So You Want To Learn How to Flip a House? Well Here You Go, No More Excuses!
I know a lot of readers here on BiggerPockets are newbies, and many more have never done their first deal but really want to. What holds most people back is fear. Fear of failure, fear of success, or many other fears (insert yours here). One of my first articles was on overcoming your fears. At the end of the day the only thing that can help you to overcome your fears is one simple word….Action!
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.
Ready, Fire, Aim
People will waste their entire lives sitting back waiting for the perfect moment to start. They make excuse after excuse and justify each of them in their minds. Let me let you in on a little secret…shhh, don’t tell anyone……THERE IS NO PERFECT TIME! If you want to invest in real estate, and if you want to do it by flipping houses, read on. Sometimes you have to pull the trigger even though you are not totally aimed! And guess what? It will be ok, you will figure it out as you go! That is what we have all done. I will make this as simple as it gets to get that first deal done.
My 12 Step Program
1 – Send out introduction letters to everyone you know or want to know regarding your plans
2 – Cheap Marketing
3 – Hang the Signs
4 – Field all Calls, using a questionnaire/script
5 – Figure out which one is a good deal by using the 70% Rule
6 – Get an offer accepted
7 – Get the Money
8 – Buy the house
9 – Renovate the house
10 – Sell the house
11 – Go to the bank to deposit your proceeds and/or learn the lessons
12 – Repeat
Okay, got it? I will give a brief description for each step, but please keep in mind – I am keeping this simple.
How to Flip a House in 12 Steps
1 – Build Your List
Make a list of everyone you know. Tell them you are looking for referrals of people that may want to invest in real estate for above average returns. Describe your plan and ask them if they know anyone that has money to invest, retirement to invest, home equity they can access to invest, etc. Help them to understand what you are looking for. Tell them you will pay them a 1% Finders Fee on however much the person invests as a one time fee. This is how we got started, we asked for referrals and in the process, the same people we mailed to became some of our first investors. Taking this side door approach to find investors to back you has proven to be very successful.
2 – Cheap Marketing
I want to preface this section by saying that I am NOT a fan nor proud of this method, but it has produced hundreds of thousands in profits to our company. They may not be sexy, but they really work! (**Note from the Editor: This method is also illegal in some areas – BiggerPockets doesn’t advocate using bandit signs when against the law and encourages you to research the laws in your local area.) That being said, Go to Super Cheap Signs or Dirt Cheap Signs and order some bandit signs. Preferably get an answering service to answer your calls, like “Pat Live.” They can provide you with a local number that is easy to remember. Remember, people need to be able to remember the number as they are driving. Make it simple. Order at least 500 signs and go to SignStapler.com to order a simple device for hanging the signs. There are many other methods to finding your first deal, but I have found this to be the most effective for immediate results.
3 – Hang the Signs
Choose busy intersections and mount the signs where traffic will be stopped and have time to look at them. This is no different than putting out garage sale, estate sale, yard sale, we buy junk cars, work from home, and on and on. We are just fishing for whales while the other are fishing for guppies. It is a numbers game, so get as many as you can out, but do not put them every 30 feet or you will just annoy people, so be smart and strategic. Go and replace them every Friday. Some will stay for months or years, but manage it like you would a direct mail program. Consistency is the key to a large amount of calls.
4 – Field All Calls, Using a Questionnaire / Script
After your answering service takes the call and sends you the message, call the lead and ask specific questions about the property. Develop a questionnaire that keeps you on track. Ask for all house details; beds, bath, heating, roof, tenants, rents, vacant, why selling, etc. Find out the real reason they are calling. You are trying to find the highly motivated sellers. You are looking for the people with real headache problems, so you can be the aspirin. Let them know you are an investor who does not buy at retail. Let them know you buy at wholesale prices but can offer cash and a quick easy close. See if they are open to such an offer. If they say yes, you have a nibbler! (Fishing analogy) Let them know you need to do your homework and will get back to them right away to see if you can help them. Be sure to get all of the ways to contact them including email, cell, home, if they text, etc.
5 – Figure Out Which One is a Good Deal by Using the 70% Rule
Right here on BP are some great articles explaining the 70% Rule.
Basically here it is:
Figure out the ARV (After Repaired Value) – use a few real estate agents if necessary or if you are unsure. Multiply by 70%, then deduct your repair cost. This will leave you with your MAO (Maximum Allowable Offer). Do not start your offer at this number. Your offer should be way less to see what they will accept – you may be surprised. We all have a threshold on things we sell, and the real factor is their motivation. When we HAVE to sell something we are much more motivated than when we just WANT to sell something, agree? So our goal is to figure out that number on houses we buy. You make your profit when you buy (it is not quite that simple but it is the first step of a successful flip). Be conservative with your numbers. Don’t use eraser math, but don’t be so conservative that you never buy a house.
6 – Present Your Offer with a Cover Letter
Present your offer with a cover letter that sets you apart from any competition. Explain that you are a family owned business and your desire is to bring the home back to it’s former glory. If it is an estate, we even offer the family a private showing when it is completed. We explain that we are not always the highest offer, but we are the best option because of ease, quick cash closing, take what you want, and leave the rest for us to deal with. People will sell to you because they like you, even for less money. Again, start low so you can move up slowly if needed. Go watch Pawn Stars to learn some good negotiating skills. Get it signed and proceed to closing.
We made an offer on a house today and it was accepted. It was on the MLS for $219,900 and we offered $175K. They countered at $190K and we agreed. As a hint, good deals on the MLS only last one day, so strike while the iron is hot. I think they loved our letter about taking great care of their family home, and that’s one of the reasons they wanted to work with us and accepted an offer for $30K less on the first day. You just never know! Don’t underestimate a well designed letter to make you stand out from the pack.
