Ted Mittelstaedt ⋅ Portland, OR Portlandia IT LLC ⋅ 20 years experience

I have family that has lost big on flipping and other family that has gained big and then turned around and squandered the money. I also live in one of the top 5 hottest real estate markets in the country. Here are my recommendations:

1) Never forget the definition of a Residential Flip - Home flipping is the process of buying a property that has been neglected and because of that isn't worth as much then remodeling it so that it will sell for more than it cost to remodel. Which means essentially that flipping is remodeling. If you think you can make money by just buying, doing nothing, then selling, well you might get lucky once or twice but sooner or later you are going to take a loss that wipes everything out.

2) Start small with condos. Condos are good to flip because quite often a purchaser is an older person with a fixed income who's primary motivation in buying a condo is because they want a property that will never have future unexpected expenses, and they also often have a good idea of how long they are going to live - and often it's not going to be much longer than the improvements are going to last. They know for example they have 15-20 years left and that the new composite countertop is going to probably last about that long. Condos are also often ignored by wanna be flippers because their profits are small - but their risks are small and they are a good way for someone getting into flipping to get their feet wet without the potential for taking a large hit

3) Understand that just about everything you see on Zillow or anywhere that you don't have to do any effort finding the listings is already remodeled or it's got so many problems and the seller wants so much money you won't make money on it. To flip successfully you need to get into direct mail and connections and focus on neighborhoods. Around here the flippers prowl around the neighborhood looking for likely candidates then find out the names of the owners and direct mail them. Scan obituaries for deaths because often you have a situation where heirs just want to get rid of the properties fast for fast cash. Walk neighborhoods looking for older people who might be interested in downsizing.

4) You cannot polish a urd-tay. I've seen homes that clearly were flipped but they were in terrible locations go on the listings for months. Just because it's all shiny and new doesn't mean it's going to be bought. Flipping is a job it is not a get-rich-quick scheme.

5) Get your real estate license only amateurs that flip aren't Realtors. Why would you hand over 6% of your profit to someone who literally has to do nothing to sell the home you spent all your effort fixing up? Realtors are only useful in 3 situations none of which apply to you: absentee seller, buyers market, and super-expensive property. And good Realtors won't waste time on trying to sell your property if it's overpriced many people with old trashed properties next door to new ones selling for $100k higher have discovered this when they thought that getting a Realtor would allow them to enjoy the same profits without remodeling that a remodeled house would get. And there's buyers out there who know all about houses and properties and have the capability of walking into a home and writing a check for the entire amount on the spot and you never know when one of those will come along you want to be ready for this.

6) Don't underestimate the intelligence of buyers. While the majority of homebuyers these days are in fact somewhat stupid and often cannot tell the difference between a quick surface job and a serious remodel, not all are. Always ask yourself when you are doing something to a property if what you are doing is really adding value or it's just cosmetic. For example replacing the garage door may add value (if the old one is trashed) and is also cosmetic, this is a very good item to do for a flip. But changing flooring is a lot more sketchy depending on what is down already and how good or bad condition it is. If it's purely cosmetic and doesn't add value, then the smart buyers aren't going to value it and you won't get much for it. Buyers will always forgive you for assuming they know more than they do but they will never forgive you for assuming they are more ignorant than they are.

7) However at the same time don't pass on the value of some quick-and-dirty operations. For example, for some reason a lot of buyers value fresh paint and I've seen homes that someone sealed up and attacked the interior with a spraygun, a paint pot full of semi-gloss white, and a respirator and completed in an afternoon be drooled over by buyers to ignorant to understand what good house-painting really is. Some buyers cannot tell the difference between old wood paneling that's been sprayed and a proper job which would involve ripping the paneling down to the drywall and re-texturing and rolling. Tour through a lot of flipped homes that are on the market and look carefully at what the flipper did. Go to open houses and just sort of hang out and watch what the buyers are looking at and what attracts them.

8) Resist the urge to remodel the house to YOUR tastes. You probably are going to find out that your most profitable flips are homes that you remodel that you would never in a million years want to buy. As you buy and sell more homes your taste on what is a good home are likely going to diverge more and more from what the majority of new home buyers want. Many new buyers want really foolish things that are impractical but look cool. Like giant energy-sucking fireplaces in the middle of the house, mudrooms in homes where there's not a muddy piece of land within 20 miles, and kitchen "islands" that have such mean countertops that they would only be useful microwaving prepackaged TV dinners. Go to open houses and forums that new buyers congregate at and on and listen to what they are wanting. Then remodel to that thing, no matter how silly.

9) Last and most important - when you find a property that you want to buy and flip - always always always remember that there's a better deal out there and if you do not have the ability to turn and walk away from it, you shouldn't be flipping. These days sellers watch these home flipping shows and think flipping is so easy because the shows make it look easy and because of that they think their old heap property is worth more than it is. Well if you look at it and can see right away that unless the seller comes down, you won't make much money on it, then unless you can emotionally divorce yourself from it and walk away - the seller is going to make part of the profit that you deserve. If the seller wants the money they can remodel it themselves and if you walk away from it and by some miracle some wanna-be flipper out there buys it for what the seller wants that just means you will have 1 less flipper in the market you will be competing against because they will get burned and probably go find some other get-rich-quick scheme.

