Flipping houses has been a dream of mine for some time now, but I have not taken any steps towards making it a reality. In the coming months I will be starting classes for my RE license and then from there will start diving into flipping. I am an avid lurker and have soaked up as much information as I can, but reading about a project and actually doing it are two different beasts.
My question is this: It is very intimidating to run after something you've wanted for some time (to be fair, this was not my first "dream") - where do I start?
I know I need to find a good deal - and I think I've come up with some good strategies to do so.
I know I'll need financing - (is it worth it to take out a second mortgage on the first property if I don't have 20% down??) Can I even get a mortgage for RE investing if I have less-than-stellar credit?
I feel like it may be best to hire a GC for my first flip at least to learn the ropes, but will that really eat into my profit? Should I have one chosen before I even purchase the house?
If I do hire a GC (which I've never had experience with before) am I going to still need to be at the house for the majority of the repairs?
Is there any other advice you can give me about my first project that you've learned? I appreciate any advice you guys can shell out!!! Thank you so much!
Hello I'm personally in the same position as just starting maybe we can work together and learn this all ears thanks for letting me know I'm not alone
You need knowledge. I know, that is a generic statement but bare with me.
The first knowledge you need is what is the correct purchase price?
It is relatively easy to get comps on home prices in an area. You are getting an RE license, so you should have access to the MLS for comps.
But you are only part of the way to figuring out the purchase price. Now you need to understand the repair value.
The first part of figuring out the repair value is determining what repairs are required.
Let me give you a real world example of how challenging and costly this can be. We (my wife and I) looked at a house about a month ago because the price seemed to make sense.
We found out it was an investor selling the house. When we walked inside, the slab had failed. A couple of doors could not open because the house was crushing them. The investor probably did not realize this as the price he offered for the house (and in turn was asking someone else to undertake) was for a house that required renovation.
The reality is the house has to be condemned and slab demolished so this investor is upside down to the tune of $120,000. He will never make that back on this property.
If he had walked the perimeter of the house and seen the slab damage, he would have a fighting chance to make the correct offer. I believe he did not know what he was looking at.
This knowledge cannot be learned in books or forums, but only from experience. Either you have the experience or you hire someone who has the experience. This is an axiom that is true in all business. Remember this fact.
Now that you've identified the repairs, you have to know the cost associated with the repairs. Some people will tell you it is $x/sf for a light repair, $y/sf for a medium repair, etc. Using this formula relies on luck and sometimes your luck runs out.
You really need to have an idea of how much flooring costs; how much is it to replace a water heater, etc.
Again, either you have the experience or you hire someone who has the experience.
You mention hiring a GC could eat into your profits. Let's say it costs 20-30% more to hire a GC than doing the work yourself or managing subs.
Did you see the price tag on the error I listed above regarding the failed slab? You are much better off hiring a GC.
Let's say you did not realize the electrical had to be upgraded and you were banking on a $30,000 profit. You just lost $5,000 because of an electrical misstep. Did you have funding in place to cover this? Do you have easy access to money to cover this? If the answer is no, how are you going to finish the project and get it sold? Now if you had an experienced person walking the job before offers were made, hopefully they caught this issue and you got the proper funding and made the proper offer.
Accounting does not seem to get mentioned very often. You've bought the house. You have a repair budget and contracts are signed. You need to be managing the budget closely. It is easy to stop managing the budget and then you lose your profits.
The final step is getting the house sold. You've done comps, now you need to set the right price.
Get it sold and repeat.
You can start in the LEARN section above.
You can get and read the rehab books by J. Scott.
Another book that I suggest reading is “Flip”
By Rick Villani and Clay Davis
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Get your RE license and then put your lock box access to good use. Start walking through houses. Also, I used to go on realtor.com and practice running the numbers for a deal. It helped me learn to see which could be a good deal and which was not. I did this for years, so it was fun to occasionally see something I though was a deal be bought, renovated, and then for sale months later.
J.Scott's book on flipping houses and estimating rehab costs were invaluable. His numbers were right on for my projects. Such a good source when you just don't know the real costs yet. I have not used a GC. I think you put just as much work managing a GC as you do managing the subs yourself, so why pay someone else? That is just my opinion.
@Rheanna and Phyllis..I'm new to wholesaling as well. I would love to work with you guys to network and learn also.
one thing that I've heard many experts say that hits home is to make sure you know the area really well even though there are comps online you should know the streets I have a two family rental in jersey city it's a nice quiet street but the comps in my area don't tell you the real story sometimes you can go two streets up and be in a nicer area or two streets down and you could be in a ruff neighborhood. So keep that in mind
BP is full of useful resources such as forums and blogs. Welcome to the Bigger Pockets community-be sure to check out all the awesome BP blogs under “Learn.”
Rheanna, what concrete steps can you take right now to repair your credit? I'd start there. About a second mortgage, I'd look at a line of credit on your primary residence. The nice thing about it is you only pay interest when you are actually using the money. Makes it a great emergency fund and way to have quick access to funds when you find the great deal. Good luck! Don't over-analyze chasing your big dream; break it into smaller pieces and attack it like you would attack any other goal with less personal value.
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