“House flipping takes too much time”
“House flipping is a lot of work”
“House flipping is SO risky”
“House flipping is impossible to do when the economy is (fill in the blank)”
True, house flipping isn’t easy…but is it as hard as people think?
It isn’t, because there IS an easier way.
Its called…well…I’ll get to that in a second or two.
How to Analyze a Real Estate Deal
Deal analysis is one of the best ways to learn real estate investing and it comes down to fundamental comfort in estimating expenses, rents, and cash flow. This guide will give you the knowledge you need to begin analyzing properties with confidence.
Buy, Fix, Flip…The Lazy Man’s Formula
So many new house flippers I talk to insist that the only way to squeeze good profit out of a flip, they must do ALL the work all by themselves. To make sure “the profits are there”, they insist they have to do the following:
- Find the house themselves
- Negotiate the sales price all on their own
- Buy the house on their own by scraping together their own money
- Handle all the legal stuff on their own
- Do all the rehab on their own (with hundreds of trips to Home Depot, mind you)
- Sell it all on their own – listing it as a FSBO or on Craig’s List
The list goes on and on…
That just sounds like way too much work to me.
I think they have it all wrong, because there is an easier way.
The Power of Leverage In House Flipping
When I’m asked what’s the best way to get started flipping houses, I give them the same answer:
House flipping is a TEAM sport…so start by formulating your team
Second only in importance to the success mindset, the house flipping team you assemble is the most important thing you need to do when first starting to flip houses. In using the expertise of others to help you in your success, it’s the easiest and even some would say “laziest” way to achieve success. When you leverage the considerable brainpower of others and not yours, you can focus on growing your business instead of worrying about it.
Although there are more than just the below mentioned team members needed to get started flipping houses, the big five below are the core members you’ll need. Of course adding more largely depends on your deal flow and the size and scope of your house business.
The Core Members of Your House Flipping Team
1. Real Estate Attorney
Many new house flippers try to cut corners and think they can go it alone without an attorney. Others try to get by using a cheap online attorney service.
On both accounts, big mistake.
Sure, it hurts to pay that bill…but in the end, flipping houses is a tricky business and can get legally complicated very quickly.
So when it comes to real estate attorneys, you get what you pay for. So don’t skimp here. Hire a qualified expert attorney who really knows real estate law. Think of it as a wise investment instead of a cost; like fire insurance. You hate paying that premium, but when the house is on fire, you’re sure glad you had it.
And fires pop up all the time when you’re flipping houses!
If you skimp on legal services up front, you could pay tenfold or even lose the deal when things go south. Don’t skimp on attorney services. Get a good one on your team and pay them well. If you’re doing the right things to turn a profit, what you pay your attorney will be more than covered by the profits you make on your flips.
2. CPA (Certified Public Accountant)
Just like an attorney, hiring the right CPA can save you a lot at tax time.
It goes without saying that hiring the wrong CPA, especially one who doesn’t understand the finer points of real estate investment accounting, can cost you a lot of money. When you’re looking for a top-notch CPA, you may get frustrated when trying to find one who really understands how and what you do. With so many different ways to interpret real estate accounting issues, this is not uncommon. As you probably know with your personal taxes, the U.S tax code can be interpreted in many different ways. So it’s the same way or even more complex at times, with real estate tax accounting.
So it’s extremely important to find an accountant who is extremely familiar with U.S. tax laws for house flipping and real estate investing. Finding a CPA who meshes with your personality and does all she can to legally apply good accounting strategies will help you to keep your taxes as low as possible, while not having to worry about the IRS.
Your CPA should also advise you on your business structure – looking at it from a tax as well as a legal perspective. So when you do find your ideal CPA, make sure your attorney and accountant communicate with each other so jointly they structure your business in the best way.
3. General Contractors
Notice I said general contractors (with an “s” at the end), because it’s always good to have more than one, especially if you are working in a few different markets.
Many new house flippers feel they must do all the rehab work on a flip themselves. For small rehab projects which involve a fresh coat of paint and few small repairs, this may make sense. But in most cases, it doesn’t. For most house flips, the time you’ll spend doing things that otherwise could be done by a professional may actually cost you more money in soft costs and finance costs.
A general contractor on a house flip basically runs the entire project; they are responsible everything that goes on in the rehab, including hiring and sometimes firing all subcontractors as well. Managing all this can be a real headache and if you don’t have a real estate or building background can be a real time-suck as well.
Find a general contractor who can work within your budget and who has a good track record. You may go through a few before you find the one to do most of your deals, but when you find him, he’ll save you not only time and headaches but help to ensure your profits as well.
4. Real Estate Agents
When it comes to real estate agents, ideally its best to find an agent with experience working with house flippers or one you can train yourself. Most real estate agents are familiar with the concept of house flipping, but for them to become a permanent part of your team, you’ll need to educate them on how it is done as well as how you do business. Depending on your geography, you may end up working with a few agents in different territories they specialize in.
Also, there are a number of REO (real estate owned) agents. These are agents that specialize in selling bank foreclosures. If you are lucky enough to find one of these and develop a good rapport with them, consider yourself lucky. They are a fabulous source of good deals ideal for house flipping.
There are also certain kinds of real estate agents who specialize in short sales. These are agents that work with banks to sell a property for the seller before it goes to foreclosure. If you uncover one of these kinds of agents, they could also be a tremendous source for deals ideal for your business.
No matter which kind of real estate agent you choose, this team member is vitally important for your deal flow.
You need money to fund your house flips. Its kind of hard to buy a piece of real estate for a few hundred thousand dollars without it…so the lenders you have on your team are pretty important. Once again, always good to have more than one.
Whether you are fortunate enough to get a loan at a bank or you deal with private money lenders or even hard money lenders, having a reliable and trustworthy source of private money lenders is crucial to your success.
As I wrote in a previous post, the best way to find these kinds of people are at your local REIA meetings as well as just by talking with the people you see on a regular basis. This could also include friends and even family. Once again, it’s all about forging relationships and getting to know people as well as helping them to get to understand your business.
For all you who think this can be done purely on the phone or ever email, think again. There is no substitute for one-on-one sit down meetings in a coffee shop or the “meeting after the meeting” at the bar after a REIA meeting.
You’ll also find that if you’re always on the lookout for creative ways to fund deals, some of these relationships may turn into joint venture partnerships – which can turn into even more opportunity. Like so many things in real estate investing, the more success you have, the more opportunities will start to turn up. The harder you work, the luckier you do get.
So don’t worry about choosing the wrong team members to start, its only natural to go through a few before you find the right ones. When you’re first learning how to flip houses, the odds are actually against you in formulating the perfect team your first time out. But the more experience you get flipping, the more you’ll be able to discern which team members stay for good and which ones you may want to ultimately replace. And after you get your first few deals under your belt, experience will ultimately help you make the right decisions.
Thanks for reading! Please leave a comment below to tell me what you think are some additional team members on your real estate investing team? I’d love to hear what you think!
Photo: Tami Hills