How Many Flips Per Year is Attainable?

23 Replies

I have been investing in multifamily real estate for about 8 years and have built up a decently sized portfolio of rental units large enough that it is my full time gig.  Every property we have ever purchased has been distressed (mostly or fully vacant, in need of renovation, shortsales, foreclosures, auction properties, etc), and my crew of maintenance/reno guys are accustomed to doing mostly everything to get a unit finished and rent ready.  Recently, we began to do some flips, which is not something we have ever really done before as we typically buy and hold.  In 2017, we have bought and sold 4 flips, have one under contract, have one currently listed for sale, 2 getting ready to list for sale this week, 2 more under renovation and waiting for rough inspections, and another 4 under contract to purchase by the end of November.  So far the management of all of these renovations hasn't been too terrible, and aside from the pain of having to comply to repairs following a buyer's home inspection, the sales process has not been very difficult.  I am planning ahead for 2018 and am curious to know what everyone thinks is an attainable number of flips to complete in a year.  How many have you heard of someone completing in 12 months?  How many have you all completed in a years time?

I just met Owen D. at a recent meetup. He is an Omaha area investor. He has done 24 flips in 2017. Pretty impressive.

I've done 40 per year working about 10 hours/week, with two full-time employees.  I imagine working full-time, I could probably do about 100 per year if deal flow and cash wasn't an issue.  

I know several other rehabbers who are actively doing 100+ per year...

@J Scott what kind of renovations do your average flips require?  I am assuming you're using subcontractors for just about everything?  What do your full time employees do?  I am trying to figure out how to scale efficiently.

Originally posted by @Joe C :

@J Scott what kind of renovations do your average flips require?  I am assuming you're using subcontractors for just about everything?  What do your full time employees do?  I am trying to figure out how to scale efficiently.

We do everything from cosmetic rehabs to tear-down/spec building.  We use subs for everything, and at the time we were doing this many projects, I had two full-time project managers and a part-time coordinator (basically a personal assistant).  These days, we're doing 10-20 per year, with a single full-time employee (project manager).

I actually did a Google Talk a few weeks back about how to scale a flipping business and basically turn it into a passive endeavor.  Hopefully I'll have a chance to turn it into a book (or at least an eBook) at some point...

@J Scott any way for me to get a copy of the Google Talk?

Originally posted by @Joe C :

@J Scott any way for me to get a copy of the Google Talk?

 Not unless you work for Google.  Unfortunately, it was an internal talk, and they don't make those public.  Even I don't have a copy of it... 

@Joe C I’ve scaled in-house crews, not on the investment side, but had 200+ employees under me. The key is delegation, if you don’t know how to delegate and think you’re the ultimate one man army, you won’t go far, pretty sure you know that already. Learn to share profits or pay better so your life will be much more easier than save and you get all the headaches.

@Joe C There are a couple of people I know in Arizona that do around 100.  The only problem with that tends to be deal flow.  Because they are turning so many all the time sometimes they are buying knowing they are only going to make 5k profit on a flip. But 5k times 100 is 500k which isn’t that bad of profit in a year. Of course they have employees and they have had to systematize the whole thing in order to not go crazy.

We have a smaller operation. Last year we did 7 flips. This year it looks like we will finish with another 7. But this year we focused more on acquiring buy and holds in order to do lease options which we will end the year with acquiring about 16. So I guess if we hadn’t of kept the buy and holds we could have probably have flipped over 20.  The numbers just seemed better to do the lease option for us in the long term over flipping.

@Manolo D. My issue now is I don't use many subs.  I have about 20-25 guys on payroll at any given time, including my maintenance staff for my multifamily portfolio, and I recognize that if I want to scale any larger than doing 20-25 flips a year, I will need to rely more heavily on outside contractors.  I think my first step may be to hire an in house project manager which will free my time up a bit.  How many guys do you have in your organization now a days?

