I met a gentleman a few years ago who was just starting out as a real estate agent. He was transitioning out of an office job he detested. He was very eager to get started with his new career and build it up to something big. I remember he was looking for someone he can model his business after so I gave him a few contacts at the time.
Well, we just crossed paths again this past week, and it was quite impressive to see where he is today. He is no longer a real estate agent, he took the bull by the horns and went straight after flipping houses as a real estate investor. He's doing so well, and in fact, some organizations have contacted him to guest speak for their mentor networking events. He said transitioning to flipping houses has been the biggest rush of his life.
We decided to go for a coffee and talk more about how he's currently doing with house flipping. He also covered how he was having success in the industry and included some of the strategies he was using to succeed.
So what exactly is flipping houses?
House flipping is when a real estate investor or a group of real estate investors come across a property they can usually purchase at a deep discount. The investors will then put money into the building for improvements and then resell it at a profit.
Real estate investing can be high stakes and very exciting. You need to be able to move fast on your feet and spot a good deal when they come up. You can make a lot of money flipping houses, but you can also lose a lot if you take the wrong step.
During our coffee session, he said the market is bouncing back fast. He said a few years ago real estate investing was not a viable option for him because of the slower demand at the time. Also, the lending standards have become very tight, and you need to have a ton of cash flow on hand now. He wasn't in a position to play with the big boys back then.
He explained how his very first deal was a little nerve-wracking. He picked up a house for $80,000 at an estate sale. He put another $40,000 into it for renovations. When he tried to sell it on the market, it ended up sitting for a bit causing some fear.
1) What's needed to get started with house flipping? He explained it this way:
- Lenders have tightened up many requirements if you want a loan for flipping a house. So a good credit score is crucial if you plan to borrow.
- You need to have some cash on hand to avoid having to pay private equity insurance when you purchase the home. If you think you can utilize savings, it's probably not a bad option unless you can partner with people and use their money.
- You'll either need a good understanding of the marketplace yourself or someone you can trust such as a mentor. It's best if you even have a massive list of prospects you know are looking for a place to buy.
2) He explained these elements make up a great investment
- Location Is Huge: Spend your time in areas where people would look first like places near amenities. People's lives are only going to get more complicated and busy. The value people place on something that's near a school and shopping center is very high.
- A Place In Decent Condition: You may not necessarily want to gut a house. If you find one that needs reasonable repair, it's likely a better option. If you have to overhaul the place, it could take up too much time and tie up a lot of your cash.
- Good Schools Nearby: Take a look at the reputation of the schools in the area. If the schools are newer and have a good reputation, you're likely to flip quickly.
- Modern Electrical Wiring: Some homes can require a great deal of repair. For example, the electrical wiring in a house can make a project lose money fast. Depending on the building codes in the area it may look good on the surface but require a lot of work. Electrical is significant because you may need to go down to the studs to repair some of the wirings. It can be messy and expensive.
- Distance From You: If the home you're looking at is in another city, you'll need to account for commuting time. This might not seem important early on. However, if you're doing a lot of travel back and forth, it can add up in both time and money.
- Pay Attention To The Kitchen: People say they spend the most time in the kitchen. It's the room where you can make high returns in short periods of time.
- Purchase Price: The initial purchase price of the home must be below the value in the local market. There are many online tools out there you can use to determine what the average price is in the area.
Flipping homes certainly do not come without risk. It can also be the most exhilarating thing in the world. If you approach it with common sense and you understand what's happening in the marketplace, you can grow your bottom line quicker than most industries.