The Flippin’ Truth about Flippin’

I’m going to tell you what I’ve learned flipping six houses in D.C., all while living overseas.

Next, I’ll share exactly how much I made (and lost) on each of these flips.

I’ll close out with my recommendations on flipping as an investment strategy.

          Let’s get started!!!

So I flipped a house in D.C.

It was the subject of my last post.  I detailed how I go from no clue about flipping to trying it once.

Now I have a small clue.

          How did I do?

I cashed a big, fat check for:

$16,908

Alright, it wasn’t a check, it was actually wired into my account, but that doesn’t sound as cool. Doesn’t cashing a big, fat check sound better??

Like the lottery winners on TV.

powerball

This small windfall was from about two hours of work on my part.

I feel bad because, I actually felt like it was a lot of work. I’m very lazy.

The work consisted of filling out loan applications, printing, signing, and scanning several documents.  I had to do a power of attorney for my business partner since I was living in Japan at the time and could not be there for the closings at purchase or sale.

If you are reading this post, and haven’t read my last one where I describe my first flip in detail, you should probably read that first.

I’m not rehashing it here.

I’m Flippin’ Rich!

So I made about $17k on my first flip with virtually no effort on my part.

I did realize certain things are important for a flip to successful.  These were things that were necessary for success much more so than my time filling out forms.

You have to buy at a great price

This is the most important thing.  Not just in flipping.

In real estate, period!

It’s something I will  focus on showing you how to do.  It’s worth focusing on because this step doesn’t apply to just flips, it applies to your rental properties and  your primary residence.

If you screw this up, optimizing the remodel and maximizing the sale probably still won’t be enough to save you!

          How did YOU buy at a great price??

Mike was a real estate agent in that neighborhood and had a long history of giving helpful advice about buying and selling to residents.  He spent a lot of time talking with neighbors about plans for selling their houses.

He had the inside scoop when someone was planning to sell.  In our case, someone needed their cash quickly and didn’t want to bother with any repairs or improvements before selling.

He often made the deal before the house even went on the market.  No competition.

This is what I call an ideal situation.  Buying a house at a good price is not about just making low-ball offers and hoping something sticks, it’s about asking questions to figure out why the seller is selling and what’s important to them.

It’s about staying in touch with the right people in your community who can tell you when a deal comes up.

Even my management company has cued me onto properties they were interested in, but unable to purchase.  Everybody needs to know that you are looking for a good deal.  This is helped if you have a reputation for getting things done and being someone who keeps their word.

In a lot of cases where I’ve gotten a great deal on a property, it often is a situation where family members inherited the house after the owner passed away.   The new owners often live out of state and just want to sell it and be done with it.

They don’t know anything about houses, it’s far away,  and it’s a painful memory.

They are motivated sellers.

I know what you’re thinking!!!

          Hey!  Doesn’t it seem morbid to prey on situations like this just to make a quick buck!

          What a creep Rich is, taking advantage of these situations!!! 

It’s not morbid.  They want to sell the house as-is, get some cash, and get on with their lives.

It serves them, because they get what they need, quick closure.

It serves us, because these low prices can make ideal real estate investments of almost any kind.

That’s where my paying cash for houses is even more useful.  It’s an even faster close, and this is what these people need.

I’m sometimes outbid by someone else who is taking out a loan to buy.  No need for concern.  Many sellers will take less money for a cash offer.   I still get the house even though someone else was willing to pay more.

For motivated sellers, loans suck.  They fall through at the last second and then you have to start from scratch looking for someone else.  Cash purchases are attractive to sellers, especially if they’ve already had a deal fall through.

This is where the real money is made. At the purchase.

Cash sweetens the deal.

cash-is-king2

Don’t forget it.

You have to add significant value with the remodel

Here’s the tough thing.  I can write posts and do videos and give speeches and write newsletters about how to get a great deal on a house.  It’s negotiation.  It’s talking to people.  It’s researching what other people paid for the property, and understanding their financial and personal situations.  This is teachable.

