J Scott - Author of Flipping/Estimating Book - Ask Me Anything!

318 Replies

Originally posted by @Brie Schmidt :

@J Scott - How are you so awesome?

I surround myself with awesome people... like you!!!  Makes me look better...

Hi J,

Just out of curiosity, when you’re handling many flips simultaneously, what do you use to keep yourself organized? Are you keeping track of all your buying, selling, fixed and rehab costs through software like Quickbooks or are there other tools you find more useful? I’ve only been able to get to 2 at a time and although I have many different spreadsheets, it starts to get a little crazy. I can’t imagine doing 5-10 at a time but that’s where I ultimately want to get to. Any advice on this?

Matt, give me a shout on FB. I use Quicken. It's easy to set up. I'm doing a house in Pine Beach right now. I forgot you were doing this, too!! I'm actually looking for someone else to buy in, but if not that one, I have a lead on another.

Originally posted by @Matthew Rembish :

Hi J,

Just out of curiosity, when you’re handling many flips simultaneously, what do you use to keep yourself organized? Are you keeping track of all your buying, selling, fixed and rehab costs through software like Quickbooks or are there other tools you find more useful? I’ve only been able to get to 2 at a time and although I have many different spreadsheets, it starts to get a little crazy. I can’t imagine doing 5-10 at a time but that’s where I ultimately want to get to. Any advice on this?

Hey Matt -

All my organization is between Quickbooks and custom spreadsheets.  It took a long time to develop my "system" for managing things, and it probably wouldn't work for everyone else, but it works for me.  For me, the key is to track progress a little bit everyday as opposed to trying to figure out where things are every few days or weekly.  Things pile up fast, and if you skip a day of tracking progress, you can get confused quickly.

Also, define very specific checkpoints in your projects, and track budgets, schedule and quality to those checkpoints.  This allows you to track everything around milestones, which forces some organization.

At some point I'll write/talk more about this...  I think I need to organize my thoughts... :)

Originally posted by @Kevin Polite :

@J Scott pros and cons of new construction vs. rehabs

First, I don't generally recommend people start building new construction right now.  In most markets (in my opinion), things are trending down -- or will be soon -- and new construction is the first to take a hit when it comes to sales and transaction volume.

That said, here is what I like/dislike about new construction...

PROS OF NEW CONSTRUCTION

-  Budgets are easier to forecast (fewer surprises)

-  Schedules are easier to forecast (fewer surprises)

-  ARVs are easier to forecast

-  Can often get a contract before construction is completed

-  Contractors on these projects are typically more reliable

-  Overall, a lot less stress and headaches

CONS OF NEW CONSTRUCTION

-  Much longer life-cycle (adds more market risk)

-  Higher out of pocket costs

-  Financing can be more difficult

-  Requires more skill/knowledge

-  Requires much more attention to detail

- Generally lower IRR (due to length of projects)

Personally, I'd rather do a new construction project over a big rehab any day -- the lack of surprises and the better contractors make the entire project more enjoyable.  But, there is certainly more work involved and more risk at certain points in the market cycle.

Please take into consideration  what J speaks on, he is very keen on seeing (known unknowns and unknown unknowns). He's great at responding to questions and comments. I recently spoke to him about a configuration issue and he was great. After chatting with him via mail, I sat and watched at least 3 hours of his content, and my God, he holds little to nothing back. He's definitely a people's champ

Hey J, Ive got my eyes on HOME PLATE!!!! 

Thank you so much 

Jamal 

Originally posted by @J Scott :
Originally posted by @Matthew Rembish:

Hi J,

Just out of curiosity, when you’re handling many flips simultaneously, what do you use to keep yourself organized? Are you keeping track of all your buying, selling, fixed and rehab costs through software like Quickbooks or are there other tools you find more useful? I’ve only been able to get to 2 at a time and although I have many different spreadsheets, it starts to get a little crazy. I can’t imagine doing 5-10 at a time but that’s where I ultimately want to get to. Any advice on this?

Hey Matt -

All my organization is between Quickbooks and custom spreadsheets.  It took a long time to develop my "system" for managing things, and it probably wouldn't work for everyone else, but it works for me.  For me, the key is to track progress a little bit everyday as opposed to trying to figure out where things are every few days or weekly.  Things pile up fast, and if you skip a day of tracking progress, you can get confused quickly.

Also, define very specific checkpoints in your projects, and track budgets, schedule and quality to those checkpoints.  This allows you to track everything around milestones, which forces some organization.

At some point I'll write/talk more about this...  I think I need to organize my thoughts... :)

Thanks J! Flipping houses is such an interesting business model; I find it fascinating understanding how other investors set up their own models to handle large volumes of properties at a time.

I manage properties in both the DC and Baltimore areas.  in regards to the 1% and 2% rule.  I have managed properties in the Rockville area close to the .67 amount.  If you pack people into a small space ask yourself what quality of tenant are you getting versus getting a family and in most of Moco there are plenty that will rent for the schools.  

