I am in the business of flipping homes for profit. My wife and I have been doing this for approximately 15 years, and it has made us a very nice living.
My wife is the brains, and I am the brawn. She handles all of the research and financing, while I am the hands on guy who facilitates all of the work that needs to be done on the properties. We do not work together on the properties themselves. She has her job, and I have mine, and it works out extremely well. I will explain in more detail in the following chapters why this is.
I was working full time when we started, as a facilities manager in Hollywood, California. During the week, all my time was theirs, so I would work on our flip on the weekends. This took much longer than I had expected, so my carrying costs were adding up. I ended up taking my 2 week vacation so I could finish it up, and I'm happy I did. We sold the home about a month later, and made over $50,000 net, which was more than I made in a year at my job. I was sold, and haven't worked for anyone but myself since then. It's great to be FREE!!!
When I am not busy doing my own flip, I am helping others realize their dreams of doing one themselves. My last client told me that I should write a book, so here it is.
I am not a know-it-all. What I DO know is what has worked for us in the past, and what hasn't worked. I can hopefully spare you the mistakes that I have made, (my wife doesn't make mistakes, just ask her), when there wasn't a guide for us to follow. Being able to teach what I know is the ultimate for me. When you succeed, I succeed.
I hope that you find this book enjoyable to read, and that you learn everything you need to be successful with your own flips.
A flip, simply stated, is acquiring, remodeling, and selling a home for a profit. It is not rocket science, but may be more difficult than you would expect. There are many aspects that you need to be aware of, that I will try and explain fully throughout these articles.
Is there a possibility of failure? Sure there is, but isn't it better to find out what you need to know now, then after you have bought a property? I am not in this business to fail. Hopefully, you will find most of your answers here, so you won't be in business to fail either.
I will not lie to you, and tell you that flipping homes is an easy way to make money, although some are. Some homes just need a little tender loving care, such as painting, cleaning, and landscaping. Others can be a real headache, and need a lot more work than you were looking for.
If you will listen to those of us who have done this successfully, you should have little trouble making some decent cash. We have already made the mistakes for you, so you don't have to re-invent the wheel, and make the same mistakes.
If you are ready to pursue a challenging, and rewarding career, if you take pride in your accomplishments, and if you are motivated to action, then let's get started.
As far as I'm concerned, anyone can flip a home for profit. However, we are all different in the respect that not all of us have common sense, horse sense, or whatever you want to call it. I believe that if you have common sense, your journey will be much easier than someone without it.
It also takes a great deal of pride to do a flip well. If you take pride in your work, it is reflected by the finished product. This is NOT a lazy man's way to riches. It is hard work to get a home ready to sell in a very short timeline. If you are ready for some hard work, and willing to learn new things, and inspired to be your own boss, then I would say that this is exactly what you ought to be doing.
I love working with my hands. I also love instant gratification. I hate to wait for a contractor to finish a job. That is why I do most of the things myself. When I accomplish something that I thought I would never be able to do, I am so proud that my wife has trouble living with me for a while. It's an awesome feeling, and one that I recommend for anyone.
I have had no formal training in most of what I do. It has been trial and error. I have observed professionals who were masters in their fields, and I just did what they did. Nothing about any one job is really difficult. It is just making up your mind that you are going to do it, and then committing the time it takes to learn the craft, and learn it well. You do not need to be a contractor to do this, although a contractor's knowledge can help you tremendously in the course of your flip. You are not a failure if you need some help. I do it often. There are certain things that I choose not to do. One is roofing. I am afraid of heights. I am better than I used to be, but I am still uneasy with them. Not a problem, because roofing contractors are everywhere.
There are programs on television with people who have gone into business exclusively to flip houses. I love these programs, and encourage you to watch them whenever you have a chance. I decided long ago, that talking to myself was better than working with a lot of people. These folks sure do it up right though. They have their own contractors, project managers, and even their own real estate brokers. You do not have to have all of these people to get started in this field. I have made many great friendships and business contacts by doing the projects myself, or with sub-contractors.
I have said this before, but bears repeating. This business is not for the faint of heart. It is not for someone who is not willing to put in the time and effort. It is also not a get rich quick scheme. If you are looking for something like that, then this is not the right business for you.
It is the right business, if you are tired of working for someone else, or if it is just a way to make some extra cash. It is great if you like to do something different each day, because all you have to do is change rooms.
