Keys to Real Estate Flipping Success

I have been in the real estate field for the last 16 years and my hard money lending company finances around 150 deals a year. Here is what that experience has taught me about being a successful fix and flipper.

  • Mindset: This is where it all starts. For the last 3 years, I have felt myself fall into a little lull and have realized that this occurred because of my mindset. Your mindset could be a lot of things, but the basic concept is that what you believe will happen… does. Sometimes just convincing your mind that you will hit a goal takes work. Not to mention the work that it takes to actually hit that goal. Focusing your mind on positivity is a great start, but you really need to believe you deserve the success you desire. Meditation and affirmations are fantastic ways to accomplish this.
  • Hustle: Nothing is going to be given to you. When I was going through my struggles to hit some financial goals, I had to keep reminding myself of this. Times can get hard and things can feel unfair, but the reality is, no matter how much you don’t want to believe it, you are the only one responsible for your success. I would tell myself this over and over. “If I want it, I need to earn it” I had to get up in the morning. I had to deal with the problem on my plate. I had to stay up late or work on the weekend. I had to put in the work to get the results. Because I decided to be successful, I decided to work hard.
  • Network: As we have learned. It is not what you know, it is who you know. I constantly try to team up with people smarter than me, that can both help me learn and help me get results. This has resulted in millions in profits. I also feel very lucky to have a network that can solve just about any problem I run into. If I am rehabbing a house and run into a problem, I have a list of people I can call for help. If they don’t know how to help they will know someone who does. I lean on my attorneys, my CPA, partners, wholesalers, and other professionals on a regular basis.
  • Education: To make my top five list you know I believe this is important in your success. Constant improvement is essential and the exciting thing about this, especially early in your career, is that growth is exponential. As you learn and implement ideas into your business, your business grows at a faster and faster pace. Obviously, for this to work you will need to learn AND implement. Many people learn all about investing and never invest. That comes down to the investor mindset. That’s why, I believe, you need all five of these essential keys to be a great fix and flipper. The good thing is this is possible for everyone, including you.
  • Access to Money: So, this one might be self-servicing because I am a lender, and this could fall within the Network category but let’s face it, if you don’t have money you don’t do deals. Money can come from many sources including cash you have in the bank, money you borrower from institutions, partners, private and hard money loans. Many times, you will need a combination of these sources to get a deal done or to maximize profits. This can all be learned as part of your education or you can choose to work with a professional that can advise you on the best way to navigate this complicated subject.

Some Ways To Wholesale Real Estate

Once you find a deal, you need to understand how to sell it to make your profit. Here are four ways you can structure your wholesale properties.

  • Contract Assignment: This is the easiest, but comes with some risks if not done correctly. It is also somewhat restrictive as bank owned properties will prevent this. This works well when you negotiate your deals directly with the seller. The way this works is you will get a house under contract and then you will assign your rights in the contract to another buyer for a fee. That new buyer will take on the rights and responsibilities in the contract and will close in your place. It is best to get your fee paid up front, but it is very common to get your fee when your buyer buys the house. Here are a few things to keep in mind when assigning contracts. Be sure that you always disclose to your seller that you are or may assign the agreement to another buyer for a fee. I suggest you actually put this in the contract. Sellers should be OK with this if you are transparent that you are an investor who buys houses for a profit before you start to negotiate. I would get money from your money that is at least enough to cover any earnest money you put up with your seller. That way if your buyer defaults on the agreement you at least cover your costs. Always try to get the entire fee paid when you assign the contract. I like this way the best because it is easy to do on your end, it is easy for the buyer and the buyer’s lender, and it is the cheapest way to go.
  • Double Close: This just means that you actually buy the house and then resell it. There are several ways to do this, but the most common is to buy and sell in the same day or within a day. Typically, you will need to bring in financing to get your closing done with the seller, which is why this is my least preferred method to wholesale. Also, because you have two closings you will have two sets of closing costs, so it is the most expensive way too. With that said, some wholesalers prefer this method because they do not have to disclose to the seller their intent to resell and they can both keep their deal with the seller and their deal with their buyer private. It is believed by some that this is a good way to protect your profits. The information will all become public record at some point, but that is well after the closing. This is the method you will use by default if you do not do your contract on the front end correctly, so we do see double closing frequently.
  • Flip the Entity: This has become the most common way to wholesale in my market. Most, if not all, the successful wholesalers will use this strategy. Especially when wholesaling foreclosures where contract assignments are forbidden. The way this works is the wholesaler will set up a separate entity, like an LLC or a Trust, and put that entity as the buyer of the house to be wholesaled. They will then sell the entity itself for a fee. The benefit with using this strategy is that actual contract on the house does not change. Since the buyer of the house is the entity, there are no issues with any regulation or assignment restrictions. The downside is it could be more work because of the extra step to set up the entity, and there could be additional fees to register the entity with the state. The risk for the buyer is whenever you buy a company you are buying all of it. So, if the entity was used in another transaction and owes money to anyone, the new buyer could be on the hook. Knowing this, the best way to do this transaction is with a brand-new entity used for this one purpose.
  • Relationship Close: I don’t know if there is an actual name for this method. In fact, it is rarely seen. What I mean by relationship close is that you have such a strong relationship with a buyer that you write offers in the buyer’s name. For this to work, you should be a licensed agent and preview houses for your buyer. You would need to understand their criteria and only offer on houses they will want to buy. I have a client that works this way. He has an agent write his offers and the agent/wholesaler gets paid a commission with each successful closing. They do 2 to 3 deals a month with this strategy. My client just signs contracts without looking at them at this point and trusts what the wholesaler is putting together solid offers. There is always an inspection clause protecting the buyer and the agent, but more than 9 out of 10 houses that go under contract close. That is because the agent/wholesaler knows the business and knows what this buyer will buy.

