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So you want to flip houses. For PROFIT! Well you came to the right place! Our website encourages you to learn everything there is to know about flipping houses for profit. From finding the deal, to financing, fixing-up, and finally selling for PROFIT! We're sure you've seen the various "Flip This/That House" TV shows BUT ..... what does it all mean to the average investor, or homeowner who wants to MAKE MONEY out of flipping houses for PROFIT! We'll try and make sense of the numbers for you, wherever you're located. And we'll even show you the "BEFORE and AFTER" photos of actual flips. Note, ALL photos on this site are ACTUAL properties we have owned, rehabbed and sold for profit! This website is also very dynamic and new material is being added all the time. STAY TUNED!

 

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read THE BASICS

OK. You've bought the books, taken the courses, bought some more books, actually READ the books, driven the local neighborhood looking at houses and searching for "FSBO" signs, watched some TV shows on flipping, told all your friends and family you're now an "Investor" and going to make a boatload of money. It's now over a year and you haven't made a SINGLE offer! What happened to that dream of being a property magnate?

I think the best answer is - some will, and some won't. Some will go to their local investor club and network with other investors, and possibly make an offer on a "wholesale" deal, or at the very least get a realtor who knows what a "DEAL" looks like (more on "investor" realtors here) and make a lowball offer. Some WON'T MAKE AN OFFER ON ANYTHING ......... because they're worried the offer may get accepted!

Real Estate investing is not really  a risky business? WHY? Because it's an asset based business. In other words, it's not like buying a McBurger franchise where all your money goes into leasing a building, refurbishing it, paying the franchise fee etc. You've spent THOUSANDS of your own cash BEFORE the doors even open. What if the income doesn't meet the outgoings? You're broke. Then .... you have nothing left to sell. You don't OWN anything. So, buying a flip property at 60% of ARV .... if the worst thing is you do NOTHING but sit on it for a couple of months (I've seen this) THEN ... you can probably sell the property for what you paid for it ... after all you got a GREAT deal in the first place! Heck, you may even flip it "as-is" for a small profit (I've also done this!). Sure, you're out maybe a couple of hundred or even thousand dollars in closing and holding costs but you live to fight another day!

I believe the quickest way to learn the basics is to MAKE OFFERS on 3 or 4 properties that you've decided are DEALS (50-60% of ARV). Once you've had one accepted, that's when everything "clicks into place"!!! You very quickly find out that there are plenty of people who want to help you close on the deal. After all, the SELLER wants to close, the LENDER wants you to close (they don't make any money until you do), the REALTOR wants you to close (ditto), the TITLE COMPANY wants you to close (ditto), and YOU want to close!!! Therefore, as everyone in the chain is on the same side, each player will help in any way they can. Investing is DEFINITELY a TEAM SPORT! However, to be brutally honest, if you haven't made an offer, let alone had one accepted, within a YEAR of starting your flip business ..... this may not be for you. The successful investors out there look at maybe 20 potential deals a week, may make offers on 10 of them, and maybe get 1 deal accepted! These investors (including ourselves) can look at a property and decide whether to make an offer within minutes!!!! We have frequently walked through the door of a house, and instructed our friendly realtor to write up an offer before we reached the back yard!! "You snooze ... you lose" is ABSOLUTELY TRUE!! Now, if the offer is accepted (which may take some days to hear back from the bank, i.e. the owner) then you can do the numbers and some more research or "due diligence" and sometimes may back out or withdraw from a deal for whatever reason. However, you at least have an offer in the pipeline before anyone else!! BOTTOM LINE ...... DON'T BE AFRAID TO MAKE OFFERS (based on the 50-60% of ARV principal). YOU CAN ALWAYS BACK OUT, OR GET HELP FROM YOUR 'POWER TEAM' TO GET IT CLOSED. More about this later .....

OK, Why Flip? Why not buy and hold (lease out)? Actually, I've done both. Some people are cut out to be landlords, some are not. The reason I like to flip is to "get in, then get out". I like the concept of dealing with banks (REO's) who are not emotional sellers, unlike a homeowner trying to sell who easily gets offended or changes their mind because the wife has a bad hair day or whatever. In addition, I don't need the stories that renters tell me about why they can't pay the rent on time. And then when they leave, you have to clear up their trash and start a NEW rehab again. No, for my best bet, flipping is reasonably straightforward and a fast process to make a decent income. The biggest "a-ha" moment I had a few years ago was the concept of "forced appreciation". What is that? (I hear you say!). Well, when the market is going up pretty well and properties are appreciating at 10-15% a year (as in the recent CA and FL markets) that's the time to buy a newish home, live in it, or lease it, hang on to it for a couple of years and then get out, making a decent profit. That's called "natural appreciation". It's better than putting your money in a CD and more fun! Until ... the market turns sour and suddenly your investment is back to what you paid for it, or LESS!! Then you have negative equity and negative appreciation!! Frankly, anything that has "negative appreciation" makes me shudder - kind of like buying a new car and losing 20% the minute you drive it away from the showroom. Anyway, the concept of "forced appreciation" is this: You buy a property that is, say $100K. You spend $25K on upgrades and updating it, making it into a beautiful HOME for someone. It now appraises for $175K. You have FORCED the value up by making it gorgeous again, in a short time, maybe a month or so. I don't know of any other business that is relatively simple for ANYONE to do where you can BUILD EQUITY quickly by FORCED APPRECIATION, and then RELEASE THE EQUITY i.e. sell it, making a large ROI (return on investment - possibly 15-30%) in a few WEEKS.