If you go to Baltimore City you can do alright but like Russell Brazil said be careful where you invest especially in 3% to 4% areas.  Even in Baltimore anything over 1.5% should be approached with caution.  I think a lot of times people want to believe the 3% rule because theoretically it would be great if it worked out.  I think most people over the long run will find there vacancy and their maintenance will far outweigh the money they make compared to areas well below the 2% rule making those 1% rule properties the most profitable.  If the previous tenants trash the place which many in the 3% areas will you will probably need to repaint, throw away a lot of trash, and clean and especially the painting can get expensive.

In regards to renting rooms the maintenance might be lower but 1 thing about that is the amount of leasing to be done.  A lot of these people will be short term.  It would not surprise me if your average lease length is less than a year.  Divide that by 5 and you will have to do a lot of leasing.  Not to mention all the phone calls and drama between roommates which hopefully will go well as Ive seen that work, especially if you screen.  You might make some more money but be prepared to work for it or pay someone to do all that leasing vs renting the whole place out on 1 lease every few years.  In college towns like College Park the room renting can make a lot of sense.  

@J Scott I see that you post some great content on Facebook, and get some great engagement on there.  Is  your Facebook usage part of a business, marketing, branding plan consciously,or is it just more random and having nothing to do with that? 

Originally posted by @Russell Brazil :

@J Scott I see that you post some great content on Facebook, and get some great engagement on there.  Is  your Facebook usage part of a business, marketing, branding plan consciously,or is it just more random and having nothing to do with that? 

Honestly, I have absolutely no brand management or marketing plan.  And other than the fact that I sell books, I don't get much benefit from it.

Most of what I do comes down to two things:

1.  I absolutely love teaching and educating around stuff that I know; and

2.  I'm tremendously introverted.

That's why most of my content is books, BP and Facebook.  It doesn't require me to socialize, network or interact for long periods of time, but still lets me provide information and education.

I don't mind getting attention online (where I can turn it off if I want), but I hate being the center of attention in real life.  It's really hard for me to do speaking and conferences (though I try because I know networking is good for business), but these other (written) outlets I'm perfectly comfortable with.

Honestly, if I didn't make a penny from my books (which is pretty much the only content I make money from), I'd still do everything I do.  And I don't honestly believe that doing the Facebook or BP stuff impacts the book sales that much.  (Maybe an extra 25% sales, but not enough to make a difference in my financial life.)

That said, if you want to be my brand manager and agent, where do I sign!  ;-)

Firstly, thank you for taking the time to help.

Im looking to build new construction and wanted to know what resources would best empower me with the knowledge to act as my own GC for my subs.

What is an LLC for? I am just starting out and me and a friend want to purchase our first flip home. He has an LLC, should I use the limited funds I have to open one also. LLC it needed to secure a loan for the first buy?

J Scott, I have not paid the contractor for his last invoice which is $6000 of the $21,000 mentioned. We have spoken several times, each time I have expressed my shock at the cost and he has not explained nor asked for the money. I did withdraw the permit application and told him I was doing so. All towns are small, so he heard I was upset and that he might not be my contractor any longer. I confirmed that I was obtaining bids from others and may in fact just knock down the remaining structure and wait for appreciation. He wants to bid (which I have been asking him to do for months). I screwed this one up for sure. Property was my father-in-laws which we were renovating and planning to rent to offset the cost of his assisted living. He died much faster than expected, so here we are with a gutted property that could have been sold "as is" for about $100,000. Now, it is probably worth $60,000 but have spent about $27,000.

I am hoping to make some changes to the current plan to drop the cost, rent for a few years and sell and maybe owner finance. It is in a good area for appreciation. If renovations come in too costly, we will hold on to the vacant property.

Hindsight is great. I see the mistakes. We were making decisions based on the father-in-law living. We wanted to keep the property. It is close to the Indian River (3 houses away), along a bike and walk trail, and a few minutes from New Smyrna Beach.

If you see anything moving forward that you would caution me against or to look for, I would appreciate your ideas or thoughts.

@J Scott hey again - took your recommendation from WA Investing facebook group and bought your two books on flipping (music to your ears).  If the answer to this question is lodged somewhere in those books or a previous post of yours, please defer me there.  Otherwise, when you started flipping, or at any point in your journey, did you partner with GCs on your flips, and if so, could you briefly opine on deal structure (i.e. cash, roles & responsibilities, check & balances, etc..)?  

I'd like to partner with a GC I have in a few of the PNW markets I'm focused to reduce financial and qualitative risk.  

Originally posted by @Tuvia Goldstein :

Firstly, thank you for taking the time to help.

Im looking to build new construction and wanted to know what resources would best empower me with the knowledge to act as my own GC for my subs.

The best way to get started with new construction is to shadow or partner with someone who has done it before.  There are a lot of nuances and details that, if you try to go it alone, you'll likely find that you're overrunning your budget and schedule -- potentially by a lot!

