To make progress, sometimes you just gotta do things that make you uncomfortable.
“Step outside your comfort zone”
“You can’t steal second with your foot on first”
“It’s better to try and fail than to never try at all”
We’ve all heard all these expressions.
But when was the last time you did anything that you were really scared of doing – knowing that when you succeeded, you’d not only make money but would give you a real sense of satisfaction?
Quite honestly, I talk a lot about fear here on BiggerPockets. But it’s been a while since I felt really uncomfortable fear doing something far outside of my personal comfort zone. That is until about two months ago when I got into the modular home house flipping business.
How to Estimate Rehab Costs!
Estimating rehab costs accurately can make or break your real estate business, and it takes years of experience for even the best rehabbers to master the art. However, you can expose yourself to less risk and get more accurate with your projections by learning how the pros think when estimating construction costs.
Experience or Knowledge: Which Comes First?
When you’re fearful, it’s usually due to one of two things: lack of knowledge or lack of experience. If your fear comes from lack of experience, then how do you get the experience?
To get over the fear, you have to do the thing you fear – to get the experience so you no longer have the fear. Follow me on that?
So you have to go do the thing you fear to no longer fear doing that thing you fear (is it just me or am I starting to sound like Casey Stengel?)
Regardless – with me and my team, we have an expression: NO EXCUSES. Don’t make excuses, just get stuff done. Just take action and do it. Don’t whine, don’t complain, get it done.
The funny thing is that with this modular house flip, I didn’t even set out to do it – it just happened that way. Right now, I’m very focused on expanding my business and this was a logical step for me to do it – by learning something new – and at the same time, working towards my business goals.
The Modular Flip Deal in 12 Minutes
Truth be told, I had always wanted to do a modular home at some point, I just never had the opportunity to do it. As I’ve talked about many times, I usually I’m buying distressed properties, fixing them up and then selling them…but not on this one.
There was a house at the town of Bourne town tax auction I was interested in buying – a house that was in my comfort zone – distressed and perfect for a rehab.
But the bidding on that property quickly got out of hand and out of my price range, so I dropped out of the bidding.
Next up was a piece of land – a buildable lot in the village of Sagamore Beach – not too far from my office in Bourne. I had never seen the land before but from the documents I had looked at for a minute or two at the auction, I realized it was a good potential deal in a really good location.
Minutes before the land came up for auction, I saw my builder Billy and we started chatting – it was then that we realized that we were both about to bid on the same piece of land. So instead of bidding against each other and driving the price up, I suggested we partner up.
So on a handshake, we figured it would be a good idea to just go fifty-fifty on the deal.
In the back of my mind, I knew my best hard money lender would fund this 100% in a heartbeat. It had all the hallmarks of what he loved: good neighborhood, good builder, and good numbers. I didn’t even bother to call him because I knew he’d fund it no problem.
A few minutes later, the bidding started. Billy and I ended up getting the lot for $55,000.
Total time from partnership to acquisition: 12 minutes
Who Does What In a Partnership?
When we decided to buy the land on the day of the auction, we had absolutely nothing in writing – but I’ve known Billy for ten years and even though he drives me crazy, I trust him. Regardless, I would NOT recommend doing this just with anyone.
So as we were leaving, Billy suggested that to maximize our profits and get the home built as soon as possible, we do it as a modular home. Without thinking twice, I agreed.
It was then that I became a modular home house flipping guy…
Every partnership has its own unique roles and responsibilities. Because Billy and I knew each other so well, we quickly mapped out who was going to do what to make this thing happen.
So if you ever do this kind of deal with a contractor, you can divvy up the responsibilities any way you’d like. But for Billy and I, here’s how we decided on responsibilities:
- Raise the money – 100% financing
- Realtor relations – hire a realtor and manage the realtor buyer relations
- Put together the business agreement with the attorneys*
- Oversee the operation and holding him accountable
- Contract with the modular home company
- Develop the land – take the buildable lot but had to apply for all the permits to build
- Schedule delivery of the house
- Handle the subcontractors
- Both of us were equally responsible for paying back the note
*Although we created the partnership on a handshake, to keep things whole, we did put together a partnership entity to purchase the property. It was a trust which created we were both 50% beneficiaries of the trust. The profits go through the two beneficiaries of the trust – in this case, my side was my company and his side was his company.
How to Fund a Modular House Flip With No Money
The hard money loan was in actuality a private money rate – but from a hard money lender. We do a lot of business with this group, so we have a very favorable rate. Having said that, this deal was so good, it would have worked on a 12-15% rate note as well. If you’re new, don’t expect to get this kind of lending rate normally.
And also if you’re new a looking to get money from a hard money lender, I would not expect to get 100% financing from one source. Most hard money lenders want you to have at least some skin in the game – say 10-20% or so.
You could do the same thing by getting $20,000 from a different private money lender. In this case, you may want to give up a percent of your profits to that other lender in exchange for getting the cash you needed. Or maybe you wouldn’t need to give up any of the profits.
It’s really all in how you negotiate it.
Also in most cases you’ll typically get your money for the rehab (or build in this case) in small chunks over time – called a “draw”. This is typically dispersed at set points during the rehab is going on using what’s known as a “draw schedule”. This way the lender doesn’t get burned by lending out all the money at once.
To do what we did, it takes time to establish the kind of relationship and trust with a hard money lender…but to get to that point you have to start.
NO EXCUSES, right?
The Anatomy of The Modular Flip
To fund the whole thing, we got a total loan amount of $185,000 all at once, 100% financed by our hard money lender.
We then talked to another member of our team<link>, our real estate broker, and we decided to “pre-sell” the house by placing a conceptual drawing of it in MLS. As the house wasn’t built yet, we just put in a picture of what we thought it would look like when it was done.
Bear in mind we had not even built it yet. Then we waited for a buyer. We didn’t wait long…
We sold it in one week.
Yes, one week…and we hadn’t even started building the house yet.
Truth be told, we actually sold it for $269,000 but then the buyer wanted to do some upgrades which we readily agreed to and because of these, the price went up to $285,000.
And as of this writing, we have it under commitment for $285,000…and have two other backup buyers ready to swoop in if for any reason this buyer defaults for any reason.
Do the math – after all our expenses and the 50-50 split, Billy and I will likely profit about $35,000 each.
How to Flip a Modular Home with No Money in 12 Minutes Conclusion
Like I said, it all came together so fast, I almost didn’t even have time enough to think of my fear of doing something I had never done before…but I was pretty anxious at the time.
I may not have looked that way, but although I may have appeared calm, I was sweating on the inside. Partnering with Billy – who’s built probably about a hundred houses – but had never done a modular either – did relive at least some of my fears. But even so, it was a new experience for the both of us and to his credit, he was doing something he had never done before too.
Would I do this again exactly like this in the future? It’s pretty unlikely, because I now know how to buy land at auction, build a modular home and pre-sell it to a new buyer.
But I’m glad I could partner with a good friend like Billy and have him help me do something I had never done before.
If you’ve made it this far, please leave a comment below! What have you done recently that’s completely out of your comfort zone? Or just ask any question you have on this deal an Ill be happy to answer it!