touch on several different marketing techniques, both that can give you an immediate deal and some that will take longer but will benefit your investment career for years to come.
1) Outbound Marketing - is the traditional form of marketing where a company initiates the conversation and sends its message out to an audience. This has been the standard and typical forms of marketing within business for year.
Outbound marketing techniques consist of:
These marketing avenues are a great way to get immediate leads, brand exposure and an understanding of your market and buyers persona. Your marketing plan will consist of both Outbound strategies & Inbound strategies (to be discussed next) to allow you to fill your pipeline to meet your revenue and profit goals.
Creating A Marketing Budget
Before we begin marketing to our motivated sellers, we first must come up with a plan and a marketing budget. It happens a lot and I am sure you guys know what I am talking about. You jump right into some marketing medium, you lose your ass and then you are out of the game. Without new leads and leads to follow up with, we have no business. So, we must develop a strategy before putting our hard-earned money to use.
First, let’s start with our marketing budget. How much money we should use to market to meet our goals. The marketing budget/spend for your specific business will depend on the current activity in your business (how much profit you are generating or if you’re just getting started). A simple, short cut tool that some marketers work from is creating your marketing budget off a % of your total gross revenue. For example, if your company generated $100,000 in gross revenue, you will want to spend anywhere from 7-9% of this amount on marketing (for the year). To find out your monthly spend, you would simply divide this amount ($7,000 - $9,000 by 12) or ($583 - $750) per month.
This is a good rule of thumb for an experienced marketer who has a couple of years of business revenue to work from. However, when you are first starting out, we are not lucky enough to have that information. But don’t get worried, we have a strategy for you as well to implement to give yourself a budget to market.
Let's get a more detailed look at creating a marketing budget. When it comes to creating our budget, we will work backward from our goals and figure out our numbers to help produce a budget to work from. Here are some of the questions that we will answer to help determine the numbers we need to calculate a budget.
A) What is your average profit per deal?
We need to know on average how much money we are going to make on each one of our deals. If we are a flipping houses, you need to know that you are going to make $20,000 on average per deal. If you are just starting off, study your market, make some phone calls and find out what your competition is making per deal or make a reasonable forecast as to the profit you will expect per deal from any analysis you may have ran on previous properties. Once you determine this number, move on to the next step, but make sure you put some effort into this first step and try to be as accurate as possible.
B) Average # of leads before you close a deal?
How many leads do you need to generate before you put a property under contract? If you have not been tracking your marketing mediums, this number will be difficult to arrive at. Also, each one of your marketing mediums will have different outcomes, so take that into
account. Calculate this number for inbound mediums and outbound mediums. You can then assign a budget for each medium you use. This is a difficult number to forecast, so if you are just starting out we recommend, using three different numbers; 15, 20 & 25. As you begin marketing and completing deals, revisit this section to put together an accurate number for this step.
Example) You send out 1,000 postcards, you get 25 calls and out of those 25 calls you close 1 deal. That would mean for your direct mail medium, it takes you 25 leads to get 1 closed deal.
C) What is your conversion rate?
Let’s just keep it simple and work off our past example. For our direct mail medium, we sent out 1,000 postcards. From those 1,000 postcards, we produced 25 leads and from these 25 leads we produced 1 closed deal. Our conversation rate is 2.5%
For our inbound efforts, how many site visitors does it take to produce a closed deal. On average we attract 100 visitors to our site monthly. From these 100 visitors, we get 15 people to fill out a form to sell their house. From these 15 leads, we close 1 deal. Our conversation rate for this medium is 15%.
D) Determining Your Cost Per Lead
To finalize our marketing budget, we have to know how much it costs us to bring a lead into our funnel for each one of marketing mediums. Let’s stick with our direct mail example from above. It costs us $1.00 to send out a postcard to a motivated seller. We send out 1,000 postcards, costing us $1,000 dollars. From this campaign, we produced 25 leads. For this specific campaign it costs us $40 dollars to acquire a lead.
Here is a working example of assembling a marketing budget
In the current market, we are averaging $20,000 of profit per flip.
When we close on a project, it is safe to assume that we will collect on average $20,000 of profit after we rehab and sell the property.
From tracking our marketing, we understand that it takes us 25 (direct mail) leads to close on (1) deal
We now know that we need to generate 25 leads from our direct mail campaign to make $20,000 of profit
Conversation Rate: We send out 1,000 postcards, we get 25 leads. Our conversation rate is 2.5%
Mailing Costs: Each postcard that we send out is going to cost us $1 (postage and delivery)
Goal: You set a goal that you want to make $200,000 in profit for your house flipping business this year
For this example, let’s assume that direct mail is the only marketing medium we will use to reach our goal of $200,000 in profit for this given year.
