Problems vs. Profitability: A Guide to Flipping Houses
Like so many people who dream of securing a good income in the real estate business, I got my feet wet (actually, almost drown.) in the house flipping business. I was inexperienced and more than likely made all the mistakes that could have been made.
In early 2006 my sister Sarah, who was a new real estate agent at the time, convinced me to buy an old 1930’s fixer upper home for $38,000. The price certainly seemed right and I could see the potential in the old home. Like so many who have come before me, thought I could complete all of the necessary things to rehab this home and sell it for a profit. I couldn’t have been more wrong!
I knew the old home was going to need lots of structural work, cosmetic work and landscaping. I purchased the home with a construction loan, and began hiring contractors.
The first carpenter on the job advised me to remove the plaster walls in the house and replace them with standard drywall. He lamented that it would make it easier for the electrician to rewire, and to insulate the house. So, I followed his advice and demolition began.
I won’t go into all the details of the project, but after removing drywall, rewiring, replacing rotted beams and installing 37 insulated windows, I was suddenly $19,800 over my budget and started having to come out of pocket for the remaining work needed.
As I look back at this “flip” it’s obvious that the majority of my mistakes were made by poor planning on my part, especially when it related to contractors. I had some contractors who didn’t finish their job. Some that finished their job incorrectly and some that just poorly advised me throughout the project, nudging me to do things that probably weren’t necessary and ended up costing me the lion’s share of my budget.
When I finally completed this old house it was 3 months off schedule and $19,800 over budget. I listed it and it sold and when all the ink was dry I realized a whopping $2700.00 profit. Believe me; I was happy with this profit because during the last phase it appeared as though I was going to lose money.
Since my first project I have now flipped my 12th home in 22 months with profits of over $393,000 and have plans for 3 more homes in the first quarter of 2008.
Now don’t let my real life story frighten you flipping houses is one of the most proven methods of making a great income in the real estate business. There’s no shortage of opinions out there and some will warn you that the “flip” business is too risky or capital intensive. I say; “Bunk!”
For me problems transformed into profitability when I reflected on my first flip project and concluded that having an ill-fated plan and no protection agreements with my contractors.
I started my second flip house with a whole new vision and set of plans. Then things started operating near seamlessly. In each project you’ll have your share of issues, but your ratio of success is always going to be better when you’ve properly planned and have Safeguards in place. Like any agreement that you initiate, it should have your best interest in the number one position. Always!
There are many dynamics to flipping houses in today’s market, from buying with no money down to Design Psychology to make your house shine better than the one next door. One of the most challenging obstacles for any house flipping investor is rehabbing and working with your contractors. Use a good “Contractor’s Agreement” on every one of your projects. There is no room for lack of communication, poor communication, no communication or conveniently forgotten communication. Always communicate in writing and in advance.
Is finding, fixing and flipping houses for everyone? No, it takes a unique person to see through the dumpy house and see a marketable dream house. If you’re that kind of person and dream of making a good living in the fun and exciting field of flipping houses, then there is no better time than right now to start making those dreams come true. Stop thinking about it and get started today.
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