Ty Threatt ⋅ Chicago, IL Charles Rutenberg Realty ⋅ 30 years experience

A lot of good answers here Shawn. Some will pertain to your market some won't. There's no substitute for experience. Become a Realtor or use a good one for their experience in your area. If you are very handy that's good you can do SOME of the work again there is no substitute for experience. You have to multiply yourself. You be able to do one or two flips a year as I once did and that's good for experience. $$$ no one wants to loan you money without some collateral. If you have decent credit you ,as i, may be able to use credit cards to get started but keep in mind you have to be diligent -keep the money moving, pay the minimum monthly, use only for purpose intended and pay off as soon as possible. With a little diligence you generate capital to fly on your own. It is not a get rich quick business. You may, unfortunately lose money on a flip but don't lose the lesson. Hang in there it's a lot of fun and very gratifying to see neighborhoods change from your hard work and ingenuity. Feel free to contact me if you like. I'm passionate about helping others as many people have helped me. Good luck
Ty Threatt, Ty@tythreatt.com

Christina Carey ⋅ Dayton, OH Outside The Box Real Estate ⋅ 10 years experience

Hi Shawn,

My husband and I are experienced, full-time real estate investors, and we can give you some pointers. In the last two years we've flipped a dozen or so houses. We sold the last one last fall and now we're taking a break from that aspect for a little while; good contractors are in short supply around here right now, and it's not worth the babysitting and aggravation. Please feel free to contact me if you'd like to chat.

Dennis Crumb ⋅ Lafayette, CO Crumb & Associates, LLC ⋅ 14 years experience

Good answers so far. I would add just one thing. Turning the property over quickly is very important. The longer it takes the more interest you pay. Interest does nothing to add value to the property.

To do this you need to have professionals that will respond quickly to your needs. The more of these you do and can give them a lot of business the more responsive to your needs they will be. If you are working on purchasing a property and know what kind of work they need start communicating to your subcontractors a head of time to find out their availability. Be sure to line them in the right order. For instance don't start painting until all the sheet-rock is completed. Mistakes like this only delay the completion and increase the cost.

Also don't be too anxious to get started. Most of the money in flipping is made on the buying side not the work and sale side. Buy right!

Thanks
Dennis

Elliot Young ⋅ Brooklyn, NY Uniworld International Associates Inc ⋅ 25 years experience

Besides the obvious the "lipstick and blush" is important. Putting a whole in the living room or bedroom ceiling calling it a skylight, corkscrew bushes in front or.lining the driveway spaced apart, concrete molds for the driveway, recess lighting, solar powered lights to.line the walkyway at night, led tiles, motion light on stairways, metal pieces in the tile work, potfiller over the stove, kick area vacuum or a Roomba, solar powered tiles, products like no burn and everdry coatings. Also a product that turns regular glass into mirror its a spray can't think of it now but all these things cost little and make a huge difference. Home will sell very fast. Always buy remnants if your doing rugs, bamboo flooring it's cheaper and can see stained, put flooring on accent walls and even ceilings for a signature look. Products like everyday and no burn always provide video demos on your phone. When they see that their homes have it they go nuts. You have to provide what noone does. Only way to survive in a saturated market. Just pick and choose the right combination of the choices above for the areas your flipping. Good luck reach out for that mirror product name. Oh I forgot use AUTON too for the den, garage, library to. Always gets them.

Eddie Starr ⋅ Spokane, WA U.S. Navy, Seaman ⋅ 4 years served

Hi, Shawn, I'll try to answer a few of your followups.

Could I get a VA business loan? Generally, no, because since it's real estate, and there can be a lot of "moving parts," they don't want to "guarantee a loan," where there's a strong chance for default. It's considered too risky, from what I've heard, over the years. I even tried to use the VA's Voc Rehab to get my realtor license, and it was a no deal.

You *may* be able to use a HELOC for some of the capital. Check out BiggerPockets.com, if you haven't, and do a search for HELOCs, aka, Home Equity Line Of Credit...for the pros and cons. Depending on the amount you get from the HELOC, you may be able to buy the flip outright, or use it, in combination with a Hard or Private Money Loan.

Do you have a 401k, IRA, or similar account (Thrift Savings)? You may be able to roll some or all of it into what's called a self-directing IRA, for the purpose of your flipping business, uDirectira.com is full of helpful info, in this matter. You may be able to combine the resources of the HELOC and SDIRA.

Have you considered starting to wholesale, where you find the deals, do some of the leg work, get it under contract, and assign the contract to a flipper, or use transactional funding to buy it, and sell it to a flipper?

Landon Carl ⋅ Lewisville, TX Goldman Sachs ⋅ 8 years experience

Shawn,

I’m in the DFW area and can help to include finding possibilities for your needed capital.

Message me and we can connect further.