From all the above information, let’s determine our marketing budget to make our $200,000 in profit.
1) Number of Properties We Need to Buy & Sell That Year: $200,000 (Annual Profit) / $20,000 (Profit Per Deal) = 10 Properties
2) Since we have to buy and sell these properties, we are going to base our acquisition year off of 8 months. This will give us the extra 4 months to account for the selling process. We want to determine how many properties we will have to purchase in these 8 months to reach our $200,000 annual profit goal: 1.25 Properties Per Month
3) Number of Mailers Per Month to Acquire 1.25 Properties: From our data it takes us 1,000 mailers to produce 25 leads to close 1 deal: 1,000 (mailers) x 1.25 (Properties Per Month) = 1,250 Mailers Per Month
4) Cost Per Mailer: We determined that it costs us $1.00 to send out a direct mailer postcard : $1.00 (Cost Per Mailer) x 1,250 (Mailers Per Month To Produce A Deal) = $1,250 (Cost Per Mailer Each Month)
Direct Mail Budget to Produce $200,000 in Profit in This Market: $1,250 (Cost Per Mailer Each Month) x 8 (Total Months of Acquisition) = $10,000
To produce $200,000 in profit this year to reach your goal, you will have to spend $10,000 in direct mail. Seems, like a pretty fair-trade right.
Use this example as a tool to work from when creating your own marketing budget. If you are using multiple marketing mediums to reach your goals, run through this same process for each of your goals.
1) Determine your marketing budget (use the example above to help create a starting point)
2) Contact list providers to get a count for the following lists:
90+ Days Late on Mortgage
High Equity Lists
3) Determine which lists you are going to mail too and how many mailers you will send out
4) Create a CallRail account
5) Create phone numbers within CallRail for all the different mailing lists that you are going to mail to.
6) Create A Podio Premium account to gain access to both Podio & Globiflow
(Our Podio automated system will be accessible to all people who purchase)
7) Determine your mailing schedule (every 30 days, every 3 weeks, etc)
8) Determine the marketing pieces you will send out, for which campaigns and in which order
(Example, Vacant Campaign #1 – Postcards, Vacant Campaign #2 – Yellow Letter, etc)
9) Create your marketing message for each mailing
10) Determine who you will use for your Direct Mail Services (creating & mailing your pieces)
Next Day Flyers
11) Receive & clean/scrub lists to put in a format to send to Direct Mail Services
12) Send clean/scrubbed lists to Direct Mail Services & make sure that you place the correct CallRail numbers on the mailing piece for that specific list.
13) Wait for the mail to hit the mailboxes and be ready to answer the calls.
2) Inbound Marketing - is about using marketing to bring potential customers to you, rather than having your marketing efforts fight for their attention. You will be educating your consumer on your services and allowing them to learn and opt in when they are ready. This strategy is a bit more complicated but if done right, will allow you to dominate your local market.
Some inbound marketing topics to familiarize yourself with:
Creating websites/ having a website (educational hub)
Social Media Marketing
Paid Facebook Advertising
Signing up for online business directories
We are currently seeing a shift from outbound marketing strategies to inbound marketing strategies. If you are looking to build a real estate investment business then you need to study inbound marketing and learn how to implement these techniques. This strategy will take you any where from 3-6 months to gain traction, but remember you are building an asset for you business that will last forever.
Also with more and more people using laptops and mobile devices, having an online presence has never been so important.
The great thing about inbound marketing is if you are a small business owner trying to dominate a local market, it is not that difficult. Your barrier to entry is much lower and will allow you to dominate you competition.
Analyze Marketing Efforts
Now that you understand finding great deals through your marketing is the most important aspect of your real estate investment business, we have to test and analyze what marketing channels are working for us, double down on those areas and remove spend from the mediums that are not. You need to track what channels your leads are coming from and there conversion rates. You can do this a couple ways. You can either create an excel sheet or several excel sheets for each channel and document the leads or you can use a CRM ( Customer Relationship Management Software) to keep track of your leads. I suggest using a free software such as Podio to track your marketing efforts.
This will allow you to track and manage the important metrics or KPI's needed to make an educated business decision on your marketing efforts. These metrics consist of:
For your inbound marketing efforts, you need to set up a google analytic's account to begin tracking your website traffic. Google analytics is a very powerful tool. It supplies you with specific information on who is visiting your site (age, gender, location - demographics), which inbound channels these visitors are coming from (social media, organic SEO, PPC ads) and also which keywords they are using to find you in google. This information will allow you to alter and test your inbound efforts to increase your traffic and conversions and decrease your bounce rate.
