12 Real Estate Investing Lessons Every Investor Should Know

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About a month or so ago, I was wasting time on Facebook and I just casually mentioned that we were looking for homes that are run down and in need of repair. I just posted that if anyone was interested, they could message me directly.

Unfortunately nobody responded.

But two days later, a real estate investor I’ve never met before saw our post and messaged me and my acquisition manager Bill that he had a property for us, but it wasn’t exactly what we were looking for.

He simply had a property near us he was looking to rehab, but was having trouble financing it. Two days after we got the lead, we had the contract wrapped up from the investor for a $10,000 wholesale fee.

Lesson #1:

Use any ethical means available to find deals – including your social networks. Just do it casually on Facebook.

Lesson #2:

When you get a deal – be flexible and open to any and all ways to get it done – even if it’s not exactly what you’re initially looking for.

In the following days, we couldn’t quite work out the details of when the seller was going to vacate the house.

The issue was the seller had so much stuff in the house (think “Hoarders” from TV) that they were just completely overwhelmed and were starting to get cold feet. The deal was starting to fall apart if we didn’t do something.

Bill and I met briefly and we decided we’d “buy” our way out of the problem. Bill called the wholesaler back and told them: “Listen, don’t worry about all the stuff – just knock $10,000 off the price of the house, we’ll take care of all the stuff on our own”.

He then stopped talking.

After what seemed like an eternity of dead air, the wholesaler said, “OK, let me see what I can do”.

He called us back 15 minutes later and agreed to our proposal. We closed the next week.

The day after the closing, we had a team of high school kids from my wholesaler John’s football team in there hauling out two dumpsters full of junk. We filled up two entire dumpsters and $1200 later (plus labor), we had a clean house.

An immediate $8,800 profit for us…

Lesson #3:

When negotiating, don’t over talk. State your proposal, then  shut up. The first person to talk next loses. (In this case though, we both won!)

Lesson #4:

When confronted with a roadblock, be creative – money often times solves all problems. EVERYTHING in real estate is negotiable.

As soon as we had all the junk cleared out of the house, we immediately realized we had yet another issue. As much as I’d like to think that I am pretty good that visualizing floor plans that sell, on this one I was stumped. Both Bill and I were scratching our heads trying to figure out how we could arrange the floor plan so that it flowed well, but also we had an extremely vexing issue in that the house was a two bedroom and in our experience, two-bedroom homes take a long time to sell.

Somehow, we had to figure out how to change this two-bedroom house into a three-bedroom house. We also had to figure out a way to open up the main living area and expand the kitchen. The home had an extremely challenging floor plan with two bedrooms, a weird kind of living room and a large workroom that was way too large to make into a third bedroom. Here is a picture of the floor plan here:

hanover_rehab

For the first time a really long time, I was stumped as to what to do.

What would YOU do with this floor plan?

Then Bill thought of an idea. Why not invite our architect, realtor, designer and contractor all together in an on-site “meeting of the minds” to solve the issue all at once? That way, we would have input from all parties who would have a vested interest in the property in one room and resolve the whole thing.

So we did just that.

Lesson #5:

Don’t think you always have the answers. When you need help, ask for it. In this case, we had no clue –  so why not get the experts to help decide instead?

Lesson #6:

Learn from your mistakes. We knew two bedrooms don’t sell in our market, so we didn’t repeat those same mistakes. Learn from them, don’t repeat them and move on.

We realize that if we got all parties involved in the project in the same room, trying to figure out a singular problem – each would elicit input based on their own vested interest. But by having everyone in the room at once, they would balance and counter each other out.

For example, the contractor suggested that we should expand the kitchen with an island and bar stools. He said it would cost an extra $10,000.

Fair enough, I said.

I then turned to the realtor and asked her if that kitchen would help the home sell faster. She said it probably would. If I didn’t have the realtor there, Id be taking a guess on that.

Everyone was there helping to make the right decision.

At another point, the architect suggested moving the bathroom over to a corner of the house, claiming that would open up the space more. But the contractor countered and estimated the costs of doing that in structural and plumbing cost would raise the project another $15,000. The realtor then interjected and said that additional cost may get us $5,000 or so in ARV.

Lesson #7:

Use the collective brains of your real estate investing team – even before a project starts and at all points along the way. Their input is invaluable.

Lesson #8:

If you are going to spend additional money on a rehab, make sure you get at least a multiple on your money for that improvement.

As you can see from the photo, there was a workroom behind the garage which was too big for a single bedroom. What could we do with that?

It was isolated from the master bedroom, so would that detract from the house?

We hashed out all these issues in our hour-long meeting and we finally decide on three basic floor plans. The designer and architect agreed to draw up the three plans by that Friday. We would then pick one that day and then start the rehab.

