Single Flip Blues - How do I grow?

Question

Hello All,

The Good News:

Over the past six weeks, I've spent 12+ hours a day for six/seven days a week to get another flip from start to finish. We hit the market in Houston last Friday and as of a few days ago, we are under contract.

About Me:

I have been in commercial property management for most of my RE career (I did a quick stint as a Realtor when I first fell in love with RE), but stepped into REI full-time in July of last year after my company’s portfolio sale. Being an experienced property manager with a brother in construction who I can turn to for advice, I am able to GC the projects (as needed) and I'm completing repairs myself to save money wherever possible.

My dilemma:

While the seeing the physical transformations of our projects has been extremely gratifying, the process as a whole has been exhausting. I'm willing to do what it takes to not have to go back to corporate life, but I can't imagine being able to carry on with only being able to make money one flip at a time. Not only is it physically demanding, I'm not really able to save money to roll into future projects since this is my only source of income and bills/life eat into profits between closings. Because of that, I feel like I'm creating a pattern that I won't be able to crawl out of.

So, I need advice from the BP pros on how to grow/structure my business this year to be able to take on multiple projects at a time. That's the only way I'll be able to replace the steady income I lost from my 9-5 and grow my business to where I need it to be. I've been entertaining switching my focus to wholesale deals for the next few months to pad my bank account for more flips/buy & holds by 3Q 2020. I could also, of course, just take the profit from this flip and roll it into another deal.

With the goal of graduating to multiple projects at a time in mind, how would you guys go about investing the ~$25k I'll have to reinvest? How did you guys get over the one flip at a time hump and begin to make "real" money? Is really it as simple as getting more capital?

*I understand that it isn't a lot of capital, but again, I'm trying to stay out of corporate life and build a solid future for my family. This is all of the "make it happen" money I can risk without my business effecting my family. With a HML, I'll able to leverage that $25k to get into another project*

Thanks for your advice!

Dan H. · Answer

You need to find RE that has enough upside that you can hire the work out and still make a profit that you can live on.  If you are not doing the work yourself, you can scale to more than one flip at a time.

I do not know how feasible this is in your market.  It may be challenging.  I know in my market it would be challenging to find enough flip opportunities that have enough upside that all the work can be hired out and still produce a decent profit.  It is not that these properties do not exist, it is that there is a lot of competition for these properties in my market and some of the competition has large teams, large marketing budgets, and large networks.

If you continue to have to do much of the work yourself, you are more a GC than an RE investor.  You are getting paid for your GC efforts.  Flipping is a job as you only get paid when you buy, value add, sell.   However, you likely do not want that job to be as the GC, you want that job to be more in the entire process (acquisition, hiring/managing GC, marketing and selling).

Good luck

Whitney Hutten · Answer

@William B. You have some amazing advice here.  One thing to point out, the more successful deals you do, the cheaper your hard/private money should become (lower rates, lower points, more leverage).  That will help you scale too.

Here is my spin on what I'm seeing from responses:

1. Find deals with shorter timeframes and bigger upside if you are going to take on the work yourself (ie. lipstick on a pig type deals).  Do you need to learn to negotiate better to create more equity in deals like these?

2. How can you wholesale or wholetail other deals you find?  This would put cash in your pocket now without rehabbing.  Do you need a VA to help you track everything and put contracts together?

3. How can you hire others and create velocity?  If I can flip at a distance and still make money through a team, you definitely can do that locally.  How can you play the GC and let others do the grunt work (and then eventually hire our own GC!)?

4.  How can you keep some of your deals as rentals to create passive income (I personally love BRRRR to recycle capital)?  Flipping/wholesaling/wholetailing are jobs and are taxed as active income.  How can you leverage what you doing to build both active and passive income?

I'd suggest reading Cashflow Quadrant by Kiyosaki until you fully understand where you create wealth (hint... it's not in active income ;)

David Hall · Answer

Go to meetups with the intention of going to lunch with 4 new people every month.  Grow your network.  Share on social media and with everyone you know what you are doing.  People are attracted to success.  Deals are attracted to those who seek them.  Tell every agent and wholesalers you know that you are looking for deals.  When they send you deals, RESPOND to them as quickly as possible.  Even if it isn't a deal, tell them what price you need to be at to make it work.  MAKE MORE OFFERS.  If you can't find good enough deals, make more offers at lower prices.  If 1 in 100 get accepted, make 100 offers!I started exactly where you are and it seemed like it would never grow.  Until I got a few deals that didn't need much work, and I got a few private investors I met at my local meetup.  Now I can do several deals at once, with several exit strategies.  KEEP GOING!  I am now using direct mail marketing to get seller financed deals.  If I only have to bring a small down payment and the rehab costs to the table I can do bigger deals with less money and I aim for 100% ROI on each deal. (example, buy for $100,000, no money down, put $10,000 into rehab, sell for $130,000.  After closing costs make $15,000. 150% ROI)Finally, make sure you ask yourself the right questions.  Not, "Why am I not successful?" or "Why can't I get out of this".  Instead ask, "Who do I need to meet to grow, who can mentor me, who are private lenders I know, who can I ask for deals".  Keep doing what you are doing and start networking, keep reading and keep taking action.  I wouldn't be surprised if 12 months from how you have multiple deals going at once.