@Joe C , it sounds like you are already off to a great start.  You clearly have established some deal flow and (I assume) generated profit from multiple flips. Just of my own curiosity, what has led to the switch in strategy?  I ask because my strategy is swapped - I intend to use capital generated from flips to invest in buy and holds.

Since @J Scott has already jumped in, I will mention that his book on Flipping Houses is a tremendous resource for anyone beginning their first flip to someone who is looking to implement a systematic approach while scaling.  I highly recommend it.

Additionally, J has laid out 5 critical focus areas of "automating" your operation that has benefitted me tremendously (in a short period of time) at my job.  I intend to carry the same philosophies to real estate investing.

1 - Delegation

2 - Replication

3 - Prioritization

4 - Segmentation

5 - Documentation

Don't mean to sound like a paid J Scott promoter or anything, but these resources have helped me, and since he's already jumped in the forum, I thought I would share.  

@Benjamin Ervin I have typically always reinvested my profits into more buy and hold properties, and have been able to scale up to about 400 units in 8 years.  My units are all located in the same city, but stretch across many different buildings, from single family rentals all the way to 31 unit buildings.  I have switched focus slightly in the last 12 months. There are a few reasons why I have done this.

1. Being only a buy and hold investor, the only time I have had larger chunks of cash is when I have done refinances, so a lot of time my cash supply is low and I was tired of that being the case. It is hard to accumulate cash to invest when you never sell anything and keep your debt at 60-65% of your asset value.

2. I want to transition out of my smaller, crappier, poorly built properties into better built properties in slightly better areas, and better buildings with proper parking lots, etc to attract better tenants. Doing this requires more capital than I have right now, however, in my market as is the same around the country, multifamily is currently overvalued in my opinion and in order to do this, I need to be creative (ie buying larger C class office and industrial buildings in residential zones and doing conversions to aprtments) or I need to wait for a market correction in the multifamily space which I believe is coming in the next few years.

3. Going back to my previous point, I believe a correction in multifamily is coming and I want to stockpile liquid assets in order to capitalize on this correction in the future in order to grow my multifamily portfolio with quality properties.  I already have competent employees who are used to doing renovation work as every multifamily property I have acquired has been distressed and in need of renovation, so it is easy to transition into flipping which allows me to generate cash quickly.

I know that was a little all over the place but I hope this helps explain my mindset. 

No problem, that helps.  Really, we are both after the same thing in the end: Cash Flow.  Thanks for explaining your philosophy/approach.

Originally posted by :

Additionally, J has laid out 5 critical focus areas of "automating" your operation that has benefitted me tremendously (in a short period of time) at my job.  I intend to carry the same philosophies to real estate investing.

1 - Delegation

2 - Replication

3 - Prioritization

4 - Segmentation

5 - Documentation

 

I now add "Expectation" to that list...

Basically, knowing your numbers and working backwards to create a plan to execute to those numbers.  As one example, if you're doing direct mail, you have to know your metrics:

- What percentage of mailers result in a response;

- What percentage of responses result in a property viewing;

- What percentage of viewings result in an offer/negotiation;

- What percentage of negotiations result in an accepted contract;

- What percentage of accepted contracts result in a purchase.

If you can assign accurate percentages to each of these aspects of a marketing campaign, you can work backwards to determine that, "I need to send X mailers, on average, to generate a deal."  If you want Y deals per year, you need to send X * Y mailers in that year.

This is one example with marketing/acquisition, but you should be defining and executing on these types of metrics in all aspects of your business.  

@J Scott , Interesting.  I sort of view analytics (very different from simply capturing data) as a foundational element of any business in today's marketplace.  I believe this is what you're getting at.  For me, in the education and training domain, metric establishment and data capture are viewed as critical enablers to improve business results.  In this case, we are referring to learning, knowledge transfer on-the-job performance, etc. as business results.  In the case of real estate investing, it means using this approach, like you said, in all aspects of your business from direct mail (marketing/acquisition) to the closing table (end transaction).  You can even go further on to assess customer satisfaction levels to make determinations about the perceived quality of your product.  I think you do this as well as anyone else I've seen in this business.

