Starting a flipping business vs working as a RE agent for active real estate income
Real Estate Broker · Johns Creek, GA · Member since 2009 · 870 posts · 664 votes
I agree with J Scott that there is both passive investing (buying and holding real estate for long term wealth building) and trying to build an active real estate business.
Between working as a real estate agent vs starting a flipping business which business is more scalable in your opinion for active real estate income?
As a real estate agent you would spend your time generating leads for buyers and I would assume that flippers spend time in generate leads in REO and short sale properties to flip for a profit. It also appears that one cannot be a one man company in a flipping business, where a team is mandatory whereas one can work alone as an RE agent when starting out.
Compare the two businesses? Which business is easier to scale and easier to start. What are the pros and cons of starting flipping business compared to starting out as a real estate agent. Is one easier to build than the other?
Hi James,
I wanted to chime in and let you know how I run my businesses. I started off building homes, and then got into selling real estate as an agent. Once my regular business was built up I started working with investors as well as flipping myself.
My real estate business sold 47 transactions last year (2nd year in business) and I flipped 17 properties.
This year I will flip/build a similar amount of properties and close 60 transactions as an agent.
Currently, I am a one woman show. I do leverage my time by hiring great contractors, design consultants and I do my own marketing.
I also own rental properties and get great cash flow.
My goal is to diversify in an area that I know, real estate. In my opinion, it is a little risky to either be just a real estate agent or just an investor, unless you have a proven system and are doing a high volume of transactions.
The other nice thing is if there is a lack of inventory for investing (like I am seeing currently in the Seattle market) that usually means regular real estate is booming so only a portion of my entire business may slow down. There are often times where I am being an investor that can also get me paid or benefit my real estate business, so the benefits are two fold.
It can definitely be difficult managing both worlds, but I believe once you find your niche or a system that works you can do a lot of business and also have a lot of fun!
Both businesses require a skill set. A good RE agent can manage others to rehab properties and a good flipper can create his own inventory, just as a builder does, and manage sales whether licensed or not.
My experience showed me really successful agents are extremely people oriented and have the ability to develop connections and networks. Being extroverted (in my opinion) is a long-term requirement because it is such a people business.
Being a rehabber certainly requires skill negotiating and an ability to gauge risk. Raising capital is essential so people skills there applies, along with strong management skills.
Similiar but different. Both can be all in consuming.
Jeff.... interesting.
I've always thought that starting a flipping business takes a lot more skill and ability than starting a RE transaction business.
Which business is more profitable in terms of margin? You don't need much capital so start out as a real estate agent except your time. However in a flipping business... you can't really start without capital.
All being equal... are your chances better of having a six figure income in a flipping business or working as a RE agent?
Personally I've seen a lot of very talented flippers come and go. When the economy changes they can be quickly wiped out.
In Portland some of the bigger property owners started as successful agents, developed successful agencies, bought property along the way, developed property management, bought commercial, and in general are just wealthy. Their success is due in large part to the local economy, being in the right place at the right time.
Rich Weese hasn't done bad starting as an agent.
Others started as investors, became developers and builders.
If you equate today's rehabbers with yesterday's builders then I could see a succession from flipping into becoming wealthy.
James Park hi James, Both can be very lucrative if you do it right and have a system and team in place. There are many realtors who have a million dollar business but it does take lots of work on your end. I have a team of agents that work for me and I spoon feed them leads. I like to call this my passive income business because I'm not really doing anything but giving them leads. I split all the commissions 50/50. At first we were only focusing on Short Sale listings and completely ignoring the face that we can make money on buyers. We have about 75 Short Sale listings and as a result we get a ton on buyer calls. So we have added buyers agents to the team and are now closing buyers like crazy. I love owning a realty company because with just a little marketing and having a good team of agents, you can easily make a minimum of $100k additional income per year. Now that I'm vamping up the buyers, we are expecting to make an additional $100k this year. I'm still working on getting to the millionaire real estate team but it will take lots of work with building systems and having good programs.
Our fix and flip business is run for us as well. Our job is to find the short sale's that need work. Then we hand it off to our short sale negotiator. Once we buy it we hand the property off to our general contractor. Our assistant works on scheduling the contractors and making sure they do their work.