Understand the order of operations, understanding dependencies, knowing problems and mistakes to look for, knowing how to deal with inspections, etc. all will play a role in whether it takes you 5 months to build or 2 years.

I wrote this a few years ago when I did my first new construction...you might find it helpful:

https://www.biggerpockets.com/forums/522/topics/90...

Originally posted by @Cory Riles :

What is an LLC for? I am just starting out and me and a friend want to purchase our first flip home. He has an LLC, should I use the limited funds I have to open one also. LLC it needed to secure a loan for the first buy?

LLCs *can* provide two benefits:

1.  Liability protection; and

2.  Tax benefits.

They will only provide those things if organized and used correctly -- if you plan to use an LLC, make sure you do your research, talk to a good tax professional and talk to a good attorney.

As for whether you need one, the answer is no.  You don't need one.  But, depending on your personal financial situation and the the type of investing you'll be doing, you may want one.  Again, this is where a tax professional and attorney come in.

Now, if you're partnering, having an LLC will also provide some legal protection for you and your partner, so that's another consideration. Again, talk to a good attorney.

Sorry I can't provide more guidance, but I'd need a lot more information to be able to help, and even then, I'm not the best person...

Originally posted by @Karl Krauskopf :

J I should've specified, did, in any of those partnerships, create an LLC with a specific GC to undergo one or many flips? Or was it strictly contract based?

Hey Karl - I'm not a big fan of partnering with a contractor *unless* he is doing a lot more than just the contracting work.  For example, if he is finding the deal, putting in money, getting it sold, etc.  The issue is that when you partner with a contractor, if you're not happy with the job he's doing (too slow, over budget, poor quality), there's not much you can do about.  If you fire him (you may not even be able to, depending on the agreement), you have to pay for *another* contractor, and still give your partner part of the profits as well.

You're probably thinking that the chances of you wanting to fire your partner as the contractor are small, but let me tell you, it happens a lot more than you might expect.  

All that said, if you do decide to partner, I'd recommend setting up an LLC, creating a very detailed operating agreement that discusses what happens if he can't finish the job for some reason, and then pass it by a good attorney to ensure it covers all the bases. Any time I have an equity partner (someone who gets part of the profits), I want more than just a contract; I want an entity. Both for legal and tax reasons.

That said, talk to a good attorney and tax professional and get their take as well...

And make sure you vet the partner/contractor really well before you give him an equity stake in return for his contracting!

@J Scott

Great insight. Yeah this wouldn’t be just a straight forward contractor agreement, he’d have more of a partner scope (ie brings deal, cash to rehab, etc). I’d prefer the operating entity, just requires the minimal upfront lift which is well worth it in the long run.

Looking forward to cracking your book. I’m sure I’ll be back here.

@J Scott , I am preparing to start a direct mail marketing campaign to find properties to flip and BRRR in SoCal. I've created different demographic segments that I'd like to market to. Can you provide a little insight as to how you would tailor the message in a direct mail campaign to each demographic segment and how you usually segment or bucket each group? For example, I have a group for pre-foreclosures, absentee owners over a certain age with a certain amount of equity, absentee owners who have owned property for a period of time, etc.. etc... I would not want to send each group the same marketing message, but I'm also not sure what the best way to tailor the message to each group is. The market here is also very competitive so I want to make sure that my letters will stand out from other investors'. Any insight you can offer would be helpful

Originally posted by @Sunshine Chow :

@J Scott, I am preparing to start a direct mail marketing campaign to find properties to flip and BRRR in SoCal. I've created different demographic segments that I'd like to market to. Can you provide a little insight as to how you would tailor the message in a direct mail campaign to each demographic segment and how you usually segment or bucket each group? For example, I have a group for pre-foreclosures, absentee owners over a certain age with a certain amount of equity, absentee owners who have owned property for a period of time, etc.. etc... I would not want to send each group the same marketing message, but I'm also not sure what the best way to tailor the message to each group is. The market here is also very competitive so I want to make sure that my letters will stand out from other investors'. Any insight you can offer would be helpful

I haven't done a major direct mail campaign in about 4 years, and a lot has changed over the past few years with respect to what's working and what's not.  So, I'm not comfortable giving specific recommendations.

That said, funny enough, I literally just got off the phone with my friend @Justin Silverio , who runs Open Letter Marketing, about 20 minutes ago, getting his thoughts on a new campaign I'm getting ready to start.

Based on my discussion with Justin, it's pretty clear to me that if you want the most up-to-date and comprehensive information, the best people to talk to about direct mail are the ones who run the direct mail companies.  Across all the campaigns they manage and all the A/B testing they do on each campaign, they are really dialed-into what's working and not working at this moment.  

Anyway, that's my recommendation.  I'm sure there are plenty of other great direct mail companies out there, but I'd recommend reaching out to Justin and his team at openlettermarketing.com if you have questions.  And no, I don't mean for that to sound like a commercial and I don't get compensated for that recommendation...he just really knows his stuff (and if you've followed me, you know I don't throw out recommendations very often)... 

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