3) Know Your Numbers - Understand The Analysis
You discovered what area you want to invest in and have put together a marketing plan to bring leads into your funnel. Now it is time to evaluate these leads and know if these leads you are getting are discounted enough for you to rehab and sell them for a profit. If you have a basic understanding of simple math, you will have no problem with these formulas. Initially I want to touch on some basic terminology to analyze these deals:
1) ARV (After Repair Value) : The most important number of any analysis you perform will be the ARV of your investment property. The ARV is the the full market value after the necessary repairs are done to the property.
2) Repair Costs : How much it will cost you to rehab the property.
3) Holding Costs: How much it is going to cost you to hold on to the property while you flip the home. These costs consist of taxes, insurance, and utilities
4) Closing Costs: When you purchase a property, you will have to pay closing costs. Depending on your financing setup and acquisition model will determine the additional variables within your closing cost bucket. For example if you use private money to acquire, you will typically have to pay origination fees/points. When running your analysis, you have to account for both the purchase closing costs and selling closing costs. These costs consist of:
Purchase Closing Costs
Prepaid Property Taxes
Buyer's Attorney Fees
Seller Attorney Fees
Government Recording Fees
(These costs will vary depending on your state,financing and acquisition model)
Selling Closing Costs
Abstract & Survey Fees
Real Estate Commissions
Anticipated Seller Concessions (if any)
5) Profit : How much money you want to make on this specific project. Most people like to make at least 15% of the total ARV. Me personally, I like to make $25,000 - $35,000 per flip. (get great deals and you can too)
Rules of Thumb Analysis
The 70% rule (or 65% rule) (or 60% rule) - Depends on your market and profit criteria
This is a basic high level analysis you can do on a property to determine an estimated Maximum Purchase Price for a property. This is a good way to qualify initial leads to determine if more time should be spent on the analysis. You want to try and evaluate as many properties as you can initially. This will help you get a better understanding of what properties are selling for in your area and the price points you need to be acquiring at.
ARV (After Repair Value) x .70 - Repair Costs = Purchase Price
Here is a quick example. You run a quick CMA (comparable market analysis) (or have your real estate broker/agent do so) to find out the After Repair Value of the property. You and your team determine that the property will sell for $150,000. You spoke to the seller and he described the condition of the home for you and what repairs he thinks are needed and how much he thinks needs to be put into the house to sell the home. (add atleast 10% to that number). You set up an appointment to view the property, create a repair estimate and determine that $35,000 is a comfortable estimate for this project.
150,000 x .70 = 105,000
105,000 - 35,000 = 70,000
Remember that this formula is just a quick estimate to see if this is a property you should analyse further. Using this formula, the maximum price you can offer this seller would be $70,000.
This formula is a little more detailed and will give you a better maximum offer price. It takes into consideration what it is going to cost you to hold the property and lets you determine the profit you will make on this specific home.
ARV (After Repair Value) - Repair Costs - Closing Costs - Holding Costs - Profit = Maximum Purchase Price
Here is a quick example of this formula. You get your first phone call from a motivated seller. He tell's you all about the repairs and says hes willing to sell his property for 45,000. From the information he gives you, you determine that a $40,000 budget is a good number for the repair costs. After running your detailed closing costs and holding costs, you determine that the closing costs will be $7,500 the holding costs will be $1,100 a month. You plane to rehab and sell this property in 150 days. Once again, you run a quick CMA to see what comparable homes are selling for in this area. You decide that after you fix this property up, you will be able to sell for $135,000.
$135,000 - $40,000 - $7,000 - $5,500 ($1,100 x 5) - $30,000 = $53,525. (Maximum Purchase Price)
Using this formula, with this example, you now know that the highest price you can offer this seller is $53,525 to make a profit of $30,000. Since the seller told you he is willing to sell for $45,000, you call him right back and set an appointment up to put his home under contract.
This is the second most important number for an accurate analysis, so it is very important to put together an accurate rehab estimate. I want to go over a couple different ways to determine the "Estimated Rehab Costs" for a project 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 give you some trouble.
a1) Beginners - When you are first starting out, maybe trying to do your first or second flip, determining an accurate rehab estimate can be quite overwhelming. It is very easy to miss certain tasks and these missed tasks could cost you a lot of money if you do not account for them. For the 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. You may have to pay the general contractor a couple dollars up front to assist you with this process, but it will be well worth it. Once you begin giving this contractor some work, he will be more than happy to assist you with this process. 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 estimate 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 - If you have completed 8+ deals, we will consider you experienced. The reason you need to have completed these 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 Manager(s) 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, accurate rehab cost to plug into your analysis to come up with an offer (always be on the high end for your estimate, if possible).