Ways to Increase Property Values

Upgrades and Repairs: OK, this is the obvious one and is the reason fix and flippers can make money. Some repairs add a lot more value than it costs to do. The more creative you are with the improvements, the more value you can add. For example, I have a client that adds square footage to every house he buys. He really likes the inner city properties because they are the hardest to add square footage. You either need to finish an unfinished basement, or add a second story. There is not typically enough land on the lot to add an addition by increasing the foot print of the property. This client does a lot of basement finishes and “pop tops,” but where he has made the most money is the basement that is only 5 or 6 feet deep. He will go in and dig out the basement to a full 8 or 9 foot height and then finish it. Something most investors would not think of, so he is able to get the deal most other investors pass on. I have also seen some investors find houses that don’t really fit into a neighborhood and they make them fit. This could be limited bedrooms or bathrooms or funky floor plans. All of that can be changed. Obviously many cosmetic fixes like kitchens and bathrooms add a lot of value too. There is a lot more to it than this, but the idea is to buy a property at its true ‘as is’ value, (don’t over pay), and then add value with the repairs and upgrades.

Owner Finance: I love this one because it is so easy to add value with very little to no work. You will need to wait to cash in on your profits, but it is a way to increase a sell price significantly. You can also use this strategy to defer tax gains over a few years, instead of taking a big hit all in one year. When you have a property for sale there are a limited number of buyers for the house, although right now that pool of buyers seems pretty big. If you can increase the pool of buyers, the demand for that one house increases, which forces the price to go up. Someone that cannot qualify for an ordinary loan, limiting the supply of houses to choose from for that buyer, will likely buy your property. That also increases the price. You are adding value by giving them the chance to own a home that they normally would not be able to own. For this value, you should be compensated with a higher price and a decent interest rate on the profits, while you wait for the buyer to refinance and pay you off in full.

Shared Units: This is one area of real estate that I have not dabbled in, but it is extremely inviting. The idea here is to sell your property to multiple buyers. You are seeing this a lot in resort towns. It is always a vacation or second home. Have you ever been to a time share presentation? They are pretty enticing aren’t they? About 13 years ago my ex wife and I were in Florida and got sucked into a time share sales pitch. We decided to go because they offered us free tickets to Disney. We sat there for about an hour and a half and then the hard sale came. They were very good at selling the “idea” of the time share and had my ex wife sold. She asked me to move forward with the deal, but I could not bring myself to do it. I told her that I was not comfortable with an emotional purchase and that we needed time to think it through. “Can I please have our Disney tickets?” was my response. As we rode back to the hotel that afternoon, I started thinking about the math. Each unit can be sold to 52 different people because your purchase only gets you 1 week a year. Add that to the annual maintenance fees and the numbers are staggering. I know people who have flipped time shares successfully, because you can get them for free or near free on Craigslist, but it is not an investment I was interested in. With that said, I have considered doing a half or quarter share on a house in a ski town in Colorado. In this scenario, you are sharing a house with 1 to 3 other people so there is a ton more flexibility. You can use or rent out your weeks and you can be guaranteed valuable high demand weeks every year. It is a way to get a second home without the full expense. From the seller’s point of view, it is a way to get more for the house. ½ a share of a house is going to cost the buyer more than ½ of the fair market value. I have seen business plans from investors that would buy a house and quarter share it out. The idea was that after they improved the property and sold ¾ of the house to 3 different buyers, they would own the last ¼ free and clear. Obviously this strategy will work best in areas where people want second homes. The downside is if there are any improvements or major issues. I can see there being disagreements, so this is something you would want, as a buyer, to work out with all the other owners in writing before you buy.