My point is, while I agree with "expectation" as a critical business function, I think even it can be improved through your automation process described above.  I see it as analytics, the creation and capture of meaningful metrics PLUS the evaluation of that data used to make targeted business decisions.  To me, you can automate this process just like your direct mail example.  There is no reason you can't prioritize, segment, document, delegate and replicate this process, too.  Does that make sense?   

Sorry, don't mean to thread jack - I just find this conversation really interesting.

Originally posted by :

My point is, while I agree with "expectation" as a critical business function, I think even it can be improved through your automation process described above.  I see it as analytics, the creation and capture of meaningful metrics PLUS the evaluation of that data used to make targeted business decisions.  To me, you can automate this process just like your direct mail example.  There is no reason you can't prioritize, segment, document, delegate and replicate this process, too.  Does that make sense?   

I think that within the larger presentation/context, you would think it made much more sense...

Also, keep in mind that analytics is a purely back-end process -- it's collecting and interpreting data, but not necessarily using the interpretation of the data to optimize front-end processes.  These are two very distinct functions, and neither will have a positive effect on your business without the other.

I come from the tech world (I was in management at Microsoft for many years before I transitioned to real estate).  I've managed large product teams that were ineffective because of poor analytics; likewise, I've managed analytics teams that were hamstrung because the product teams wouldn't look at the data and revise their processes.  These two aspects of business optimization go hand-in-hand.

Too often, management uses analytics to make business decisions, but not to improve business processes.  The whole point of my "Expectations" above is to use analytics as a forcing function to improve front-end processes, not just as a source of metrics and reactionary response.

Originally posted by @J Scott :
Originally posted by :

Additionally, J has laid out 5 critical focus areas of "automating" your operation that has benefitted me tremendously (in a short period of time) at my job.  I intend to carry the same philosophies to real estate investing.

1 - Delegation

2 - Replication

3 - Prioritization

4 - Segmentation

5 - Documentation

 

I now add "Expectation" to that list...

Basically, knowing your numbers and working backwards to create a plan to execute to those numbers.  As one example, if you're doing direct mail, you have to know your metrics:

- What percentage of mailers result in a response;

- What percentage of responses result in a property viewing;

- What percentage of viewings result in an offer/negotiation;

- What percentage of negotiations result in an accepted contract;

- What percentage of accepted contracts result in a purchase.

If you can assign accurate percentages to each of these aspects of a marketing campaign, you can work backwards to determine that, "I need to send X mailers, on average, to generate a deal."  If you want Y deals per year, you need to send X * Y mailers in that year.

This is one example with marketing/acquisition, but you should be defining and executing on these types of metrics in all aspects of your business.  

So how does someone new, who doesn't have historical data to work from, create such a plan?  are there rules of thumb to go by?

Originally posted by @J Scott :
Originally posted by @Joe C:

@J Scott what kind of renovations do your average flips require?  I am assuming you're using subcontractors for just about everything?  What do your full time employees do?  I am trying to figure out how to scale efficiently.

We do everything from cosmetic rehabs to tear-down/spec building.  We use subs for everything, and at the time we were doing this many projects, I had two full-time project managers and a part-time coordinator (basically a personal assistant).  These days, we're doing 10-20 per year, with a single full-time employee (project manager).

I actually did a Google Talk a few weeks back about how to scale a flipping business and basically turn it into a passive endeavor.  Hopefully I'll have a chance to turn it into a book (or at least an eBook) at some point...

Is the talk recorded somewhere that we could listen to it?

Originally posted by @Wesley Merville :
Originally posted by @J Scott:
Originally posted by :

Additionally, J has laid out 5 critical focus areas of "automating" your operation that has benefitted me tremendously (in a short period of time) at my job.  I intend to carry the same philosophies to real estate investing.