Budgeting
Budgeting your finances as you are preparing for a flip is probably the single most important factor in whether you make any money on the flip. I'm simply amazed at some of these people on the flip shows that you see on television, that have no idea what it is going to cost them to renovate their home. Let's say that you have $10,000 set aside for improvements on any given house. If you buy a house that needs $20,000 worth of work, you're in over your head already. Where is the extra money going to come from? You need to be realistic when it comes to budgeting.
As you start looking at potential fixers, (homes in need of repair), be very aware of what you are looking at. Be prepared to take notes as you view a home. What needs to be replaced, or repaired. Will a coat of paint suffice, or is the item going to have to be replaced? Write down EVERYTHING that might be a possible problem, or cost. Include landscaping costs as well. Curb appeal is so VERY important. You may have the most beautiful home you've ever seen on the inside, but if the outside isn't just as beautiful, you may not sell it.
Know your limitations as you are compiling your budget. Is the task something you can do, and do well, or will you have to sub-contract the work? Write it all down.
Demolition is another factor you need to include. How much is it going to cost you to haul everything away from the property?
There are costs for incidentals as well. Let's say you need to replace some drywall. Not only do you need to budget the drywall, you will need screws, drywall tape, joint compound, texture, sandpaper, and the tools to apply it. See what I mean? If you are replacing a toilet, you will also need a supply line, wax ring, and possibly a flange that connects the toilet to the floor. You may not need a flange, but budget for it anyway. You won't know if you need it until you pull the old toilet off. Expect the unexpected.
If you are going to need care for your children while you are working on your flip, budget that too. I've never been a fan of bringing children to a construction site, but we'll cover that in a later chapter.
Budgeting can also be tricky if you are choosing items that are more expensive than what you actually need. This is NOT your house, and your personal likes may get in the way of making wise choices. Good taste is essential in the resale of a home, but it doesn't have to cost you a lot of money. The 3 places I won't skimp, is the Kitchen, the bathrooms, and the master bedroom. These 3 rooms will make or break the sale of your house, so do them up right.
Be specific in making your choices on what materials you will use in a home. If, for example, you want to change the carpet, be specific on the grade you want to install. I wouldn't go the least expensive because buyers will pick that up in an instant. Instead, I would choose a mid-grade carpet, or even high grade if it is a high end house.
After you have made your list, go to your home improvement store and price each item. Don't assume you know what the prices are because you bought the same things a few months ago. Prices can change drastically in a heartbeat. Copper went through the roof a while back, as well as a lot of other home improvement items. Protect yourself from being surprised. By the way, I would price 2 or 3 home improvement stores before buying anything to get the best price out there. Your savings may not be earth shattering, but every cent counts when you are trying to make money on a flip. Both major home centers have a 6 month, no interest plan, if you spend more than 299 dollars. This is a great deal for the consumer. They also have coupons for savings. If you don't have a coupon, call them on the phone and request one. Don't be shy, everyone else is getting them, you should too. There are also times when the stores will have damaged items. This can save you a bunch of money. Talk to the department head and ask for a discount. They may say no, but it never hurts to ask. I have paid as little as 20 dollars for an over the stove microwave that was a display model. All I did was ask the department head.
There are few things that are more stressful than to be over budget, and having no resources to finish the job, so it is in your best interest to adhere to a strict budget.
Relationships and Flipping
If I tried to tell you not to take your spouse to the jobsite, you would most likely call me crazy. Let me ask you this. Do you, at the job you're at right now, take your spouse to work? I didn't think so.
Long ago it was decided by my wife and me, that she would be the brains, and I would be the brawn. It works well for us. I have my expertise, she has hers. I don't want her job. I've seen it, and it is beyond my comprehension. It is the same with her. She has seen me change out a toilet. Can you believe that she actually wants no part of that?
If you value your marriage, or relationship, then I would say... no... I would BEG, that you do not cross paths while the renovation is going on. I believe in discussing the project with your spouse before you drive one nail. Both of you will have ideas on what should happen. You will discuss the pros and cons of each action you will take. You will discuss the budget. You can even go shopping together and pick things up for the flip, but PLEASE don't try to do the work together!
Men and women have different methods of doing things. They are not wrong, just different. A woman might possibly use a saws-all, as opposed to a man, who will use a sledge hammer for demolition. Both will do the job, they are just different methods. By the way, I like the saws-all method. It is cleaner, and you have less of a chance to destroy something you don't want destroyed.
Men and women share one very important quality, Pride. If you tell your spouse that he or she is doing something wrong...God help you! You have just bruised their pride, and you had better find a rock to crawl under.