Landon

Tara Veith ⋅ Fairfield, CT Tara Veith Kitchen & Bath Design ⋅ 22 years experience

Hi Shawn, Great design will make your house stand out above your competition. There are elements that today's homeowners prefer. In my market, they include: double sinks in the master bath, kitchen island, mudroom, bathtub in the family bathroom, great windows/light, level yard, upstairs laundry and great storage/closets. I would suggest you find a designer you can team up with (unless you have design talents). Houzz.com has millions of inspiration pictures to help you come up with design solutions. You can ask experts design questions. Best of luck to you.

Mike Grayson ⋅ Mckinney, TX FTI ⋅ 45 years experience

The single, most important, action that you can take is to prepare a Cash Flow Pro Forma Worksheet BEFORE you buy the property. Here's a template:
https://drive.google.com/file/d/1t04aQoWlUvaiUVEhRe7UfHcP-ECrySG-/view?usp=sharing

I'm a real estate investor and have bought and sold residential and commercial property MANY times and cannot over emphasize the importance of a Cash Flow worksheet.

The second thing you need to do is get the best book on estimating refurbishment on the market. This will nail down costs BEFORE you buy the property. Get it here: https://www.amazon.com/Book-Estimating-Rehab-Costs-BiggerPockets/dp/0988973715/ref=la_B00KQK5PI6_1_1?s=books&ie=UTF8&qid=1527971413&sr=1-1

Once you have your costs and plan nailed down it will be much easier to raise funds for a specific project.

Jeremy Serwer ⋅ Woodstock, CT The Serwer Company, LLC ⋅ 30 years experience

Hi Shawn --

First, all great responses from the other Advisors here. Consider all of them.

Other items I'd add:

1. In the house-flipping market, profits are made on the Buy side, more so than the Sell side: i.e., you need to buy below market. That's why many flippers look to the Foreclosure market for opportunities, assuming that market isn't currently dry in your area.

2. There's always surprises with flipping: building permit delays and inspector challenges, fix-up overrun costs, longer Sell period than anticipated, etc. Best to add at least 6 months carrying costs to your budget: insurance, utilities, real estate taxes.

3. Re raising the cash: once you know what you're doing, I wouldn't rule out friends/family providing capital. I've done this recently for young friends in New Hampshire -- who will put in all the sweat equity, as they are very talented -- and we're being patient canvassing for just the right property. Bank interest is good enough where the funds are currently residing, so when the time is right . . .

Good luck!

Jeremy Serwer

David Akre ⋅ New York, NY A NYSE listed financial company ⋅ 25 years experience

Shawn - You need capital. With no experience you won’t get any. Go work for a flipper or builder for a year. Save money and then go on your own. No short cuts if you want to do it right. Best of luck.

Michael Coleman ⋅ San Jose, CA Celestica ⋅ 20 years experience

Shawn, flipping homes without any capital is difficult. I am in CA but I suspect that the markets in Texas are competitive. Many buyers vying to purchase "fixers" are cash buyers which is good because often times the best flip properties are difficult if not impossible to finance. I am not aware of any capital sources that will loan 100% on a flip property. Most of the time they will require 25 to 30% down minimum.

There are real estate companies that are looking for people to help them obtain and flip properties. Most of these companies don't require that you bring your own capital however you will share the profits with the company. This might be a good way for you to get started. You can use the profits you achieve working with the company to build up enough capital for you to venture out on your own. These companies will also help you learn how to find and evaluate real estate to determine if the property is a good flip opportunity. They may also be a source of capital for you once you build up enough money downpayment savings.

Shawn Cooper ⋅ Addison, TX U.S. Air Force, Staff Sergeant ⋅ 4 years served

Thanks Jeffery,

Do you have any suggestions on how I can get the funds? What would be the best options for loans? Could I get a VA business loan? I currently have no money saved and no money to put down. I do however have equity in the home I currently live in.

Do you flip homes, if so has it been a success?

Shawn

Jeffery Williams ⋅ New York, NY Colgate-Palmolive ⋅ 23 years experience

Step 1: Find the last 6 months of sales in the area of the property you are trying to purchase. This will provide you with a true estimate of the value of the home you are purchasing to flip.
Step 2: Factor in Holding Costs, which is the amount of money it will cost you to hold the property before you fix it and find a buyer.
Step 3: Add up all expenses it will cost to resale it.
Step 4: Check the Roof, Plumbing & Electric these item can be expensive hidden costs.
Step 5: Make sure you have enough money set aside in case the property takes longer than you expected to resale.
Step 6: I suggest your first flip be on a smaller scale, so its like a practice run. This will give you the opportunity to see all the obstacles and learn how to deal with them hands on before you dive in too deep.
Step 7: Speak to a few local real estate agents and ask them which areas would be best for flipping homes just to get their personal view.
Last but definitely not least, I would consider taking a real estate class and getting your real estate license because this will provided you with the necessary inside information to how the business works. You can become a Real Estate agent. The money you make from selling other peoples properties you can use to flip homes. This method would remove some of your risk since you are flipping homes with profit and not personal savings.

I hope this was helpful it should get you started.