1 - Delegation

2 - Replication

3 - Prioritization

4 - Segmentation

5 - Documentation

 

I now add "Expectation" to that list...

Basically, knowing your numbers and working backwards to create a plan to execute to those numbers.  As one example, if you're doing direct mail, you have to know your metrics:

- What percentage of mailers result in a response;

- What percentage of responses result in a property viewing;

- What percentage of viewings result in an offer/negotiation;

- What percentage of negotiations result in an accepted contract;

- What percentage of accepted contracts result in a purchase.

If you can assign accurate percentages to each of these aspects of a marketing campaign, you can work backwards to determine that, "I need to send X mailers, on average, to generate a deal."  If you want Y deals per year, you need to send X * Y mailers in that year.

This is one example with marketing/acquisition, but you should be defining and executing on these types of metrics in all aspects of your business.  

So how does someone new, who doesn't have historical data to work from, create such a plan?  are there rules of thumb to go by?

Any scaling and/or optimizing of a business (whether real estate or any other business) is going to be driven by the specifics of that business.  I'm not going to go into detail here, but one aspect mentioned above (Segmentation) is the key to all the other aspects of scaling/optimizing.  You have to know the natural and most effective way to segment your business into its key components and sub-components, at which point you can work on scaling/optimizing each of those segments and sub-segments.

But, I can't tell you what those segments/sub-segments might be for your business, because I don't know your business.  If you're running a flipping business, I might be able to guess most of the bigger pieces, but most likely, you're going to be running your business differently than I run mine.  

So, unfortunately, most of the work you do around your business is going to require knowledge of what you're trying to accomplish in your business, how you run your business, historic data from you and your team, etc.  There is no one size fits all.  That said, if you can find another investor who has similar sub-segments of their business as you, you can glean some basic starting points and perhaps get an understanding of what successful metrics might look like.

Long story short, it takes a lot of time and effort.  When we first started, we were working 14 hour days to do about 15 projects per year.  After several years, we got to the point where we could work just a few hours/week and accomplish more than that.

Originally posted by @J Scott :

I've done 40 per year working about 10 hours/week, with two full-time employees.  I imagine working full-time, I could probably do about 100 per year if deal flow and cash wasn't an issue.  

I know several other rehabbers who are actively doing 100+ per year...

 WOW.  

Super impressive

Posts like yours make me think I am going to slow.  I am only doing a couple flips a year avg 50k profit per house 

Are you making approx 2 mil a year?

Originally posted by @J Scott :
Originally posted by :

My point is, while I agree with "expectation" as a critical business function, I think even it can be improved through your automation process described above.  I see it as analytics, the creation and capture of meaningful metrics PLUS the evaluation of that data used to make targeted business decisions.  To me, you can automate this process just like your direct mail example.  There is no reason you can't prioritize, segment, document, delegate and replicate this process, too.  Does that make sense?   

I think that within the larger presentation/context, you would think it made much more sense...

Also, keep in mind that analytics is a purely back-end process -- it's collecting and interpreting data, but not necessarily using the interpretation of the data to optimize front-end processes.  These are two very distinct functions, and neither will have a positive effect on your business without the other.

I come from the tech world (I was in management at Microsoft for many years before I transitioned to real estate).  I've managed large product teams that were ineffective because of poor analytics; likewise, I've managed analytics teams that were hamstrung because the product teams wouldn't look at the data and revise their processes.  These two aspects of business optimization go hand-in-hand.

Too often, management uses analytics to make business decisions, but not to improve business processes.  The whole point of my "Expectations" above is to use analytics as a forcing function to improve front-end processes, not just as a source of metrics and reactionary response.

All great points.  I am sure there are some in-process intervention points that data collection can benefit, but I agree that the analytic piece is to chart the course for future projects by improving business processes. 

I am coordinating a proof of concept with your former company right now on a new tech-based training delivery system and we have built the assessment piece into the beginning of the planning phase for the project for this very reason.  Even before we considered specific curriculum, we determined what we want to learn (established metrics) and how to capture that data (tools, xAPI, etc.).  Our reasoning for doing this speaks to your very point, proactive (not reactive) improvement. 