Hiring A General Contractor

A General Contractor is someone that will oversee your project. They will manage all the subcontractors and help get you to the finish line. They are generally not as skilled at specific tasks, like plumbing or electrical, but might be more organized and should understand the basics of the entire project.

BENEFITS OF ACTING AS YOUR OWN GENERAL CONTRACTOR

In most cities you will be allowed to act as your own as long as it is a smaller job or you hire and manage licensed subcontractors. General contractors will want to be paid for the value they bring to your project so if you choose not to hire one, that savings will go directly to the bottom line. Paying less for the rehab could mean more profit for you.

Another benefit of acting as your own is the experience you will gain. As a real estate investor, it is a good idea to have a basic understanding of what it takes to rehab a house. This will help you with future projects or come in handy if you ever hire a bad contractor.

Finally, if you don’t have one in the way, you will be in much more control. Not saying it would happen, but I could see when there might be a time when you end up with a bad one. Getting a General Contractor off the job is not easy. They could have their crews working and they might owe their subs money. Dealing directly with the subs actually doing the work is often times much easier.

BENEFITS OF HIRING A GENERAL CONTRACTOR

Although I am acting as a co-General Contractor for a house I am building for my girls and I, I am a big believer in using one on your projects. This becomes especially true as you grow as a real estate investor. It is extremely hard to scale your investing business if you are working in it, so anything you can shift to someone else while still making a profit will help you grow. Aside from shifting the workload, here are some other reasons why you might consider paying for a General Contractor:

They understand building code and can ensure work is done according to that code.

If you have a good one, you will save money on your holding costs because they know how to complete a job in an efficient manner.

It is a great way to shift liability. If something is not done correctly, you can shift that responsibility to the General Contractor or their insurance. They should also manage any warranty issues.

They could actually save you money, because often times they have good relationships with subcontractors and get preferred pricing. This could be true with material suppliers as well.

Although I think it is best for most investors to hire one, there are good arguments either way. It is not a terrible idea to go through some deals without help so you can learn the process. That is exactly why I decided to take on that role with my new home. It also might come down to how much time you have and your ability to do the job. Most investors can handle smaller jobs without the help of oner. Experienced investors can likely handle even large jobs without any help. If you have the time and want to maximize profits, I can see you taking on the role, but if you are limited on time or are more interested in growing, you probably want help.

Tricks to Increasing Community Development

Hold Regular Meetings

It is crucial for your town hall or community organization to hold frequent (at least every bi-weekly or monthly) meetings. The more everyone gets together to discuss neighborhood issues, the easier it is to brainstorm solutions and activities that can make a difference. It also holds people accountable, and when a pattern is established, it’s easy to make the meetings a routine part of everyone’s schedule.

Be Open to New Ideas

Meetings often bring up ideas for volunteering and events. The best way to make progress for all members of the community is to listen and be open to compromise. Perhaps this means holding multiple events for different religious groups around the holidays. It could also just mean that two different ideas are merged to make a larger event with more diverse activities.

 Try to Work With the City

Depending on available funding and priority items, it can sometimes be difficult to get city projects underway. Be realistic about your goals and remember that projects can become delayed for any number of reasons. Stay pleasantly persistent.

Don’t Give up

There will be times when councils or other governmental groups will reject proposals, but it is important to continue working on projects that you believe in. Those who speak up are often the only ones to be heard. Patience and optimism go a long way when it comes to getting important projects completed.

Advertise

Marketing strategies for community development meetings may sound strange, but they can be a good way of getting everyone together to discuss relevant topics and concerns. Think about flyers and Facebook pages that advertise meetings and future volunteering opportunities. A group page on Facebook, or even an Instagram page, can help to show what issues are at stake and provide photos of changes as they are made. Advertising is also a great communication tool. If some people are unable to attend recent meetings, they can use this as a way to catch up and to still voice their opinions.