One thing to consider is the more people you have on your team the more money you have to give away. But it's also less work you have to do. your job should consistent of making sure the system is working and everybody is doing their job and finding ways to improve for growth.
Monica,
Thanks for sharing. Wow! you are like a Real estate super woman! Would you mind sharing how you started in your real estate career? Did you start out as an RE agent and then start your own brokerage afterwards?
I read somewhere that you attended John Schaub's seminar last year. I really admire this guy and currently following his passive investment strategy of buy one SFR every year and build a portfolio of 10 SFRs by 2020.
Congratulations. you seem to be doing very well in your career in real estate.
Tough call. I'd think that running a successful brokerage will probably be easier to scale but would be more difficult to make a decent living until you hit that scale.
It seems like the more successful brokers get better deal access than the flipping crowd and can maneuver their way into a lot of different avenues including builder / developer / etc.
That being said I'd choose to be a rehabbed over broker all day long. Dealing with agents as employees, dealing with state mandated paperwork, etc just sounds miserable.
Monica Breckenridge is your short sale negotiator in house, a local firm or?? I am considering adding a marketing strategy that will bring in short sale leads; however, I want nothing to do with the process. I am also finding it difficult to to find someone local to do them for me. I have talked to another investor group that says they are interested but I dont think it will work. I have talked to a local successful short sale company but they are not interested because of the the fees they charge vs the prices of the homes. It was a quick conversation so I may be able to work something out there.
Any suggestions?
With low fee Walmart brokerages like Solid Source and Duffy Realty here in Atlanta.. I just don't see how you can make money starting a brokerage today. These brokerage have 90/10 to 95/5 splits with their agents. With splits like that... it just seems much easier with less headache to be your own RE agent than starting your own brokerage.
I would be really interested to hear from business owners who operate their own flipping business vs. Transaction/RE agent business.
James Park James, thanks for the compliment. I first started out as an investor who was focusing on short sales. Back then I did the double closings and I would take on all the short sale leads and I actually processed them myself back in the day. But now I have my own short sale negotiator who works for my company. In 2009 the double closings were becoming more and more difficult. So I decided to just focus on the deals that I know I could buy and get a good deal from. So I only took on deals that were in bad condition. I changed my exit strategy at that time so I am now doing fix and flips and fix and holds. I was still getting so many leads in of houses that I couldn't buy so since my husband is a realtor we referred the deals to other realtors to get a referral fee. We didn't want to process short sales as realtors. We wanted to stay strictly investor.
Well we weren't getting any referrals and the realtors weren't doing a good job with the leads we sent them. This was very frustrating, that was when I decided to open up my own brokerage company called Pink Realty to tie in with the Pink Real Estate Investment company. I hired a managing broker who knew absolutely nothing about short sales but she had a good heart and he was sensitive to the homeowners needs and situation. It takes a certain personality to deal with homeowners who are loosing their house. I trained her how to do the apt and everything there is to know about short sales. she is now the best short sale realtor in Colorado Springs and is in the top 2% of realtors in Colorado Springs. I give all my leads to her and we split it 50/50. It's still a learning experience for me owning a brokerage company. It started off just with her. Then we added other realtors who pay us a desk fee to pay for the office. Now we have added a team of realtors who work with all the buyer leads we generate from our listings.
I love it and it's a great system. I plan to not buy anymore houses in 5 more years. My goal is to own 100 houses in 5 years and have that as my cashflow. All additional revenue I get will be used to pay off my loans within 15 years. I will continue to own the brokerage company as passive income as well.
Gary Parker Hi Gary, are you a realtor or investor? I have my own short sale negotiator that is an independent contract that works for my company. I had to personally train them, but you can put out an add to hire an experienced short sale negotiator. I pay my negotiator $500 for 1 lien and $750 for 2 or more liens. I also pay a $250 bonus if I am buying the house and a $100 bonus if they successfully get the bank to pay for the short sale fee. They make a good living.
Monica Breckenridge I have been an investor for about 4 years full time and just recently got my license mostly for easier access to the MLS. I am actually considering not renewing my license because of the required disclosure on marketing in Utah my response rate has gone down. Still pulling in deals though. My next marketing campaign will be geared to 60-90 day lates or perhaps NOD's so perhaps being licensed might add some credibility..who knows.
