I became an active real estate investor seeking out motivated sellers starting around may. Since then I decided to take massive action and judging by the fact that some people think I am crazy I think I am doing a good job. Since may we have bought deals using seller financing, subject to assumable mortgages, cash/hard money, & straight cash ranging in purchase price from $14,000 up $623,000 in and outside of our local area. I have bought deals off the MLS, just driving by an open house in my neighborhood, on-line advertising, mailers, referrals, and door knocking. This month we bought our 1st promissory notes at ridiculous discounts. We have finished and sold 4 rehabs and are in the middle of 2. We have also done a fair amount of wholesales with no rehab. We are closing on 3 properties this week to buy. This is on the side of marketing for a solid hard money lending business that loans at 2 points and 12% in most cases to rehabbers (not my area of expertise, I just manage the marketing).
I am fairly proud of accomplishing this while still running my other businesses. Not because it worked, but because I simply took action and started. Here is what I have learned so far looking back at some results. We had our first $100k profit day today from two closings! That's net after everything split between me and a partner after any investors also made their money. The total profit was actually 30k higher.
Lesson1: do faster and lighter rehabs vs longer bigger projects if you have capital limitations. Our contractor is great, but we have them for projects at once asking if they could handle it. They said yes, and we said great. What was them cycling their crew from site to site turning 3 45day flips and one 90 flip into 4 120+ flips! We will still make money because we bought well but we could have avoided the headache and made more with less capital following these basic guidelines.
- Ask you GC how many separate crew they have working for them. our new rule is one crew...one house. if they want two projects from us at the same time they better have two construction crews or we are giving the second house to someone else. our GC drove across town to do a punch list himself. I admire the effort but he is to expensive to do that work. If you don't follow this rule you are asking for trouble.
- Projects that need heaving plumbing/electrical/HVAC needs to be schedule in the proper order causing bottle necks that can shut your project down. By avoiding them as much as possible you can do fast flips and keep you money working for you. We added a room to a lake house because of the square footage value but we had to move the breaker box. Moving that box took a ton of electrician Time. The room addition is still worth more than we paid on resale but when you account for the house we don't buy because this one took twice as long we would have been better off forgoing the addition and keeping it simple and fast. Be aware of the opportunity cost of your decisions
- Get a punch list guy seperate from your contractor. The suck at it and aren't built for that stuff. We are negotiating with ours for a predetermined punch budget to pay an outside party. If the cost goes over, it comes out of the contractors pocket because his team did poor work.
Lesson 2: subject 2's are awesome and really easy to do. if you need a closing company in florida that can pull them off contact me and I wi connect you. 4% interest and no closing costs while you work on a property makes for the lowest carrying costs of all our projects.
Lesson 3: you know a motivated seller when you see one. When you have them you can get contracts signed the same day they call you see them. Your time should be spent finding as many of these people as you can.
Lesson 4: If you are afraid of getting rejected so you aren't placing any low ball offers start counting rejected offers as victories. You will probably get 1in 20 and it Will be a great deal so go for 20 rejections. Someone will screw your count and say yes!
Lesson 5: don't be afraid of hard money fees, but respect them. When you use hard money you are on the clock and taking to long will eat up your profits. When in doubt, take the simplest route. Even if it means a lower profit. Adding a month to your project may actually cost you.ore in potential profits than the money you made during that time.
Lesson 6: Fha requiremenrs won't let an offer be dated within 3 months of a properties last sale. Beware when putting a flip back on the market.
Lesson 7: complete my ignore every flipping show on HGTV unless you want the hobby Factor and don't care about profits. Some stuff is works great like a farm house sink for a flip. Other stuff like subway tiles have to be hand laid and while cheap, have a high labor cost. There is a reason most flips look the same. Don't get fancy, work the numbers, work the system. You will have a better relationship with your GC.
Lesson 8: find the wins/wins.
If your are such a good negotiator that you middle your GC down to nothing on costs he will realize he isn't making anything and start cutting corners or simply not show up. Find ways to reduce cost without reducing what they make. Change materials, reduce the amount of extra work they have to do by doing the same things again and again. Find out what trades they make the most money at and tailer your jobs to their strengths. Ours doesn't do roofing. It's pass through for him so if we do $30,000 rehab where $10k is the roof we feel like we are spending money but he isn't making enough to care.
Lesson 9: surround yourself with people morneepxerienced then you and give them value. You will scale faster. I have a real estate lawyer as a partner so all I have to think about is getting deals done. Don't do everything yourself if you can help it.
Been a wild ride this year but I have never had a business kick off profits so fast as this business. Hope I helped somebody with this info. Next up, tax deed auctions and some seller financing deals!