Lesson #9:

If you cannot solve your problems on the spot, make a specific plan to narrow down your choices with deadlines for completion. Time is money in real estate, so don’t dawdle…

We met with the designer and architect on that Tuesday and they showed us the three plans and we picked one.

We called our contractor on the design decision. He was thrilled as some of his ideas were added in.

We then called the realtor. She too was thrilled as some of her design ideas were added in as well.

Bottom line: we eliminated the need for structural changes, kept within our projected rehab budget of $50-70,000 (we were now on the high-end of the range, but still OK) and came up with a kick-ass design that will SELL!

Furthermore, I have no doubt my builder, my architect and my broker will work even harder than they have before on this house to get it done and get it sold because THEY had a part of the decision-making process.

Later in the day, I got a call from the realtor. She was so excited to talk to me because she had done a little more research on our plans and was convinced that we could sell the house for $20,000 OVER our original ARV.

THAT is good news to hear on a Friday…

Lesson #10:

Take everyone’s advice, but at the end of the day – the decision is yours – so make the decision

Lesson #11:

When you include everyone in on the decision-making process, they all become extremely vested in that project…and take ownership.

Lesson #12:

Share good news. People love good news…especially on a Friday.

If you’ve made it this far, what do you think? What would you do with this floor plan if it was your flip? How do you manage your team to get the best out of them? Please leave a comment below and let me know what you think!

Photo: mikecogh

About Author

Mike LaCava

Michael LaCava is a full time real estate investor, house flipping coach and the President of Hold Em Realty located in Wareham, MA. He runs the website House Flipping School to teach new real estate investors how to flip houses and is the author of "How to Flip a House in 5 Simple Steps".

36 Comments

  1. I would have turned the part of the workroom closest to the garage into an indoor laundry. Then in the now smaller workroom, I would have installed a sliding glass door and closet. Now you can market the workroom as either a 3rd bedroom, private office, or a possible room rental.

    Of course, this is all just theorizing off of a drawing – not sure how costly that would be – but thought I’d play along 🙂

  2. I love coming up with new plans and redesigning! Although we try to avoid major design changes on our flips.

    The floor plan naturally wants a third bedroom where the kitchen is, I am assuming a full rehab on kitchen, so it should add too much to move the kitchen into the work room and create a late kitchen eating area that opens up into the living room.

    I also noticed the existing bedroom is missing a closet.

  3. Michael:

    At the top of our coaching website we posted: “One mind can never imagine the possibilities created when a group of like-minded individuals becomes focused.”

    Kudos to you for stepping outside your own limitations! We have the same team. Wouldn’t be where we are without ’em.

    Be sure to show us your final plan!

  4. Great article.

    In one of your blogs, you mentioned staging is important. I am wondering how much longer do you keep the staging in the house after its under the contract? Do You move them right away after the contract is signed or do you wait after the option period?

    I am just wondering by moving out the staging quickly, could people change their mind?

    • Great question Eve. There is no guarantees and I have had closings fall apart 2 days before closing. Depending on what you have going on you may want to consider leaving it there until you atleast have the finance commitment letter from the buyer. We have our staging costs down pretty good now so depending on how many projects we have going on will determine when we pull the furniture and move it to another house getting ready to be listed.

  5. I would like to see what your final choice was.
    Based on your sketch and assuming the neighborhood would support the value of the improvements I would put a kitchen with an island in the North East (drawing orientation) corner of the work room and use the rest of the work room as a “great room”/dinning area. I would move the pedestrian garage door to the east end of the wall and I would open up the passageway between the living room and the “great” room as much as possible.
    If the laundry is in the notch in the garage then plumbing to the new kitchen shouldn’t cost too much. Andy

  6. I don’t know your market, your costs or what kind of neighborhood the house is in but before I sold my construction company I used to fall asleep and wake up imagining floor plans for our spec remodels and customer’s homes. Without knowing the above this may be totally out of the ballpark but a floorplan that would sell well and people would love to live in:

    Take out the master bath and turn the master area into two bedrooms.
    Slide the main bath to the front of the house and put the laundry in a closet in the bath with the entry coat closet facing the kitchen.
    Take out the existing entry closet and the wall between the kitchen and living room.
    Kitchen expands into old main bath area, gets a nice island and flows into the living room.
    Master and a home office go in the old work room with french doors or a slider out to the back.

    Now you have a three bed, island kitchen great room with a private master and a home office. Don’t know if that would work in your market but in ours (Seattle area) it would sell itself in a day.

    • Madonna Machado on

      That is a great idea. You have great ideas Giovanni. Seattle area is where my husbands brother lives. Wants us to come up there and do business with him and start investing there. If we do , maybe we all could meet and have Seattle coffee. I am enjoying this discussion a lot.

      • Thanks Madonna, really appreciate your comments. With Amazon, Microsoft, Adobe, Google and many more hiring as fast as they can in Seattle it’s a good real estate market to work in. I sold the const. company in ’06 to focus 100% on apartment investment and now do to all the institutional interest the multi market here is pretty overheated but there are opportunities.