One of the typical deals we did follows this exact principle - we paid $82K for a 1900 sq.ft 3/2/2 in Garland TX. ARV was $139K (i.e. purchased as an REO for 59% of ARV). We spent about $18K on updates, tile, paint, carpet, labor and the job took 3 weeks. We had an open house and sold it to the 2nd person who saw it. This was Aug 2007. The sale price was $135,900 and we had to contribute 3% towards closing costs (about $4K). The buyer, therefore, got 100% financing and their only outlay was $1000 earnest money. Our closing and holding costs in total were about $4,500. We made a net profit of $27,400. Not bad for a buying/fixing/holding/selling period of only 7 weeks! BTW, here are some before/after photos to show you what can be done. Our buyer was a very nice schoolteacher who taught disabled children and she was THRILLED to have this new home to which she could now invite her church friends over and also her sons' friends. I visited her later and the home was very tastefully decorated and she proudly showed me around!! This is one of the best rewards - making a new HOME for someone - it's not just about making a profit! In addition, we helped improve the neighborhood a little ..... see BEFORE AND AFTER photos here.

“More money has been made in real estate than...all of industrial and manufacturing business combined" By Andrew Carnegie, one of the richest and most famous captains of industry of all time- and the catalyst for Napoleon Hill's writing of Think and Grow Rich

The Art of THE DEAL

Sun Tsu's "The Art of War" describes many philosophies of warfare, mainly on how to make the advantage yours and defeat your enemy, i.e. a "win-lose" or "zero-sum" game. Now, I believe in flipping property that The Art of THE DEAL is somewhat the REVERSE ..... we've all heard of a "Win-Win" scenario. Well we're looking for a "WIN-WIN-WIN-WIN" situation where the investor gets the best price OR terms, the SELLER is HAPPY with the offer AND TERMS, the LENDER is happy with the risk on the property, AND FINALLY, the prospective buyer loves the property, the renovations and, of course, the price. The danger is, if one player "loses" in the deal it will fall apart. If the seller gets cold feet because he's been 'had' or feels the property is worth more, then he may pull out of the deal. If the lender doesn't make enough $ on the deal or is not satisfied with the risk assessment, then it's virtually impossible to close unless a higher down payment is made, or other guarantees are made. My point is, do the maths ahead of time and be prepared. At least talk to a lender FIRST and get a pre-qual letter BEFORE you make an offer. Nothing worse than a new investor making 5 or 6 "offers" without some financing lined up. Who are you kidding? If a bank says YES to your offer, and asks for $1000 earnest money .... but your lender says "NO" a couple of weeks later, then you've just wasted everyone's time and energy and you'll soon lose any goodwill you've built up with realtors, investors or friends who found you the deal in the first place. Oh sure, you'll probably eventually get your $1K back (by a third party financing addendum) but what a hassle!

I think some folks forget that this is a a serious BUSINESS .... so ACT like it's a BUSINESS! If you are going to make a 60% of ARV offer make sure you can back it up with e.g. a CURRENT BANK STATEMENT (if it's CASH) or a bonafide lender pre-qual letter and possibly corporate documents if you're buying as an LLC or similar. In addition, if you can put together a brief scope of work (foundation, roofing costs, labor costs, material costs) and have this ready to submit to your lender, you'll be ahead of probably 90% of investors trying to get the same deal. LASTLY - BE A PROFESSIONAL!

The big benefit about this way of doing business is you'll QUICKLY find there are many people of similar mindsets who will like working with you. You'll find pro-investors, contractors, lenders who will offer experience and help. DON'T SHORTCUT THE PROCESS! This is a great business when you can call on others for help or referrals to help you get the deal done. For example, we now have a group of about 20 investors who we call or email IMMEDIATELY with a new deal. Frankly, we have sold some deals and completed contracts WITHIN AN HOUR of contact. WHY? We trust them because they have exhibited the ability to follow through with signatures and fax or scan/email contracts back to us IMMEDIATELY with copies of earnest money checks and pre-qual letters. Unfortunately, we have some investors who are on the back burner because they can't even get their fax machine to work properly. Honestly, one investor tried several times to fax us and the pages were blurred or missing. Buy a decent fax machine dude! Needless to say, the best deals bypassed this investor and he's still looking for his first deal over a year later!

So, let's talk about putting together a POWER TEAM. We've all heard of "leverage" ... well, in this case we are aiming to leverage the skills and expertise of other professionals, hopefully for free! Here's my list:

1. REALTOR - who knows about INVESTOR DEALS i.e. 50-65% of ARV. You don't want a "retail" realtor.
2. LENDER - or several lenders, really. A small bank, mortgage broker, hard money lender.
3. TITLE COMPANY - get to know the folks there. They can really help with contracts issues.
4. APPRAISER - a friendly appraiser can be a HUGE asset by giving a quick idea of a property's value before
                          making an offer. Similar to comps but more valid to a bank.
5. CONTRACTOR or G.C. - we'll see later that you can run your own crew labor, but initially it's worth getting
                                            2 or 3 bids on your rehab. Again - DON'T TRY AND DO IT ALL YOURSELF!!!!
6. SUBS - such as HVAC, plumbers, roofers, foundation guys. Talk to other investors for GOOD references.
7. INSURANCE - yes, you'll need this. There are specific rehab or construction type insurers. Again, get
                          referrals.
8. INVESTMENT CLUB - I'm telling you, get to know other investors who have DONE IT!! Get a buddy who'll
                                 take you around and show you some before/after deals. It will all make sense, I promise!

(to be continued)