Many people think house flipping is a solo act.
It’s nowhere near true.
It’s more like being the conductor of a symphony.
At times it may be more like conducting the Boston Elementary School Orchestra than the Boston Symphony Orchestra…but it’s definitely not a solo act by any stretch.
Like any good orchestra, you build it one instrument at a time. And you build it primarily through networking.
To build the orchestra you have to be actively involved in the real estate investing community through REIA meetings, Meetups and local business networking groups such as BNI.
At these events, you’ll need to look for your big five team members.
Although there can be many more than these five on your team, you will need to focus on getting these five fundamental team members who will be able to assist you in the following areas:
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.
1. Real Estate Attorney
When it comes to anything in life, be it the new TV you just bought, to the real estate attorney you use, you get what you pay for – which although everyone knows this to be true, not everyone follows this mantra.
If you buy a cheap shirt, it will most likely tear or shrink in the wash after a few washes. Likewise when it comes to an attorney to handle your real estate transactions, it is integral to your success to hire an attorney who really knows their stuff. You may not want to look at the expensive bills in the beginning, but if you get into a real pickle later on, it will likely cost you a whole lot more if you’ve gone the discount route and hired an unskillful attorney.
Don’t handle your first real estate transaction without the advice of an attorney; if you do you run the risk of making mistakes that can be irreversible and permanently damaging to your career.
2. Certified Public Accountant (CPA)
Similar to hiring a real estate attorney who knows their stuff, you also want to hire a capable CPA. The accounting invloved in house flipping can be complex and you want to have someone on your team who really knows their stuff.
Although you may think you know the tax laws pretty well, its better to have a solid CPA who knows what can be deducted, what can be expensed and what needs to be capitalized based on your tax laws. In the United States, these laws change yearly – so its very difficult for anyone less than a full time professional to understand all the nuances and intricacies involved in proper tax filing and best accounting practices.
3. Insurance Agent
Like the two mentioned above, you cannot possibly know all the insurance ins and outs. The insurance agent who is on your house flipping team should have a full understanding of all of the technical elements of your business structure, how your properties need to be insured and should be able to give you good advice on the various types of insurance needed for successful real estate investing.
Invariably, house flips warrant different types of insurance than straight buy and hold properties, and although the differences may be small, don’t try to become the expert. Enlist an expert instead. A good insurance agent will know exactly what kind of insurance you’ll need; from homeowners to builders risk to liability and flood insurance – and can save you many headaches and heartaches down the road. Not only that but a good agent can serve you as a trusted resource when you run into difficulties or need something integral to one of your deals when in a pinch.
Although many house flippers like to do all the construction themselves, I don’t recommend this strategy unless you really truly have a passion for it. I just find that doing the rehab myself ends up costing me more in the long run. When I was first starting out I did much of the rehab myself, but I no longer do now.
As is the case with any of the other members of your team, it is important to hire the best contractor you can find and most importantly have faith and trust in their competency and abilities.
Simply put, a general contractor is a singular entity or individual who oversees and runs the complete rehab phase of the project for you. You can also use them to help you determine costs when you are looking to buy your first property.
In essence, they do all the rehab work and are responsible for hiring and managing the rest of the subcontracting team you’ll need to get the job done. The general contractor earns his money by taking a percentage of the total fee of the rehab project in exchange for his expertise and organizational skills.
The subcontractors are tradesmen like plumbers, electricians, framers, drywallers, floor guys, roofers and finish carpenters. Although you very well may go through a few contractors before you settle on one who is both competent and trustworthy, finding a solid contractor will help you keep your rehabs flowing smoothly and keep all facets of your operation moving forward, even when you are just beginning.
5. Real Estate Agents
A good real estate agent, when it comes to buying as well as selling in your market, is worth their weight in gold.
Although you may end up working with several real estate agents, you’ll ideally want to work with a small number – all depending on your market. You also may end up working with different kinds of agents who specialize in a particular facet of real estate.
For example, there are a number of real estate agents who call themselves REO or real estate owned agents. These REO agents concentrate their efforts on short sales. A short sale is a sale of real estate in which the interest from the selling of the property will “fall short” of the balance of the debts against the property. These agents work with banks to sell a property for the seller before it goes to foreclosure.
Although many real estate agents may tell you that they specialize in different kinds of real estate sales, you’ll want to interview them all and make sure they really do know what they are talking about when it comes to these sub-niches of real estate.
Most importantly at your networking meetings, you’ll invariably meet people in all these areas – and its up to you to talk to them, understand what kind of people they are – and if they are knowledgeable and can help you, then leverage their knowledge and help formulate your house flipping team.
Beyond The Big Five
Now that the big five team members are covered, it’s important to remember that there may be other professionals that you may need to flip houses as well. These include wholesalers, investors and even banks – all of which we’ll cover in subsequent sections.
But for now, getting your big five in place first is the most important.
What do you think? Let me know by commenting below.