“House flipping takes too much time”
“House flipping is a lot of work”
“House flipping is SO risky”
“House flipping is impossible to do when the economy is (fill in the blank)”
True, house flipping isn’t easy…but is it as hard as people think?
It isn’t, because there IS an easier way.
Its called…well…I’ll get to that in a second or two.
Buy, Fix, Flip…The Lazy Man’s Formula
So many new house flippers I talk to insist that the only way to squeeze good profit out of a flip, they must do ALL the work all by themselves. To make sure “the profits are there”, they insist they have to do the following:
- Find the house themselves
- Negotiate the sales price all on their own
- Buy the house on their own by scraping together their own money
- Handle all the legal stuff on their own
- Do all the rehab on their own (with hundreds of trips to Home Depot, mind you)
- Sell it all on their own – listing it as a FSBO or on Craig’s List
The list goes on and on…
That just sounds like way too much work to me.
I think they have it all wrong, because there is an easier way.
The Power of Leverage In House Flipping
When I’m asked what’s the best way to get started flipping houses, I give them the same answer:
House flipping is a TEAM sport…so start by formulating your team
Second only in importance to the success mindset, the house flipping team you assemble is the most important thing you need to do when first starting to flip houses. In using the expertise of others to help you in your success, it’s the easiest and even some would say “laziest” way to achieve success. When you leverage the considerable brainpower of others and not yours, you can focus on growing your business instead of worrying about it.
Although there are more than just the below mentioned team members needed to get started flipping houses, the big five below are the core members you’ll need. Of course adding more largely depends on your deal flow and the size and scope of your house business.
The Core Members of Your House Flipping Team
1. Real Estate Attorney
Many new house flippers try to cut corners and think they can go it alone without an attorney. Others try to get by using a cheap online attorney service.
On both accounts, big mistake.
Sure, it hurts to pay that bill…but in the end, flipping houses is a tricky business and can get legally complicated very quickly.
So when it comes to real estate attorneys, you get what you pay for. So don’t skimp here. Hire a qualified expert attorney who really knows real estate law. Think of it as a wise investment instead of a cost; like fire insurance. You hate paying that premium, but when the house is on fire, you’re sure glad you had it.
And fires pop up all the time when you’re flipping houses!
If you skimp on legal services up front, you could pay tenfold or even lose the deal when things go south. Don’t skimp on attorney services. Get a good one on your team and pay them well. If you’re doing the right things to turn a profit, what you pay your attorney will be more than covered by the profits you make on your flips.
2. CPA (Certified Public Accountant)
Just like an attorney, hiring the right CPA can save you a lot at tax time.
It goes without saying that hiring the wrong CPA, especially one who doesn’t understand the finer points of real estate investment accounting, can cost you a lot of money. When you’re looking for a top-notch CPA, you may get frustrated when trying to find one who really understands how and what you do. With so many different ways to interpret real estate accounting issues, this is not uncommon. As you probably know with your personal taxes, the U.S tax code can be interpreted in many different ways. So it’s the same way or even more complex at times, with real estate tax accounting.
So it’s extremely important to find an accountant who is extremely familiar with U.S. tax laws for house flipping and real estate investing. Finding a CPA who meshes with your personality and does all she can to legally apply good accounting strategies will help you to keep your taxes as low as possible, while not having to worry about the IRS.
Your CPA should also advise you on your business structure – looking at it from a tax as well as a legal perspective. So when you do find your ideal CPA, make sure your attorney and accountant communicate with each other so jointly they structure your business in the best way.
3. General Contractors
Notice I said general contractors (with an “s” at the end), because it’s always good to have more than one, especially if you are working in a few different markets.
Many new house flippers feel they must do all the rehab work on a flip themselves. For small rehab projects which involve a fresh coat of paint and few small repairs, this may make sense. But in most cases, it doesn’t. For most house flips, the time you’ll spend doing things that otherwise could be done by a professional may actually cost you more money in soft costs and finance costs.
A general contractor on a house flip basically runs the entire project; they are responsible everything that goes on in the rehab, including hiring and sometimes firing all subcontractors as well. Managing all this can be a real headache and if you don’t have a real estate or building background can be a real time-suck as well.
Find a general contractor who can work within your budget and who has a good track record. You may go through a few before you find the one to do most of your deals, but when you find him, he’ll save you not only time and headaches but help to ensure your profits as well.
4. Real Estate Agents
When it comes to real estate agents, ideally its best to find an agent with experience working with house flippers or one you can train yourself. Most real estate agents are familiar with the concept of house flipping, but for them to become a permanent part of your team, you’ll need to educate them on how it is done as well as how you do business. Depending on your geography, you may end up working with a few agents in different territories they specialize in.
Also, there are a number of REO (real estate owned) agents. These are agents that specialize in selling bank foreclosures. If you are lucky enough to find one of these and develop a good rapport with them, consider yourself lucky. They are a fabulous source of good deals ideal for house flipping.
There are also certain kinds of real estate agents who specialize in short sales. These are agents that work with banks to sell a property for the seller before it goes to foreclosure. If you uncover one of these kinds of agents, they could also be a tremendous source for deals ideal for your business.
No matter which kind of real estate agent you choose, this team member is vitally important for your deal flow.
5. Lenders
You need money to fund your house flips. Its kind of hard to buy a piece of real estate for a few hundred thousand dollars without it…so the lenders you have on your team are pretty important. Once again, always good to have more than one.
Whether you are fortunate enough to get a loan at a bank or you deal with private money lenders or even hard money lenders, having a reliable and trustworthy source of private money lenders is crucial to your success.
As I wrote in a previous post, the best way to find these kinds of people are at your local REIA meetings as well as just by talking with the people you see on a regular basis. This could also include friends and even family. Once again, it’s all about forging relationships and getting to know people as well as helping them to get to understand your business.