The tool that we have created is called the "Quick Estimate Tool". I want to go over the steps you need to take to create the tool based on the 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 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) Divide your Renovation Costs / Property Square Footage for each property = Construction Costs Per Square Foot
g) Determine your "Construction Costs Per Square Foot" for each "Level of Renovation”. 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 the Advanced Mechanicals range.
h) After you have compiled all this data, create a "Quick Estimate Pricing Chart" (see below for an example of what it should look like)
1) Create "Quick Estimate Calculator" (see below for an example of what it should look like)
i.e) Level of Renovation Price x Square Footage = Quick Estimate
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 Manager(s) to use to simplify the initial repair estimate and to produce more offers in an efficient manner. As you continue to rehab and sell properties, always add your final data to this document. This will increase the accuracy of this tool as you grow your business.
These are often costs that people forget about when evaluating their properties. If you neglect to include these costs in your evaluation, you will be sure to earn less on your investment. As stated previously, these are any additional costs that accumulate over the course of a job. These costs start when you purchase the property and end when you go to the closing table. These costs will include:
Lender Interest Payments
You can get a good true estimate on these costs before you take on the project. Your local county assessors website will allow us to know what the taxes were on this specific property. The utility costs are fairly basic. You will be paying the gas/electric and water bills over the course of the rehab. You can ask the seller what he has been paying for these bills in the past 6 months. For the insurance, you can call around and get estimates from insurance companies to see what they will charge you to carry insurance on your investment property.
4) Assemble Your Team
One of the best parts of having a real estate investment business is that you can delegate a lot of the work to experts without having them on your payroll. However, assembling a great team is very difficult and can take some time. If you have a good team working around you, your life as a real estate investor will be much easier.
So who do we need on our team?
Real Estate Agents
Real Estate Attorneys
Real Estate Accountant
Mortgage Broker/ Banker
Without the help of a great real estate investing team, your odds of success are limited. I want you to understand that this is not going to just happen over night. You are going to have some bad runs with contractors, deal with agents who don't know what there talking about, interview mortgage brokers, attorneys and accountants but I promise you, once you find a qualified team who is used to working with investors, your life will be much easier.
I can tell you first hand that the best way to find a good contractor is not by trial and error. It is possible to find good contractors this way, but is not the best way to find some good ones fast.
Doing some research will hopefully help you avoid losing money on your first couple jobs. Although this is no guarantee.
Get referrals from other investors in your area: Hopefully through your networking you can get a local experienced investor to give you a name or two to call.
Ask family, friends or co workers for references: Its possible that somebody you are close to has had a lot of work done on there house and they have found a contractor that does good work, is trustworthy and performs in a timely manner.
Real estate agents: Ask your real estate agent if they have come across any good contractors in there time working with properties.
A Recommendation Doesnt Mean He's The One
Just because you received a good recommendation from a relative, agent or investor does not mean that that should be the contractor that you use for your rehabs. You can choose to work with this recommendation for a project and see how he performs. This will be your trial and error process but off of a recommendation. If none of these options work, begin calling general contractors in your area and interviewing them. Ask if they have worked with investors in the past, ask for referrals and to see their work.
Real Estate Agents
As the saying goes 20% of the realtors do 80 % of the business.
One of the most important individuals on your team will be your agent. Your agent will play an integral part in either finding you properties or selling your properties. The search for the perfect agent that will fit your needs, timetables and expectations can be daunting and exhausting. Here are some tips on finding an agent that will work for your specific situation.
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. 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?
4) 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."
5) 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.
6) 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
7) 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)
Real Estate Attorneys
Your real estate attorney has an important role for your business. They will be in charge of protecting your investment. Here is a brief breakdown of several areas your real estate attorney will assist you with:
1) Real Estate Contracts - This is a very important document and will contain all of the terms of the deal. If you have any questions pertaining to the contract you or your agent has created for you to purchase properties, be sure to consult your attorney
2) Title Search - The title search is run prior to going to the closing table. This ensures that the seller of the property has clear title to the property, that there are no liens/judgments on the property as well as other information that is important to the closing.
3) Title Insurance - This is a deeper look into the title search. Title insurance insures against any hazards that may not have been seen during the title search. A title insurance policy will typically protect you against any defects in the title.
4) Closing - Your attorney will prepare all necessary documentation that is needed to bring to the closing table. They will schedule the closing, explain all necessary documents and ensure both parties are aware of the process.
