Flipping Houses

3 Reasons Beginners Should Not Flip Houses

Expertise: Real Estate Investing Basics, Real Estate Deal Analysis & Advice, Mortgages & Creative Financing, Landlording & Rental Properties, Business Management, Personal Development, Flipping Houses, Commercial Real Estate
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Flipping houses can be a great way to make a relatively quick profit, but these projects aren’t for everyone. Wondering if you’re equipped to take on a flip? First, check out these reasons why you might be horribly unprepared for a full-on rehab project.

You Should Not Flip Houses if…

  1. You’re operating by yourself. You absolutely need a solid team when taking on a project of this size, including a top-notch contractor. You can get away with a mediocre handyman for everyday repairs, but not flipping an entire home.
  2. You don’t have enough reserves. Fix and flips are full of surprises; be sure you have enough money to weather the storm (because you will encounter difficulty).
  3. You don’t know your market well enough. Without in-depth market knowledge, you won’t be able to gauge what finishes to use and how quickly the end product will sell.

Don’t get me wrong—there are a million reasons you should be flipping houses. Just be sure you know what you’re getting into and have a solid support system to ensure you’re able to overcome the unexpected.

What are some other reasons you shouldn’t flip houses?

Weigh in with a comment!

Matt Faircloth, Co-founder & President of the DeRosa Group, is a seasoned real estate investor. The DeRosa Group, based in historic Trenton, New Jersey, is a developer and owner of commercial and residential property with a mission to “transform lives through real estate." Matt, along with his wife Liz, started investing in real estate in 2004 with the purchase of a duplex outside of Philadelphia with a $30,000 private loan. They founded DeRosa Group in 2005 and have since grown the company to owning and managing over 370 units of residential and commercial assets throughout the east coast. DeRosa has completed over $30 million in real estate transactions involving private capital including fix and flips, single family home rentals, mixed use buildings, apartment buildings, office buildings, and tax lien investments. Matt Faircloth is the author of Raising Private Capital, has been featured on the BiggerPockets Podcast, and regularly contributes to BiggerPockets’s Facebook Live sessions and educational webinars.

