How to Use Creativity to Make Money Flipping Houses
There are countless ways to make money flipping houses, and in real estate in general. You will see what I mean if you take a look at the author bios here on this blog.
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Some BiggerPockets bloggers work as short sale Realtors, investors, and consultant to real estate investors. Others do rehab and retail, as well as some wholesaling. Of course the list of ways to make money in real estate goes on and on.
The one thing that many BiggerPockets bloggers have in common is that real estate has changed their life in ways they never imagined. Regardless of how you make money in this business, it will change your life (hopefully for the better!) if you stick to it.
Needless to say creativity can take you far in this business. For me as a house flipper, creativity allows me to piece together deals that at first glance do not look possible.
This week I want to talk about one particular deal that I almost did not do. Fortunately, I was able to get creative, think outside the box and make this specific deal work.
How to Make Money Flipping Houses by Partnering with a General Contractor
There are many ways to a partner on a house flip deal. In this particular flip, I partnered up with a general contractor.
I recently came across a Massachusetts deal that caught my attention. The asking price was $81,000, yet my numbers worked out so my maximum allowed offer was $71,000. Therefore the deal did not fit my investment model and I decided to not further pursue it.
Some time went by and as life would have it, I bumped into a friend of mine who works as a general contractor. I mentioned this particular deal which did not fit into my investment model. In other words, I told him that based on the $81,000 purchase price, and my estimated cost of repairs ($55,000), I would not be able to make a profit on this flip.
Well we talked for a little while and agreed that we could partner on this deal, split the profits 50/50 and both walk away with some money. The reason why this arrangement would work is because he was going to go in and do a lot of the hands on labor himself. This would significantly cut back on the rehab costs.
On top of that, he was also going to manage the entire renovation. He would be managing the plumbers, electricians and roofers. In addition, he would negotiate all of the contracts with those individual contractors.
In doing so, we were able to cut our rehab costs from $55,000 down to $34,000.
How the Numbers Worked
According to my 70% rule calculations, I ideally would have purchased this property for $70,000 to $75,000. However because of the GC partnership, I was able to significantly reduce my estimated cost of repairs. All of a sudden the deal made sense.
Let me explain…
In the end we projected our sale price to be between $175,000 and $180,000. If we take that price and subtract our $34,000 cost of repairs, our estimated $20,000 in soft costs and our $81,000 purchase price we are left with $45,000 in profit.
Of course we split that $45,000 in half because of the partnership. This leaves both my GC and I with $22,500 in profit – which is pretty good for a deal that we almost did not do.
The real nice thing for me as the investor is that I did not have to do anything on this project with regards to the renovation. My GC handled the entire show, and I just appeared every now and then with coffees for him and his crew.
The one thing you want to remember if you go into a deal like this is to align yourself with a good general contractor. It really helps if you have an honest, trustworthy friend or a reliable referral to work off of.
Remember that you are relying on your GC to get the job done in the time he or she says it is going to get done. Your GC also needs to be spot-on with expenses. There really cannot be any excuses when entering a partnership deal like this, where profit margins are potentially quite slim.
I wanted to share with you this experience because it capitalizes on creativity in real estate. This is just one way of being creative – there are many, many different ways to piece together a profitable deal.
If you can present an opportunity to someone who can help you get into a deal, then you both can walk away with a profit. All it takes is trust, reliability and some thinking outside the box.
How have you pieced together a real estate deal by getting creative?
Photo: Ignorant Walking