Flipping houses grew in popularity during the real estate run-up, partly due to the popularity of TV shows that followed the adventures of real estate investors as they bought, fixed and flipped houses in various parts of the country. The shows were meant to be entertainment, not a “how to” tutorial on flipping houses. The shoot-from-the-hip decisions, the dust-ups with contractors, even the suspense of whether or not the property would sell were all done for effect. What you saw on TV was Hollywood’s version of how to flip houses for profit.
Flipping Houses Is All About Having Systems In Place
Real world investors who watched those shows ended up snorting their drinks out their noses. But, it doesn’t mean that watching was a waste of time. One of the best lessons gleaned from those shows was the systematization of flipping houses.
Many of the scenarios showed investors who already had teams in place for every aspect of flipping houses. When you break it down, there are three main pieces of the flipping houses process:
1. Acquiring the property 2. Rehabbing the property 3. Retailing the finished property
Flipping Houses Step 1: Acquiring The Property
While most of the shows started with the property already picked out, people in the business have systems in place for finding good flip properties. Many investors who are flipping houses have various lead generation methods.
For the investors who buy, fix and flip, wholesalers are a great source of properties. Wholesalers are flipping houses, too – just with lower margins because they are not fixing the properties. In fact, they are flipping houses to the investors whose end goal is to either keep the property and rent it or rehab the property for a retail buyer. A good wholesaler will price his properties so the investor can buy and rehab and still make a profit.
Another way of locating properties is to use bird dogs. These are people who look for properties that aren’t listed in the MLS. Bird dogs are paid for generating leads and they can earn an extra bonus or fee if you close on a property that they have located for you.
Scouring classifieds ads, whether in your local newspaper or using online sites such as Craigslist is another method of locating motivated sellers. If you are really ramping up your business and are going into flipping houses full force, direct mail campaigns are a strong source of leads and one that the average real estate investor doesn’t bother with, which can make your marketing efforts stand out.
Last but not least, don’t forget real estate agents. A good agent who understands your parameters can bring you deal after deal.
Flipping Houses Step 2: Rehabbing The Property
Having a contractor team or teams that you know you can count on is the key to the flipping houses investing strategy. When you are first starting out, you are going to find more contractors that don’t work out than who do. That’s part of the business. However, you can save yourself some grief by asking for referrals from other investors (yes, at your local investor meetings).
You may not be flipping enough houses to keep a team busy all the time. You want to have at least two reliable contractors that you can call upon when jobs come up. And never stop looking for a good contractor. Your rehab team can make or break you and they know it. You don’t know when one of your mainstay guys is going to try to squeeze you on a job, quit the business or fall off the wagon. Have a back up in place.
Flipping Houses Step 3: Retailing The Finished Property
The phrase “flipping houses” implies speed. Once the property is ready to go, you need to have a system in place to sell it as quickly as possible. One of the systems you will want to have set up is to have a buyers’ list in place. When you are renting and selling properties, you will come across more people who don’t buy than who do. That’s only logical. But, if someone didn’t like your three bedroom, two bath house in another neighborhood two months ago, they may still be looking. Let them know that you have another house on the market. There could very well be something about this house that makes it the right house for them.
Many investors like to outsource the sale of their retail properties to real estate agents. When you are doing a number of properties, your time is better spent acquiring and making sure the work is getting done than showing houses to prospective buyers. If you factor in a real estate commission in your preliminary numbers, you have just taken one-third of the work out of flipping houses.
Having systems in place is the key to the success of any business. Fortunately for us, the flipping houses investment strategy lends itself easily to systematization, making our job that much easier.