What is very hard to teach someone on a blog is everything that goes into remodeling a property for a flip.  Some of this stuff can’t be taught.  It’s something you or one of your partners has to have experience in.

It’s knowing how to hire a contractor to tear your bathroom out and put a new one in.  It’s knowing how much is a fair price for that type of work.

It’s being able to supervise that work, and know when they are falling behind, slacking, or doing it wrong.

It’s having the ability to do this for all aspects of a remodel.  This can include electric, sewer, plumbing, roof, permits, and dealing with HOAs on a remodel.

It’s knowing what types of improvements earn you the most, and being able to make those improvements at the lowest possible price.

In my case, my partner had a lot of experience in this realm, and had been doing flips like this for many years.

Also, I was able to evaluate my friendship with him over a long period of time and knew he was trustworthy and honest.

These traits are sometimes difficult to find in real estate.  Having people you work with like this is key to success in real estate.  You need to build a team of experts around you.

You have to sell at a great price

It’s true, you have to sell at a great price.

HOWEVER,

Your work is really 95% done once you are ready to sell.  You bought at a great price, and did a great remodel that kept costs down, but added value.  When it comes to selling, there are things you can do to make the house more attractive, but the market is the market, and what people offer is what you’ll get.  There are some tips, however.

          Rich, How do I sell at a great price???

One of the things you need is a great real estate agent.  I talk about the importance of this key position in many of my posts.  I’ll continue to do so.  It’s key.

The real estate agent that helped me flipped the new construction probably saved my ass and kept me from having a black mark on my real estate resume.

This not only would have hurt my financial situation, but would have bruised my delicate ego!!!

delicate-ego-at-work-do-not-disturb

A great agent will know how to market your house.  They know when and how to do an open house.  They know how to use photographers to market it.

Our real estate agent would sometimes “stage” the house.  We would pay to have minimal furniture, painting, and rugs moved in to give it a more sophisticated, lived-in feel.  It really made a difference.

Real estate agents understand timing.  There is a lot of importance in selling the house when it’s a new listing.  When it’s FRESH.

There are also cold and hot times of year.  Ideally, you buy the house when the market is cold, and sell when it’s hot!!  In the D.C. area, everybody tries to buy in April and May.

This would not be the right time to buy your property.  There are too many other buyers to compete with.  But it is the ideal time to sell!

It is hard to sell without real estate agents, but you will find investors that try.  Not me.

Let’s move on.

So I made a quick $17 Large on my first flip. BOOYYYYAAAAHHHHH!!!

Me and Mike said;

“Let’s try this again, fast!!!”

So we did.

House 2:

Purchased in our same neighborhood that we know well for:

$295,000

$17,700 in commissions

$8,571 in closing fees

$49k in renovations.

Sold it 3 months later for:

$405,000

That includes $14,520 in commissions.

and $6,000 closing costs.

My profit from the deal????

A big fat deposit in my bank account of $17,911!!

          Shit!!!! We did it again!!!!

About 2 hours of work total on my part.  Easiest money I ever made!!

          F Yeah!!!!  Let’s keep going!!!!!!

House 3:

Bought it for:

$312,000

Sold it for:

$415,000

 

My profit after expenses:   $13,672

WTF!!  THIS IS FOR REAL!!!!!!!

My first three flips total profits

$48,491

 

Not bad for about 6 hours of work.

But I can’t help thinking:

          We are not making enough money yet!!!!

           Let’s try a bigger house in a different neighborhood!!!

House 4:

Net profits: None.  Actually, a loss. What???

A loss of $14,149.  Play the video for me.


          That’s not supposed to happen!?!?!?!

Reality check!!!!

Back to same neighborhood.  Let’s stick with our winning formula from the first three flips!

House 5:

How’d we do?

Made money again.