I strongly suggest then, that spouses do not work together on a renovation, and men do not have a corner on the market. Women are quite capable of doing flips, and doing them well. I've seen many in my career.
I also strongly urge you not to take children to a site, until they are old enough to understand the dangers at a construction site. If you need to, add child care into your budget. If you are watching your children, then you are not being productive. If you're being productive, you are not watching your children. If your child got hurt, you would never forgive yourself, so please, listen to me on this one. I feel the same way about animals on the site. There is no purpose that I can think of where a pot belly pig would be a good addition to your workforce. Dogs are wonderful, but should be left at home, where it is safe.
Buying Your First Home
I am a firm believer that you should own your own home before you decide to flip. It's not necessary, just my belief. My first home is where I learned many of the crafts and techniques that I use in my flipping business. It is because I learned these skills, that I am confident to buy almost any home I walk into, without having to resort to hiring a contractor. I have learned, sometimes the hard way, what you can do, and what you maybe shouldn't do. Can't is not a word that I am fond of. If someone says they can't do something, they are exactly right. Can is a much more pleasant word to work with.
Buying your first home can be one of the most exciting, and rewarding things you will do in your life. Those of you who have bought your first home know exactly what I mean. It is a proud moment when you walk into your new home for the first time. It is almost the same feeling you get when your children are born, only without the 2 o'clock feedings. Your home is your castle, and working on it does not seem like work at all, but a labor of love.
Buying your first home can also be one of the most frustrating times of your life. Dealing with lenders, and insurance, and lenders, and inspections, and lenders, can be a trying time. Oh, did I say lenders?
This book is being written so that we can hopefully spare you some of the frustrations of buying. We will walk you through it, step by step, to try to make it a positive experience. Buying a home should not be like pulling teeth. It should not be painful, or scary. If you learn the simple basics of home buying, then it will be a wonderful and pleasing experience.
The decisions in buying a home have many factors. We need to look at them one by one, to assess what you are looking for, and not looking for in a home.
We first want to look at your goals in finding and owning a home. The 5 W's can help you see exactly where this fits in your life. The 5 W's are who, what, when, where, and why. You will want to be as specific as possible in answering all of these questions. For example: (write these down)
Who is going to be living in your home? You, your spouse, your children, (how many?) your mother-in-law (?) two dogs and a cat.
What, (be specific,) a four bedroom, 3 bath home on an 8,000 square foot lot. It must have a 3 car garage, an outside access to put a doggy door, an in-ground swimming pool, a 14 x 14 master bedroom suite, a laundry room, and a pantry. (You have just made a list that you can give to a realtor).
When, (be specific,) in the future doesn't count. Make yourself come up with a real date, such as December 16, 2006. Make this date realistic. If it is not achievable, then there is no reason to pick that date. Choose one that you are comfortable with. Just remember, the longer the time you give yourself, the larger chance you have of procrastinating. The longer you wait the more money you pay out for rent, which is only making your landlord richer.
Where, (again, specific), I want this home in the Panorama sub-division in Cathedral City. You make this choice after you have checked out the areas of your community. Drive around your town. Check out the schools, parks, crime rate, etc. You are looking for a safe and clean area of your city where you and your family will be happy. You also might want to keep resale values in mind.
Why, is the last "W" on your list. What is motivating you to want to buy a home? Are you tired of making your landlords mortgage payments? Are you tired of living with your in-laws? Maybe you're just ready to capture your part of the American dream.
There is one more question that you need to ask yourself, but it doesn't start with a "W". How am I going to accomplish this? This is probably the most important question that you can ask of yourself, because it will spur you into action. The word someday needs to be taken out of your vocabulary right now. There is nobody more important than your family. Aren't they entitled to a home with their own back yard, where they can plant trees, or some flowers? Of course they are! As Americans, we all have the choice to decide what to do with our lives, and where we want to live our lives. Okay, back to how we are going to do this. My first advice is to find a lender. I may suggest a mortgage broker if your credit is compromised. Brokers represent many companies, and some represent companies that will loan to those with poor or no credit. They will bend over backwards to find a loan for you, and the best one to fit your particular needs. They will take a credit application, and can tell you pretty quickly what kind of a loan you qualify for. Not all mortgage brokers are the same, so if you can't find what you are looking for with one broker, try another. Mortgage brokers represent many different companies, but not always the same companies. Do not assume that because you don't qualify for a loan with one company, or broker, that they all will be the same. I have one Mortgage Broker that I work quite closely with, and they have worked their tails off for me.