        If you do come to Seattle a coffee would be great.

    • That is a great plan for sure Giovanni. Your experience shows. There is just know way we would ever get that back. If this was a complete gut job with new electric and plumbing….then we would consider more framing changes because we would of acquired at a severely discounted price to afford that change. This is not the case so sorry your design will not be used. 😉

  7. I think it’s great you brought your whole team together for ideas and that now, yes, they will all work harder to see the finished product! Can’t wait to see the floor plan you chose as well.

  8. Lesson #7 is my take-away. For a fix-and-flip, I’ve learned to involve the agent (that will be listing the property with me) in the rehab from the beginning. Looking over estimates, interviewing contractors, inspecting work. It’s a win-win; maximizing the sale price will bring the agent the highest commission and the most profit for me!

    Great article!

  9. Depending on access and structure, would remove the kitchen and bathroom and move the kitchen into the living room with the kitchen in the back and dining room in front with a nice kitchen island. The old kitchen, by the step would be turned into the 2nd full bath with the old bathroom and rest of the kitchen area being turned into the 3rd bedroom. The current workroom would be transformed into the grand living room. While it is open and with the right structure a lot is pretty easy. Some other doorways could be moved to maximize bedroom space and create the best flow. Please post your final plans 😉

  10. Great post, Michael!
    The storyline really flowed through each lesson really well!
    Bringing the whole team together was a great idea. It really helps to get the creative juices flowing. I work for a large electrical contracting firm and we do this daily to solve challenges for large scale projects (hospitals/stadiums/high-rises…)
    It really makes everyone feel good that they at least had a say in why it might or might not work a certain way. Then everyone gets a lesson from it!

    Was your decision on not putting the bedroom where the current work room is simply because it did not flow with the floor plan you had in mind?
    Do you think if you made the work room a bedroom it would be a difficult sell?

    Thanks in advance!

    • You are on track Joe. We will be posting the final plan so will get to see our final plan that works in our budget numbers and gives us a very acceptable floor plan. Not the best in the world floor plan but one that will sell for sure and hit our ARV. Stay tuned.

  11. Well the layout is odd, However measurements would have been nice, When working with a slab, it isn’t that difficult, But to put it simple, I would have added a closet in the work room made it a 3rd bedroom, and taken the wall between the entrance and living room down. Provide the cost was effective and it wasn’t a load bearing wall. All simple but you know how us contractors are, LOL

  12. I just wanted to add and I hope that I do not offend anyone, I have done subcontract work for a couple of investors, What i have noticed is this, if you can make a Contractor your partner, instead of your slave, You can make twice as much money in no time. Contractors are like Investment Partners, If you can trust them everyone can make a lot of money and get houses flipped quicker. Thanks Guys

    • You’re not going to offend me but I think treating your contractor like a “slave” is a little harsh.
      We have great contractors and we treat them no different than any of our TEAM members because they are part of the team and a very important if not the most important part.
      However to your comment that is a great idea and I recommend that often especially if you are new and doing your first few deals. You have a better chance to get it right. But and it is a big but you MUST do your due diligence and MAKE sure you have a reliable contractor. It works both ways. I have personally partnered with a contractor and it can work great.
      Thanks for your comments Zack. Keep them coming.

  13. Awesome and Epic article!

    Funky floor plan. At first glance I’d probably turn the kitchen into a bedroom, make the living room into a kitchen, make the work room a big living room and probably try to a half bath some place given how big that space is.

    What is that seemingly hall to nowhere next to the bathroom?

    I’m also pretty interested in hearing the final decision too.

  14. I think an efficient (financially) way to convert this is to convert the kitchen into the 3rd bedroom and make the workroom into a large kitchen + dining are with an island. I know the workroom is on a slab, but you can avoid concrete work for the plumbing with a sewage ejector pump in a sewage basin in the place of a lazy suzan inside the kitchen cabinets. Also remove the wall joining the living room and new kitchen (workroom). This:

    1. Saves a lot on the new plumbing;
    2. Keeps the 3rd bedroom near the bathroom and other secluded bedrooms;
    3. Keeps the kitchen/living room/dining room in the same area;
    4. Opens up the living room;

    I think you’ve GOT to keep the 3 bedrooms together and keep the valuable master suite. If you cannot, then I’d just spend the extra money for the plumbing in the workroom for the kitchen. The home would just be too irregular otherwise to compete with other homes.

  15. GLORIA DULAN-WILSON on

    I love the wisdom – but you’ve got my curiosity up as to what the final outcome of the floorplan turned out to be – I kind of wrestled with it myself and am curious to see how it turned out and whether or not my solution came close. Also, if you run into a situation where you don’t really have a rehab budget, especially in the range you quoted, how would you have handled the situation?

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