Gary Parker Ok I wouldn't work with another investor on processing your short sales. What I would do is hire a buyers agent to handle working with the short sale homeowners. They can be transaction broker if the bank needs the house to be listed. Try to find a realtor that is experienced in short sales and potentially already has their own good short sale negotiator. If you can't find any, then you may want to hire a desperate realtor and train them on what they need to do. And then help your realtor find a negotiator.
What we do to build credibility is to join the BBB and get accredited. I have my BBB logo on all my marketing. I am also a proud sponsor for Susan G Komen for the cure. I have a minimum contribution of $10,000 to them. So I have this advertising on all my letters. I want to stand out when marketing to distressed sellers and this is one way i do that.
Monica Breckenridge I love the way you have branded yourself. "Pink" that ties into your brand, your charity and what you do. I am trying to put that all together now. I own a web site your typical XXXbuyshomes. What you have done has really got me thinking.
Gary Parker Thanks so much. I really didn't even realize what I did when I began the branding. I didn't realize it would expand so far. I'm really proud of it. I got a lot of complaints from other investors at first. They told me the branding would never work because it has nothing to do with real estate. There was so much competition in my area so I had to think of something that was different and memorable.
Hi James,
I wanted to chime in and let you know how I run my businesses. I started off building homes, and then got into selling real estate as an agent. Once my regular business was built up I started working with investors as well as flipping myself.
My real estate business sold 47 transactions last year (2nd year in business) and I flipped 17 properties.
This year I will flip/build a similar amount of properties and close 60 transactions as an agent.
Currently, I am a one woman show. I do leverage my time by hiring great contractors, design consultants and I do my own marketing.
I also own rental properties and get great cash flow.
My goal is to diversify in an area that I know, real estate. In my opinion, it is a little risky to either be just a real estate agent or just an investor, unless you have a proven system and are doing a high volume of transactions.
The other nice thing is if there is a lack of inventory for investing (like I am seeing currently in the Seattle market) that usually means regular real estate is booming so only a portion of my entire business may slow down. There are often times where I am being an investor that can also get me paid or benefit my real estate business, so the benefits are two fold.
It can definitely be difficult managing both worlds, but I believe once you find your niche or a system that works you can do a lot of business and also have a lot of fun!
Jennifer that is incredible! What you are doing right now is my dream. I have a product based online business in jewelry & eyewear that i built up in the last 7 years which provide me with a stable income. I've been wanting to do exactly what you are doing right now for a long time.
It is encouraging to know that you started out as an RE agent then started flipping properties and own cash flow rental properties. I can't believe you are doing all this as a one woman show. I will definitely need to hit you up for some advice. Right now i am just starting out as a RE agent for my area and currently own only two rentals. I dream of what you are doing right now.
Thank you so much for sharing Jennifer!
The best advice I ever heard about real estate is that its all a numbers game. If you can grasp the concept and look at it from a numbers perspective you will get to the top much quicker. Basically if you want to make it big, you just need to either make calls 4-5 hours a day (or hire someone to do that for you) and go on a certain amount of listing appointments each day and so on. None of the big dogs are doing anything that you can't do, they are just using their time in the most effective manner possible. It's the same with investing.
I definitely don't suggest doing everything on your own... something that I am learning is to give up control and hire people that are smarter than you. Had I learned that lesson 2 years ago my business may be double what it is.... but I can't complain too much.
Be very careful, this business can consume you if you let it. The last two years I worked 75+ hours per week. This year I am on track to beat last year, but have already taken 3 weeks of vacation. So when you do build your business be sure to take time off and enjoy life a little :)
Just know if you can dream it... you can make it a reality!
That's awesome Jennifer.
To me, real estate is real estate which is why i got my license. Whether its controlling my own property sales, pulling the most up to date comps, finding deals for other investors, leasing commercial or residential property, doesn't matter.
One thing is that being an agent is an expensive "hobby". If you're going to get your license you need to be doing deals or you'll be spending a considerable amount of money.
To the OP: 95/5 brokerages can be good if you know what you're doing. You typically have 0 support and little brand recognition.