After they approve your application, they will give you what is called a "Pre-approval" letter, which will tell you, and a seller, what amount you are approved for. Many sellers will not even entertain an offer unless you have a pre-approval letter. This is your ticket to start looking for a home. There are many ways of looking for a home, but I suggest using a real estate professional. There is no cost to you when you are buying, and they have the knowledge to help you in your search. In my area, you can't swing a bat without hitting a real estate agent. There are oodles of them, and they can all help you in your quest, but they are not all the same. People buy from people they like. That is a true statement. If you find an agent that kind of rubs you the wrong way, find another agent. You are not married to this person, and you will be doing yourself a favor. Your agent should be knowledgeable about the market, and knowledgeable about the area you have chosen to live. When you hit it off with an agent, it is a very good deal. They will scour the universe for the right home if you want them to, but we aren't looking for that. Remember the list that you made? Give your agent the, what and where section of your list. It is now time for them to go to work. They will pull up homes in the area of your choice, and in your price range. Then it's time to go looking.
The first few houses that you look at are a learning experience for you, and your agent. There are situations where sometimes you think your agent didn't listen to you when you gave them your list. That is not the case at all in most instances. Your agent is just trying to learn about you. They will listen to what you like, and don't like about any given home. They will compile that as you look at more and more houses, yes, I said more and more. Be ready to look at numerous properties, and don't get discouraged. There is one out there that you swear was built just for you!
As you look at properties, imagine them as what they can be, as opposed to what they are. Paint them a different color in your mind, and imagine them with your furniture. You might want to imagine planting some trees or flowers. When you find the one you want, you will know. A warm glow will overcome you, and you know right off, that this is home.
Another really great thing about a realtor is they can tell you how long a property has been on the market. If it has been a long time, there may be a chance that the seller is very motivated to sell this house, and give you the deal of a lifetime. Maybe not, but the odds are in your favor. Sometimes it is written in your agent's instructions such as, seller will pay closing costs or, seller will leave the furniture, or whatever. Your agent will likely know that this seller is motivated.
Now is the time to make an offer. Your realtor knows what the comps are in this area. A comp is a comparable price to other "like" homes in the same area. If the price is high for that area, your agent should know. If the house is under valued at the price being asked, be careful to not offer too much under the price, unless you are very brave. You don't want the seller to feel like you are ripping him off, because he may get miffed, and not sell to you at any price. There are times, however, that you have to take a stance. If you see yourselves having to invest a great deal of money into the house, then have your agent write this down in the offer. Sometimes an owner will think that his house is made of gold, and beings he has lived there for so long, is blind to what it's shortcomings might be. If you will point out that there are things that need to be addressed, such as a new roof, then he may go for a lower offer. Putting things like this in writing may be exactly what the seller needs to hear to justify the lower offer. If you low-ball the offer without explanation, you may not get your house.
Earnest money is an amount of money that you will submit along with your offer, showing that you are in earnest, (serious), about the offer. I have given as little as $1000 dollars in earnest money. You ought to hear them squawk about that! They will try to make you pay more. Oh well. You were looking for a house when you found this one. If you can handle more, then offer more, but I have found that pulling your offer off of the table to a motivated seller makes them waltz to a different tune. Never let anyone bully you. It all comes out in the wash anyway.
As you write your offer, you want to include any and all items that you understood were included in the purchase of the home. For example, many homes include the refrigerator, stove, or washer and dryer. You want to ask in the beginning what comes with the home. Write these items down in your offer. If it is not written, then the seller has every right to take these things with them when they move. You also want to include what you want the seller to pay for, such as a termite inspection, or home warranty. A home warranty is basically an insurance policy for your home. It can cover everything from a refrigerator, to a spa. Be sure to have your agent explain home warranties to you, and make sure it is included in the sale. If your roof is new, or not that old, make sure the seller gives you a copy, (if not the original), of the invoice from the company, and the warranty. Leave nothing to chance, and you won't be surprised on moving day.
I learned about writing everything down the hard way. As we were looking at a house, we asked what is included in the sale. The agent we were working with, (a real sweetheart,) neglected to write this down in our offer. On moving day, we were surprised to find no refrigerator, and no washer and dryer, which were supposed to be included. Oh well, an expensive lesson. You tend to remember the expensive lessons the most.
Our next chapter will include what some call due diligence. Others may call it the disclosure period. Whatever you want to call it, make sure that you read this chapter carefully. It may save you many headaches.
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