    Samantha
    Replied over 6 years ago
    Good video Brandon, you should follow up with this quick analysis video with a more in depth analysis video so users can visually see the difference in approach to the two
    Brandon Turner
    Replied over 6 years ago
    Hey Samantha, definitely a good idea. In fact, I think we’ll have a free webinar soon where I’ll do just that, so people can ask questions and such as well. Keep an eye out!
    Brian
    Replied over 6 years ago
    Thanks for compiling this quick evaluation on a property Brandon! I agree with Samantha. That contrast would be very helpful! Also, how come no taxes and insurance when you quickly evaluate a property? Thanks Brian
    Brandon Turner
    Replied over 6 years ago
    Thanks Brian. I don’t include the taxes and insurance because I count them as part of the “50%” in expenses. When I do a more detailed analysis – I will go into my spreadsheet and actually come up with the more specific numbers. I’ll try to work on a more detailed analysis of this as well this week!
    Matthew J Roybal
    Replied over 6 years ago
    Hey Brandon, Great video! It was much more engaging to see that in video than just text. I was wondering about the 50% rule you go by. You explained the 1st half very well in terms of paying the mortgage and interest and counting the rest as your cash flow. The other half you said goes to expenses. How exactly did that break down? I’m assumming your taxes and insurance doesn’t add up to the 50% so what happens to the rest? Are you using it for repairs and throwing the rest into reserves for vacancies, etc?
    Brandon Turner
    Replied over 6 years ago
    Thanks Matthew, I agree- video is much more fun that just math numbers. So, the 50% rule is just a rule-of-thumb that says all expenses, including taxes/insurance, come to about 50% of the income. I’ve found this to be very true with my multifamily properties – over time, on average, it’s 50%. So yeah, there are typical monthly charges like water, sewer, garbage, power (in common areas), yard work, maintenance, legal stuff, printer ink, maintenance, repairs, refrigerators, carpet, vacancies, and a million other little things. When purchasing a property, it would be imperative to actually find out how much these charges would be. And yes, I put extra stuff in a reserve account. Does that make sense? Thanks for the question!
    Edita
    Replied over 6 years ago
    Brandon, great article, as usual! I agree with you 100% that you need to know the AREA very well, to avoid purchasing, for example, a 4 plex with all 1brs at a great price in the area where there are mostly 2 and 3 bedrooms, and very few 1 br… 1.How do you analyze the area if you are out of town though? 2.I think the 1st step would be to find an area/neighborhood you want to invest in, and then run the numbers on ROI and cashflow. What do you think? Here’s what I do: -city data.com (demographics, major employers, pop. growth) -rent o meter (find aout rents) -trulia and zillow for recent sales cpmps 3.What other tools/websites would you recommend ? 4.Do you look at when the property was built? Usually anything older than 15-20 years will need more upkeep, unless it was rehabbed not long ago. Thanks! Edita
    Brandon Turner
    Replied over 6 years ago
    Thanks Edita, Analyzing out of town – that would be tough. Personally, i’d have to drive (or fly) there and look around. Or call Brokers and ask. But yes, I agree- finding a location is probably step one. That’s the first thing I looked at was to make sure it wasn’t on “B Street” or near it. That would have probably been a deal killer (though, for a certain price, anything could be wholesaled to someone who does buy in those areas) In washington, I really like “www.themlsonline.com” but for most states it just re-directs people to Realtor.com when searching. To research local rent, I’ll check the local newspaper and Craigslist – and with Craigslist’s new “Map Feature” it makes that a breeze. Age is definitely a consideration, but in my area- everything is old. The town went through a boom in the 30’s and 40’s and has been stagnant ever since. So I expect the problems from the get-go. Thanks for the comment!
    Ravi Rai
    Replied over 6 years ago
    We did something very similar when we bought our first property last year. I really liked the quick analysis, looking forward to the detailed webinar.
    Terry P
    Replied over 6 years ago
    Just what I was looking for, thanks Brandon…I’m looking fwd to the webinar too. I was thinking about developing a rent value per sq ft for quick analysis too. I’d go look at the finish, sq ft, rent of say three. Your thoughts? Also, just read Ben Leybovich blog on how much of an impact the property drives the tenant and betters the 50% rule. So I would think if one could find a low rental in an area with high price houses that would be ideal? I’d be using those high $ homes and rents to determine a rent per sq ft for smaller ones. Make sense?
    Mark
    Replied over 6 years ago
    Loved the quick analysis, and your 50% rule. I am a newbee in real estate investing, and never thought of including the “vacancy” into the deal. My fiance and I will be buying properties in a few months when I move to her town. Thank you. Looking for your webinar on property analysis. Mark Gould
    Mark Gould
    Replied over 6 years ago
    You mentioned that you like to receive $100.00/ month per unit cash flow on multi family properties. What would be a good number to get per month cash flow on a single family residence? Mark
    Brandon Turner
    Replied over 6 years ago
    Hey Mark, So – yeah, $100 is my bare minimum, but I really like to see more. AND that’s only after being super conservative, so in all reality, it ends up being higher hopefully. But, for a single family homes I typically shoot for at least $200 – but it’s pretty easy to get much higher. Another factor to consider is down payment – it’s easy to get higher cashflow with a higher down payment. I want to see $100 per month, per unit with nothing down at all. If I put money down, I wanna see higher. Hope that helps!
    steve
    Replied over 6 years ago
    Hey Brandon, I know that you once gave anyone a chance to buy your spreadsheet, is that still a possibility? If so, where can I get to download it.
    Steve Johnson
    Replied almost 6 years ago
    You mention learn a lot about a small area rather than a little about a large area. Whats that size roughly? And holy cow, this video did help tons. I listened to the 40th podcast which I think linked to this and its very helpful to see how someone really runs the numbers. And, after response #1 above, do you indeed have a follow up webinar with in depth analysis? Thanks for all your work and your willingness to share!
    Pradeep Tiwari from Bellevue, WA
    Replied almost 4 years ago
    Wow, thanks for posting this 🙂
    Kevin Mellor from Metairie, Louisiana
    Replied over 3 years ago
    Brandon, I’m a new member to BP, and I’ve attended (or viewed later) a few of your webinars. I have learned lots from each of them. My brother-in-law suggested I listen to your podcast as well, and instead of jumping right in with show number 160ish, I started at the beginning. I’ve reached show 40, and heard your tip about the 50% rule for analyzing multi family investments, and stumbled upon this. Here is my question: I have heard you suggest earning between $100.00-$150.00 per door as your goal, but I wonder about your ratio of loan to doors, and how that changes your goal. For instance, in a recent webinar “How to Make $1,000,000 Through Real Estate Investing” I believe you suggested cash flowing $150/door with an investment of around $100,000, and again in this post “How I Quickly Analyze an Investment Property ” you are suggesting a cash flow of $100/door and an investment of about $100,000. I doubt you would be happy with the same $100/door if your initial investment were $500,000 or more. Also, would this hold true if you were to analyze a duplex instead of a 4plex? Would you dive a little deeper on this, and perhaps comment on what happens if your initial investment is higher than $100,000. Would you recommend per-door multiple of $100-$150 per door, per $100,000 investment (if it is a 4 door property)? Would you recommend $200-$300 per door if the same $100,000 investment if it were a duplex? Would you recommend a $500-$750 per door if it were a $500,000 investment. Thanks! Kevin Mellor
    Shawn Tallard from Madison, Wisconsin
    Replied over 2 years ago
    This is super helpful. Thank you Brandon!