Real Estate Accountant
Early on in your investment business, setting up a specific business structure may not be necessary. Once you begin to build a portolio or flip a couple houses you will have to consider hiring a professional real estate accountant. Your real estate accountant will help you establish the best business entity for tax purposes. They will be able to give you detailed information to help you with tax savings.
I suggest that even before you begin your real estate investing career you consult with a professional real estate accountant in Syracuse NY. Discuss with them the strategy you intend to use and what type of documentation they will expect come tax season. You do not want to complete a couple flips in Syracuse NY and not be organized to do your taxes.
As you progress with your career your real estate attorney will also be able to help you leverage your investments. The most successful real estate investors use leverage to build wealth and they will be able to offer valuable insight on how to best do this.
Real Estate Broker/ Bank
If you are going to use traditional financing to fund your flips in Syracuse NY, then you will need to connect and build a relationship with a local bank. Even if you are going to be using your own cash, private investors or hard money investors, initially I recommend that you reach out to local banks to begin building a relationship. As you begin to do more flips in Syracuse NY, your lender will begin to have a more important role on your team. They will begin to be more comfortable with you as a risk, possibly offer you a credit line and give you better terms the more times you pay them back.
5) The Rehab Process
As we spoke about briefly before, we will not be getting into the details of how to estimate rehab costs in this article but I do want touch on the process and what is involved. The actual rehab process is where the most risk is in a flip. It is very difficult to go through a whole rehab and not go over budget. However there are ways to mitigate your risk and eliminate the uncertainty that goes into your project. Our whole goal here is to be as prepared as possible, have as many details on the project as we can and have a detailed plan to execute. This part of the process is the most time consuming, but the more systems you put in place, the easier the rehab process will become. Here are some of the details that go into completing a residential fix and flip:
1) Scope of Work - A scope of work is a in depth description of what each division of your project will entail. It documents all of the tasks that you will complete for a specific project.. This is the document that all of your contractors (subs) will work off of and you will use to price the project.
Once you sign the contract, you will have about 7-10 days to do as much research as you want on the home. (just make sure your contract is contingent on an inspection). During these 7-10 days you will work with your contractors and subs to put together a detailed scope of work for the specific job you are working on. (You should already have a pre-scope of work assembled based off your initial estimate). Some homeowners are more lenient and will allow you to come back and forth with your contractors to walk the property, others may be more strict with this.
By creating a detailed scope of work, you will be able to obtain better estimates from your sub contractors. Each sub will now be bidding on the same scope and there will be no confusion between the two of you. As I touched on earlier, it is very important to build a good relationship with a General Contractor to help you with this aspect of the process.
2) Material List - This is a part of the rehab process that is often overlooked. Once you begin to implement a material list, your jobs will begin to run much more efficient.
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 GC & subs will be performing on the job. So from this scope of work you are going to gain a basis for what materials you will need to have on site.
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 for your contractors to 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 shorten this process.
Create a binder or excel sheet- Project Material Lists
Create tabs for this binder 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 countertops, toilets etc..
Figure out 3-4 different items that you want to use on EVERYONE of your houses you will rehab.
Print out Product data for each of the items you choose and plug them into your binder, under appropriate tabs.
Your Material System is underway
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
3) Schedule - Creating a detailed scope of work along with a material list will help your projects stay on schedule and on budget. However, a schedule is necessary to implement to hold your subs accountable and to have a set finish date for the future. When you create your schedule, you will want to sit down with your general contractor and your subs that you have hired and discuss the order of operations they will be using for the project. This will allow you to put together a detailed weekly schedule of how your project will run. This will help eliminate any "dead days" and give your contractors a document to work off of.
Here are some good resources for you to help educate you further on the rehab process and estimating construction costs:
- If you would like a free digital copy of this book - email me and I will send it to you
These articles and books should be a good starting point for you to begin educating yourself on the process of estimating rehab costs
I hope that we gave you some valuable information to begin your house flipping journey. I want you to understand that building a profitable house flipping business does take time but it is very achievable. The best advice I can offer is to begin learning about the process every day. Once you feel that you have built a good foundation and are reasonably comfortable, begin to take action. You will go through periods when you want to quit or give up, please don't. Keep grinding, keep learning and keep taking action. Once you begin to gain some traction, you will create a snowball effect where business continues to get better. I promise you, there will never be a point in time when you are 100% comfortable. " Get Comfortable, being Uncomfortable" and watch how your business grows.
If you guys have any questions about the flipping process in Syracuse NY, you can either leave a comment below, email me at email@example.com or give me a call at (315) 516-8023. We would also love to hear about any success stories you may have had flipping homes in the Syracuse area.
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