I haven't done my first deal in real estate yet, so I feel this gives me a competitive advantage going in with regard to scaling.  Thanks for all of your content you've put out over the years - it is a major source of confidence for me.  I have 4 walkthroughs scheduled this week and have a short term goal to get my first deal under contract by the end of this year. I will definitely be employing many of the lessons I've learned in your books.

Originally posted by @Michael Plante :
Originally posted by @J Scott:

I've done 40 per year working about 10 hours/week, with two full-time employees.  I imagine working full-time, I could probably do about 100 per year if deal flow and cash wasn't an issue.  

I know several other rehabbers who are actively doing 100+ per year...

 WOW.  

Super impressive

Posts like yours make me think I am going to slow.  I am only doing a couple flips a year avg 50k profit per house 

Are you making approx 2 mil a year?

The year that we did 40 projects, I believe our gross profit per project was around $23K -- we were mostly doing cosmetic renovations back then and our gross profits were between $21-25K per project for our first several years.  Our operating expenses have hovered around 20% for most of the time we've been in this business (this includes commissions to our employees).  So, best guess, our total net income (before taxes) was probably about $700-750K from flipping that year.

Numbers have changed a lot over the past few years -- we're doing some much bigger renovations and new construction these days (for much higher gross profits) and also doing a lot of partnering with other investors (for lower gross profits).  But, overall, we're doing fewer projects.  And these days, we focus more on our hourly rate than we do total income, as we are more concerned about time than money at this point...

Originally posted by @J Scott :
Originally posted by @Michael Plante:
Originally posted by @J Scott:

I've done 40 per year working about 10 hours/week, with two full-time employees.  I imagine working full-time, I could probably do about 100 per year if deal flow and cash wasn't an issue.  

I know several other rehabbers who are actively doing 100+ per year...

 WOW.  

Super impressive

Posts like yours make me think I am going to slow.  I am only doing a couple flips a year avg 50k profit per house 

Are you making approx 2 mil a year?

The year that we did 40 projects, I believe our gross profit per project was around $23K -- we were mostly doing cosmetic renovations back then and our gross profits were between $21-25K per project for our first several years.  Our operating expenses have hovered around 20% for most of the time we've been in this business (this includes commissions to our employees).  So, best guess, our total net income (before taxes) was probably about $700-750K from flipping that year.

Numbers have changed a lot over the past few years -- we're doing some much bigger renovations and new construction these days (for much higher gross profits) and also doing a lot of partnering with other investors (for lower gross profits).  But, overall, we're doing fewer projects.  And these days, we focus more on our hourly rate than we do total income, as we are more concerned about time than money at this point...

 Thank you so much for the detailed reply 

I purchased your book, very nice 

@Joe C It’s the same story, outside contractors or in-house, for in-house you don’t have to worry about scheduling them as you know they will be there 8 hours a day. Your problem will be speed as they tend to slack off as they know there’s always tomorrow. In-house is much more cheaper in the long run and reliable. For outside subs, you might have trouble scheduling them or something like that. 20-25 is not a lot, even 200 is not a lot as per my experience, you just need to structure it a little more i.e heads of each trade and a project coordinator to do scheduling of trade per location. I’d say separate all maintenance stuff and separate construction, although they are the same, maintenance are way slower than specialized trades i.e electricians do electrical work everyday. Currently only 10, i cant get enough business to get more. With the 200, I had about 5 tiers, One reports to me daily, 3 Sr Engineers, Jr Engineers, Foreman, Unskilled/Skilled labor. That was for a roads and bridge building company, equivalent to a remodel business, Sr engineer is the project manager, and Jr engineer is the superintendent. I’d say a PM can handle 5-8 projects at any given time and 4 projects per superintendent, 2 per foreman. I have a rule of thumb about 2-3 projects per tier.

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