For all you who think this can be done purely on the phone or ever email, think again. There is no substitute for one-on-one sit down meetings in a coffee shop or the “meeting after the meeting” at the bar after a REIA meeting.
You’ll also find that if you’re always on the lookout for creative ways to fund deals, some of these relationships may turn into joint venture partnerships – which can turn into even more opportunity. Like so many things in real estate investing, the more success you have, the more opportunities will start to turn up. The harder you work, the luckier you do get.
So don’t worry about choosing the wrong team members to start, its only natural to go through a few before you find the right ones. When you’re first learning how to flip houses, the odds are actually against you in formulating the perfect team your first time out. But the more experience you get flipping, the more you’ll be able to discern which team members stay for good and which ones you may want to ultimately replace. And after you get your first few deals under your belt, experience will ultimately help you make the right decisions.
Thanks for reading! Please leave a comment below to tell me what you think are some additional team members on your real estate investing team? I’d love to hear what you think!
Photo: Tami Hills
{ 20 comments… read them below or add one }
6. Marketing for Buyers
Never stop marketing, even when you have nothing ready. You can show work you’ve already done – before and after photos – and show what you’re working on now.
If you’ve done many flips, you realize that finding and fixing is truly the easy part. Where the angst comes in is getting them sold. Best to have interested buyers following what you do so the property is sold when you finish.
No matter what your area of expertise in the real estate business, never stop marketing for buyers.
Karen that is so true!!!
Nothing comes to fruition unless you sell the property or get it
Rented or a lease option buyer depending on your strategy.
Sometimes your strategy changes but I agree and you have to
Keep marketing.
Some good advice for individuals looking for directions on how to get started. Other team members that can be added as the business grows:
1. Mentor – have experience to move from small deals to larger ones.
2. Appraiser – Have someone available to place a definite value to your property.
3. Title Co – You need a company familiar with fast & accurate closings.
4. Home Inspector – Should buyer need this service why not have it available for them?
5. Environmental Company: Asbestos, Lead-Based Paint & Mold issues. Inspection & removal.
Dale
All good points Dale. Especially the Mentor. Learning what NOT to do is just important if not more than what to do! and a good mentor can certainly help with that.
Mike ‘CommonSense’ LaCava — In other words, don’t take the DIY approach, kiddin’ yourself about your various skill sets. You’d rather ‘call the guy’. I strongly suspect you’ve saved many DIYers from some real life financial calamities.
Well speaking from experience Jeff I realized you get a lot more done when you have your team of experts to assist in getting things done more quickly so you can get more deals done. I use to manage all the sub-contractors now I use a project manager or a General contractor. It is an additional cost but I am able to do a lot more rehabs at once now generating more income.
The e-myth by Michael Gerber was a great book I read that taught me to work on my business more and not in it. Great Book!
Ha! You got off easy, with a book. I got mentored by truly scary OldGuys who thought terror was part of most teaching moments.
“Do what you do best, and hire folks to do everything else. But INSIST they’re as good as you are at what they do.”
Good Point. Not everyone is a good Mentor & you need to make sure they are good at what they do. I have some issues still with hiring people that don’t have the same work ethic and goal oriented performance as I do. It is always work in progress especially during the expansion of your business.
Great advice Mike! I can especially appreciate your advice on finding general contractors. It took me many years to stop doing all my own work, and when I did – I started saving money! Thanks for an excellent article!
Exactly Brandon. I just mentioned that on a previous comment. I am able to get more deals done at once now that I don’t have to manage the day to day operations of the rehabs especially when I have 2-3 going on at the same time. The KEY is finding a good GC or project manager and I had to go through a few before getting it right.
The meeting after the meeting. Brilliant! So many relationships are created by the second meeting. Most seminars and networking events are packed with people and you meet way too many people in a short period of time. You have to find a way to stick out and many times the one on one, face to face, meeting is the best way to do this. Good stuff.
It is so True. I can remember going to my first few REIA meetings and when it was done going home. I started to notice a few attendees going into the lounge or restaurant depending on where it was held & I started to ask if I could join them. The rest is history. I have established some of my best relationships from those meetings.
Best advice I’ve seen on this site. Well written.
Thanks Tom. Just keeping it real.
Thank you Michael, this is great information for someone who is brand new like myself. I am making it a point to read through the beginners guide each article at a time to get familiar with the bones of the business. I am now aware of the type of relationships I should be looking for and pursuing once I get started.
Good look Jennifer. Make a plan and stick to it. I would love to hear back on how you are doing and feel free to ask any questions.
Good stuff! Thanks for writing this in plain terms that we all can understand.
I have one thing that I am struggling with…one of my best friends is a general contractor
and I never like to do business with friends. But in this case everything else is nearly perfect.
I may try it with one deal (which would be my first flip) and see how it goes. He has worked on
a ton of flippers for clients over the past 10 years.
HI Todd,
That is a great idea to do one deal and see how it goes. Have a discussion with your friend and put everything in writing to keep all the business professional and review everything with each other in regards to make sure you both understand everything going in.
I would even suggest talking about what will happen if the deal does not go as planned because that is when friendships fall apart. Do not form a partnership just partner on one deal and a few more if they go well then you can form a permanent one if you both work well together.
Good Luck and hope it works out.
BTW – It is a huge plus your friend has worked for other investor’s so he knows how demanding we can be in our business mode. It sounds like this could be a good partnership that benefits you both.
Thanks for the reply Michael. It helps put it into perspective.
I love the idea of forming a team. I will use your blog post to help me set things up.
Thanks again and I look forward to reading your future material!
Many Thanks,
Todd
Your very welcome Todd. Best of luck & look forward to hearing back from you.