Mark Sewell · Answer

This seems to be a fairly common theme - I have a good friend, I will call him a partner even, right here from BP that is experiencing the same conundrum.  It is a function of deal flow, financing to support it and obviously crazy good project management and systems - everybody here has added that, so there is nothing useful I can add.

My buddy and I believe that part of the answer lies in whole-tailing, creative financing strategies, and just having a ready stable of qualified local fledging house hackers looking to get started.  If you can solve the lead generation puzzle, these are a couple good ways to offload a couple of deals while you flip the rest.

Except maybe considering partnering with newer investors like me.  We have a couple deals, which may or may not close and we might be interested in a third partner to help this along.  We would prefer partners with crews and experience, not just money (we can find that).

Also notice I didn't say anything about wholesaling - got nothing against and I have assigned a deal in the past, but I find it is very hard to do and it doesn't give the sellers a big warm fuzzy.  Honestly I believe if you are a guy doing flips, with a track record, it is just way, way easier to get your financing lined up.

This next part is my own straight talk, directed mostly at myself but perhaps it is also useful for the OP or others, so no offense please:

It is also a function of personal finance, getting your own 'financial footprint' as small as it can possibly get.  The less outflow you need to keep yourself in beer and bread each month, the longer you can stay afloat and stay away from the corporate cubical farms.  Again, I know, seems obvious, but you'll be surprised how many educated people (like me) don't really consider this in great deal.  Scott Trench points out that it takes about 1.3 dollars of pretax incremental income to equal 1 dollar of post-tax saved money (approximately, read that section a while back).  This is actually my main focus right now.  I'm back in the damn cube farm myself, but believe me sir, when I tell you that I am actively plotting my escape (again).  And I'll have no extra weight to burden me when I break out next time.

Jennifer Edwards · Answer

@William B. Have you read the BRRRR Book?

Greg Dickerson · Answer

@William B. you need to put systems and processes in place in order to scale whether flipping or wholesaling. You need a system to raise capital if your funds are listed, a system to generate a steady stream of leads to buy, a good buyers list to wholesale properties and turn key contractors to do the work on flips so you can spend all your time finding, funding and selling properties.

Jennifer Edwards · Answer

@William B.  Thanks for responding! Yes, I’m in Houston as well. Im really new and have not done my 1st deal so I can’t offer any personal wisdom.  That’s why I recommended the book.

Our strategy is to look for those fixer uppers and run the numbers for BRRRR and flip each time. I’m ok with not getting 100% of my money back b/c I can save the monthly rent for a while to get it back. You do have the predicament that I don’t. I have a day job and can support myself with that while I reinvest all my capital.

I would just say run the numbers each time and hold it if you can afford to so you get passive income going. Maybe think of it as investing in a retirement plan.

Jillian Putnam · Answer

@Whitney Hutten I really resonated with your post. Cashflow quadrant is an incredible book that jumpstarted my real estate investment knowledge. Can't thank Robert Kiyosaki enough!@William B. Getting more capital is important, but finding creative ways to get deals with more equity is more important. A lot of people are sharing REI tips that are outdated like direct mail advice or knocking door to door. I'd look into expanding online marketing and networking in your area. Someone mentioned local meetups to expand your network, but there's less spread in deals you're getting from wholesalers. Online presence is becoming more and more prevalent these days.Another tip is to leverage your deals, but you can't use other peoples money to fund projects you don't have.

Jaron Walling · Answer

@Dan Heuschele You haven't purchased anything for 2 years?? That's insane.

I agree with your statement about finding the right deal (good upside potential). My market is the same and it's tough.

Dylan Vargas · Answer

@William B. Welcome! The key is finding flips with enough margin to hire out. I think this would be very possible in your area. There will be a little risk but thats part of the game. Eliminate as much debt as you can so you only need living expenses to get you through flips until you build up cash reserves. The major benefit for you is knowing how long and labor intensive these remodel projects are so you will not be overpaying for skilled labor. Maybe even pick the simple things that can save a few grand on each flip. We choose to paint on the simple paint jobs saving a few thousand each time. Wish I knew more remodel fixes. Good luck and keep us posted.

Single Flip Blues - How do I grow?

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