What’s your #1 MOST USEFUL tip, for minimizing risk on flips?

13 Replies

Is it all in creating a margin of error and a really good deal? What are the best way to do that? Is it other things outside of the “numbers”?

I am a first time flipper and I am very confident in what I would like to do, but I am still scared shitless at the idea of beginning and making the stupidest mistake. I intend on private financing and using my friends and families money to help fund, and I would hate to displace they’re trust.

In other words, what would be the most useful tip you would tell your first time flipping self from the past?

Thank you!

@Nnamdi Okwerekwu It's good to be scared because using other people's money creates a big responsibility to do right by them...just don't let that fear paralyze you. In the interest of full disclosure, I have never flipped a property but I have some BRRRR experience. However, my advice to you would be to underwrite very conservatively and choose a property that would cash flow as a buy-and-hold in the event the numbers no longer work at the end of your flip. This would give you a second exit strategy. In addition, I'd discuss this option up front with whomever is lending you money to make sure they are on board with having their money tied up for longer than expected in the event you cannot flip it.

Wouldn't really say there is a #1 most useful tip... there are a lot of variables going on with a flip. You really have to do a great job vetting your contractors. A good or bad contractor can literally make or break a deal. Make sure to get legit references from people that have recently used them. Also, make sure that they are fully insured. Make sure that you have a builders risk policy on your flip as well. Finally, you have to literally stay on top of everything. You can't take a passive approach and expect others to do what is supposed to be done. While some people do what they are paid to do and what is expected of them, others don't... and if you are not around to see what's going on, that's where problems can occur and money can be lost. It is definitely a scary process but as long as you are actively involved, things will be a little less so. Oh and with regards to the contractors, after they have completed their job per contract and you have paid them, make sure to get a release of lien form from them.

@Bill Quigley thanks for your insight Bill! I never thought of actually give a contractor a CONTRACT! (Ironic isn’t it) I had always thought it was just by word.

Do you think a contract could get tricky because of all the things that could change and how more costs and expenses can arise? Or is that also part of the contract?

What would your contract consists of and what do you think is most important to include?

Do you you have an example of one of these?

@Scott Passman thanks for the great advice Scott. I never thought of that exit strategy before but if possible, it would be an excellent one!

Yes, BRRRR is a great method as well and as someone looking to increase they're active income right now before passive, it would be great to have that cash out refinance option to take some equity out, and still have a cash flowing property.

@Nnamdi Okwerekwu

It’s normal to be scared. You’ll for sure make a dumb mistake, haha.

Your contractor relationship is the most important. Go slow. Do what you know is right. Follow your process.

Be conservative on numbers. Especially now while everything is inflated with covid

Talk to the building inspector about what you want to do and permit everything.  They are often a great quality control point.  Make your contractor draws based on the building inspector signing off on specific items--eg rough plumbing, framing, etc.  The inspector can tell you what these sign offs are.

@Nnamdi Okwerekwu obviously hard to give one bit of advise, as the others have shown with a lot of different answers, all of which are good and valuable.  I am torn between two tips:

1. Only invest in areas you know inside and out.  Whether it be because you live there are spend a lot of your time there. My wife and I have pushed the value of the comps, often dramatically, by knowing the areas we invest, because we live here and know what buyers want and value.  That has not been true when we stepped out of our 2-3 neighborhoods we know.
2. Do not do draws with your contractors, as best as you can.  They get a material allowance up front (maybe 30%), and the next check is when they are fully complete.  No progress draws.  Every time I have gotten underwater with a contractor it was on progress draws.

Originally posted by @Nnamdi Okwerekwu :

Is it all in creating a margin of error and a really good deal? What are the best way to do that? Is it other things outside of the “numbers”?

I am a first time flipper and I am very confident in what I would like to do, but I am still scared shitless at the idea of beginning and making the stupidest mistake. I intend on private financing and using my friends and families money to help fund, and I would hate to displace they’re trust.

In other words, what would be the most useful tip you would tell your first time flipping self from the past?

Thank you!

 The most important thing is to know your market. If you get that wrong nothing else matters. You absolutely must educate yourself first on the business and the market. You need to know your market intimately and you need to know every aspect of the business including costs, time frames and proper legal and tax structure. There are no secrets or shortcuts.

@Nnamdi Okwerekwu in my experience the answer is getting a GREAT deal.

As opposed to buying a good or just okay deal, when you buy a great deal you're able to:

-Have additional margin for the unforeseen

-Lower the price in the event the market changes

-Have a better chance at re-financing if you're unable to sell

-Have a better chance of cash flowing if you're forced to rent the property