 

$5,219.  Play the video for me!

This would make most people happy, but I was spoiled.  I was expecting $20k paydays!!!

Ok, let’s try again.

House 6:

Net Profits:  None.

A LOSS AGAIN!!!!

Down $2,917

I’m not destitute, but I’m not happy either.

At this point, I’m getting sick of the back and forth with flipping and the smaller profits.  I was concerned about the uncertainty, and distracted by the potential for investing my money elsewhere (long term rentals).

I quit flipping.

My net gains:

$36,644

I’ll take it.

          So Rich, what advice would you give us about flipping?

You need the right skill set

I talked about the major problem with flipping earlier.  You need a unique skill set to make it happen.  If you don’t have that skill set, you need someone trustworthy that can take care of all that for you.

Mike was familiar with all aspects of construction and remodeling.  He had done many flips before I started working with him.  He was even doing flips with other investors at the same time he was doing them with me.

I believe this skill set requires a lot of time and experience to cultivate.  It’s not me.

It’s not an easy thing to be a beginner like me and try to flip houses with a more experienced partner.  I was lucky to have it work out, but I can see how it could have went badly very easily.  If I would have continued flipping, I think I would have eventually seen my profits disappear.  I also may have become filthy rich.

But I know for sure, I wasn’t comfortable with flipping as a long term strategy.

It’s not passive

 

Lazy

I told you, I’m lazy! Passive income is the way to go!!

Especially when I’m old!!

As you’ll see when I show you how I do long term rentals, it ends up being truly passive once it’s purchased, fixed up, and turned over to a management company.  At that point, it gives income for years to come without you lifting a finger.

Flipping is actually a lot of work.  You buy, remodel, sell, take your money if you get any, and then you have to start over.  No passive income.  You have to keep flipping and flipping.  Only one payday per flip.  It’s a full-time job, not an investment.

I know I keep bragging about how it was no work on my part.  That may be true, but it was a lot of work on Mike’s part.    I was lucky to just be the money man.

The payoffs are inconsistent

Over the course of six flips, I did ok.

I made good money, who could complain.

There is a lot of uncertainty, however, in the process.  One of the big problems is when you about to close (sell), and the buyer falls through at the last minute.

This is usually because the buyer had a pre-approval letter that said they could qualify, but when the lender looked deeper, there were issues with credit or income.

You’ve now lost the ability to sell the house when it’s fresh on the market.  That will cost you several thousand.  People will pay a premium for a house that has been on the market a few days.  It’s HOT!  It’s a very psychological thing.

You also lose another month or two to mortgage payments.  A few more thousand.  Having your next buyer fall through is also a possibility.

To me, flipping is an advanced skill with high risk, high reward.  Buying a home to rent out long term is something beginners can do, especially with all the help available on the web.

People say leverage (loans) is the key to building wealth in real estate.  I’m not sure about that.  I don’t need it.

You can use everything I will show to to buy real estate with loans (debt). You can buy several properties like this.  You can even find ways to buy no money down, or other people’s money.

It’s just not what I would do.  If it works for you, awesome.  Start a blog!

My parting words on using too much debt:

Anything that can get-you-rich faster, can also make-you-poor faster

Rich on Money

 

What do you think?

Did you like it?  Please spread the word.  Share this.

Think I’m too conservative?

Convinced it’s crazy to do no-debt real estate investing?

Should I have stuck with Mike and flipping?

Email, tweet, Facebook, or comment about it.

BTW, if anyone wants some financial or real estate advice, I’m happy to give it.

Contact me by email, social media, or the ask me page.

Check out my comprehensive guide on real estate investing.  It shows how I got to 20 paid off properties.

Rich on Money

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2 Comments

  1. Jennifer

    Do you have experience purchasing long term rental properties from auction?

    • I’ve done short sale, HUD, fannie mae, all successfully. Not auction. Haven’t tried. People always talked me out of it.

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