Feeling Frustrated with Flipping (alliteration!)
This is going to be long. I hope I can get some advice and pointers on where to go from here.
TLDR: I have a few deals under my belt, some good processes in place, but I am not making money and I don't know how to go from 3-4 deals a year to 3-4 deals a month.
Introduction
I started looking into buying deals last October. So I am almost at a year of doing this. I love rehabbing and I love flipping and I really feel I am on the brink of something big, but I am finding it difficult on how to get from where I am now, to where I want to be. I am hoping that if I write a little bit about my experiences, and my frustrations I could get some advice on how to make it to that next level.
My original business plan was pretty standard. I wanted to do probate marketing because I loved the idea of helping people through what my wife and I went through with her mothers estate in 2014. In amazing luck, the local REIA group was holding a probate workshop and I attended with gusto! I sent out my first batch of probate letters to my target zip codes in Feb of this year. My first response was a woman who made it through my screening process who just lost her daughter, in my excitement to send out letters I didn't think to check the age of the decedent. She was very angry and screamed at me for 10 min. I received 2-3 more calls of "please remove me from your list" and another call from a person who said my letter was nice, but her dad who died, lived in some guys house and didn't own his own property, and that was the extent of the feedback. So not being discouraged, I changed my marketing a little, improved my screening process and in March sent out another batch of letters. I hit gold, I got 4 calls of interested parties. I went and looked at 3 of the houses (the other was not what I was looking for) and put an offer on one that got accepted. I had my first deal!
The First Deal
The first deal actually went pretty smooth until the end. I bought the home for $80,000 put about $55k into it initially ($10K over my estimate), but was still on par to make around $5-$7K. Considering how little time I put into the deal I was ok with that. We got an offer the same day it went up for sale for $2K over asking price, as long as I agreed to 3% closing costs. This cut my profit to around $4K, but I wanted to free up the money to do it again and I agreed. Then the fun started. The closing date was set 45 days out which meant another interest payment I wasn't planning on, profit :$2.8K. The city came out to inspect for point of sale and decided that they missed the electrical panel being a federal pacific panel, my contractor failed to tell me this, so I had to have the panel replaced, profit now $2k. Once the panel was finished several other electrical issues appeared that needed fixed, profit $1.6K. The next day, the AC condenser blew, wouldn't cool the house, HVAC guy also said the blower was gone in the furnace, profit -$2.2K. Finally had home inspection. Everything passed but my contractor did not pull a permit for the panel, so now we had to permit the panel and have it resinspected with the city, profit -$3.6K . The sale went through, but I lost money.
Lessons learned: 1) Get a new contractor! 2) Have a healthy contingency 3) Just because a buyer has the highest offer, it doesn't make them the best deal.
The Second Deal
My second deal just went on the market Monday (The Second Deal). This one was better than the first. I have a new contractor, and while he was more expensive than the first, his quality of work was much better. I bought this deal from a wholesaler for $62, I have about $45K in it and it is listed for $135K. Its a great deal for the money, but the price seems to scare buyers in that area away. It comps ok, but when ppl hear $135K I get the impression they think its high. I will make money on this one, but not as much as I had originally estimated if I need to drop the price.
Lessons learned: 1) Good contractors are worth a premium 2) When setting price/ARV price it lower than market value to run numbers. If you can get more than great, if not you won't shrink your profit margins
The Software
While I was working on getting the second deal going, I decided to put my software skills to use. I wrote a shell of a program, then paid a freelance developer to finish it, that will automatically create lists of probate cases, find the owner from the fiscal officer's website and provide me a nice list each month. What used to take me 4-8 hrs of work a month, took about 4 hrs of coding, 1hr of project management and is now finished in 5 minutes each month. I also improved my marketing content and this netted my third deal:
The Third Deal
My current deal is a brick beauty in University Heights, a very desirable Cleveland Suburb. This one, once finished should fetch $240-$260K. It was extremely outdated, but well maintained so I was able to get it for $141,000. I will put about $60K into it.
So that is where I stand, it sounds a lot better written out than it feels to me right now. My largest problem is I am out of capital until the second house sells, I won't have enough to finish the third deal. So how will I expand my business? I don't see how I can ever do more than 1 at a time consistently. I have started to look for capital partners, but most of my friends and family that have money to invest (2-3 ppl) have no more than $25K at most that they want to invest. That won't net me many deals. Please, comment and give me some ideas to go forward!