7 – Get the Money
OK, now you have ammo to go and look for money.
Put together a nice package including pictures and all costs and projections. Show them in black and white how much they will make for investing with you and how their money is fully secured by a mortgage and insurance on the property. Send that to all of the people you mailed a month ago. Follow up with calls. Do not ask them directly for money, ask them if they know anyone who might be interested. You will be surprised at how many say, “You know, I may be interested myself.” We all hate to be sold anything, but if it seems like we are making our own decision, things roll much easier.
Secure the money for the closing. If you strike out here, go to a hard money lender right here on BiggerPockets. If you do strike out, now it’s time to stay the course because many of the people who say “no” now, will watch you. When you start to grow, guess what? Many will come back around once you have some success behind you. This is so important in growing and building a name for yourself. DON’T QUIT and more and more opportunities will come!
8 – Buy the House
Number eight is pretty simple: close on the house. As a tip, during the closing process, ask the seller if you can go in for planning. Take in your contractors, and anyone else you need. You want to hit the ground running on day 1. Read my article on how valuable time is when you are learning how to flip a house.
9 – Renovate the Home
Obviously I am not going to summarize this into one paragraph. Check out the BiggerPockets “Book on Flipping Houses” and “The Book on Estimating Rehab Costs” and learn the appropriate methods for managing renovations. What I can tell you is if you are hiring out the entire project, hire a good contractor. Get references, check insurances, go see their work in person. Cheaper is rarely better.
You are going to pay one way or the other, negotiate hard up front and be in control of the deal. Contractors are like a pack of wild dogs, they smell fear, so don’t show any and be tough. Hire mature responsible adults, your renovation will go MUCH smoother and quicker. Pay them a bonus if they finish on time or early. You don’t want to be running an adult day care center so do your best to choose the best contractors up front. Spend the money to make your home stand out. Don’t do a cheap renovation or you will get a cheap buyer, or turn off potentially good buyers.
Money invested in kitchens and baths always pays nice dividends. When people walk into your kitchen, they need to have the deer in the headlights look. Once mama sees the kitchen and falls in love, you have a good chance of selling the home because most of the time it’s the woman who makes the decision – no matter what us men think! I have heard it said that the man is the head of the house, but the woman is the neck that turns the head! Make the woman fall in love and you have a buyer!
10 – Market the House.
First of all, price it to sell ASAP.
Price it slightly below the market to get immediate interest and foot traffic. Don’t be greedy because you are paying each day it sits. Again, you are paying one way or the other so price it to create a frenzy. Start with flyers to all neighbors (200-300) one month prior to completion. Offer a referral fee if anyone they know buys the house. Many times families want other family or friends to be closer to them.
When you are almost done with the house, get directional signs out leading traffic in. Have a “Coming Soon” sign out in front of the house. Have an Open House, put out ton of directional signs and balloons. Foot traffic sells houses IF it is priced right. Offer lottery tickets for showing up to the Open House. Be clever to drive people to your home. People buy off of emotions, so make all advertising designed to bring out those emotions. For instance: Stroll across your gleaming hardwood floors. Enjoy quality family time on those summer nights on your awesome patio. Create lasting memories in your incredible private back yard. Light the candles and totally relax and shut out the noisy world while soaking in your own jacuzzi tub. Are you getting the idea now? Make them have to have the home.
Stage the home, put up curtains, tables with knick knacks, etc. In our early days we made fake beds with milk crates and blow up mattresses covered in bedding. Easy, simple and gives the buyers the perfect vision for their new home. Get a buyer on the hook and work it hard to get a deal closed. If you have no success or this is not your cup of tea, hire the best agent in the area. Negotiate the best commission based on future business. Tell them to use the methods I have shared above. By the way, those of you who buy and hold, can use these tips in rentals to bring in the foot traffic too.
11 – Go to the Bank to Deposit Your Proceeds and/or Learn the Lessons
The main part of number 11 is this: whether it is a huge hit, a decent hit, a break even, or you lose a little – NEVER forget to learn the lessons. You will get stronger and stronger with each flip you do. You will get better and better, every so often you hit one out of the park and your life changes. Always learn the lessons and apply them to the next deal, which leads me to number 12.
12 – Repeat
Go do it again, and again, and again.
Flipping Quit Tip: Trapping Yourself
This is a great trick in taking action towards your goals: trap yourself. You start with a simple thing like sending out letters letting everyone know what your plans are and that you are looking for funds. You have now started to trap yourself. People will be asking, and your pride is on the line. Next, you put out bandit signs, another good trap because the phone will ring and you must do something about it. Then you have to make an offer, and guess what? Eventually one of them will be accepted and then you are trapped to find financing. Next you close, and you are now really trapped to get the renovation done. When they are complete you are trapped to sell it asap! Just start. The ball gets rolling and you are forced to make decisions and learn as you go. The secret is in starting. Start small and watch the momentum pick up as you go.
Overcome That Fear
I know learning how to flip a house is not quite that simple. As I write this, I think we are up to somewhere around 130+ houses bought and sold. It seems like yesterday we were as nervous as you may be about starting. I can tell you from experience that we are so glad we overcame the fear and just started. We figured out how to open our chute while we were falling!
Do not put it off anymore!
You have all the knowledge you need, and what you need to do is simply begin. We all have fear, but the difference between the ones who are doing it and the ones who want to is simple: action. Action trumps fear any day of the week.
I dare you to take my 12 step program to learn how to flip a house. It can change your life. Remember how I ended my last post, “Start to move boldly in the direction of your dreams and strange and mighty forces will come to your aid.”
Have a great week and please let me know of your success stories and leave any questions or comments below in the comment section!
Photos: David Hoffman