10 Critical Steps to Fix and Flip Success: Defeat the Unknown
Hey, guys, it’s Torsten Coulson here. Most of you are probably thinking, “Who the heck is this Torsten guy?” and with good reason, because this is actually my first time writing here at Clever Investor. But, I’m thrilled to be one of the lucky mentors who get to connect with you guys on an ongoing, monthly basis.
And, for my first contribution here, I would like to go big and start a series of posts that will walk you through what it takes to fix and flip houses – my core specialty and the main focus of my real estate investing endeavors.
But first, let me tell you who the heck I am and a bit of my experience…
Who is Torsten Coulson?
As I have already mentioned, I am one of the new mentors at Clever Investor. But the journey here wasn’t always easy and it definitely wasn’t overnight. Here’s a little bit about my life before I reached the point of my success today…
The core of my business is fix and flips, but when I do wholesale, I still have fix and flips in mind because most of my buyers are rehabbers. I often help these rehabbers fix and flip (just because I’m a cool guy and it gives them incentive to stay on my buyer’s list).
I’ve been in the investing business for 11 years. I became interested in the real estate business because I was previously in the mortgage business and learned about financing. Prior to the mortgage business, I was a Phoenix police officer and also spent 13 years in the Army National Guard. I spent the last 3 years of that with the 19th Special Forces Group out of Utah.
So, back to REI… I originally started in the investing business with fixing and flipping properties, but then I started wholesaling properties just to have a daily income. After the market crashed, I became an expert on trustee sales and bought and sold more than 1,000 houses a year.
Over the past 18 months, I've done major fix and flips by adding value to properties by making bedroom, bathroom and kitchen additions while, during this same time, wholesaling properties and mentoring students. My local market is in Phoenix, Arizona, but we have students in pretty much all 50 states who I constantly help by reviewing and assisting with deals in all of the United States markets.
But enough about me, let’s get down to business…
The First Critical Step: Defeat the Unknown
The first step to successfully fixing and flipping is probably the hardest one for most people I come across, and that is getting out of bed and defeating the unknown. What I mean by this is actually stepping up and making that mind shift that you're going to go out and physically fix and flip properties.
It's difficult, not only due to the unknown, but also because of the amount of risk that comes with it. The unknown includes how to do the deal, what obstacles are involved and how to overcome those obstacles that are presented during a fix and flip.
The entire “unknown” process ranges from the rehab part to the resale process, and then to the closing process. There’s a lot that is “unknown” when you haven’t done it, and this is what keeps people from even taking that first step.
The biggest fear when it comes to that unknown risk is usually money. People want to do fix and flips but they don't have the money. There are multiple options out there, but the easiest two are:
- Save up money and then go ahead and do your fix and flip.Or…
- Build up the cash to do the fix and flip by doing wholesale deals.
Option B is common practice at Clever and across the investing community for most of the people. If you ever talk to someone who is a new real estate investor, they usually say:
“I want to fix and flip properties but I don't have the money right now. I'm going to build-up my cash flow by wholesaling deals.”
I 100% agree. I'm not the guy who sits there and says: “You can do this with no money out of pocket.”
My point to them is: Yes, you need to do this to build up your cash but you also need to save it. Yes, you need to do wholesale deals to build up your path to fix and flip. You actually have to save it.
Sometimes my students will say:
“Torsten, I feel like I'm afraid of the unknown. I just can't get out of bed in the morning to even tackle this because I feel paralyzed by the “what if's” and the unknowns. It intimidates me. What do I do? How do I tackle this? How do I defeat it?”
I tell them to follow this action-step process:
Step 1: Research and Education
The first step to figuring out any unknown is to go out and do your research and get the education. Learn the full process of what it takes from starting in the very beginning to the very end.
Step 2: Interviews
The next step, after having a baseline of education, is to go out and start interviewing and talking to real estate agents, investors and contractors who have experience with fix and flips. It’s going to help you understand the whole picture. Mainly, people’s fear is the unknown, so if you understand the whole picture – mentally – you’ve already gone through the process and it no longer feels like you are venturing into the unknown.
Step 3: Plan
As far as the money goes, before going in and setting up any type of savings plan, you have to know what you're going to do and how much you need to save. This is going to be based on actually physically going through and looking at a potential fix and flip property and coming up with a plan. Would you fix and flip that house? If so, what is everything going to cost?
Step 4: Save
Once you have an understanding of what it's going to cost to fix the property, put that money into one bucket. We need to save that money for the fix.
Then, you need to find out what those properties cost in your market in general. Or, if you're going to go out and borrow the money from the bank or hard money lender, how much money is that going to be down?
With that, then you take how much money you need to acquire the property if you pay cash or use a down payment to get a hard money loan. That plus the rehab cost gives you a total amount of an estimate of what you need to save.
Step 5: Backwards Plan
Now you do what I call “backwards planning.” You have that dollar amount of how much you need to save, so now you can see how much you need to start saving per wholesale deal.
You also have to know how much money you need to live off of. Estimate as if you save 50% of the profit out of a wholesale deal, then ask yourself how many wholesale deals you need to reach your goal and have enough cash to do the next fix and flip.
The Bottom Line
More than anything, you've got to find that hunger inside that’s greater than the fear that you're experiencing – this is ultimately what will push you through that fear of the unknown. If you don't get out of bed and take action, you're never going to flip a house.
Okay guys, that’s about it. I really enjoyed sharing with you and I hope I stirred the hunger in you to go out and make some deals. I am looking forward to my next post when we are going to talk about the critical step of finding a deal.
See ya then, thanks for reading and letting me be a part of the Clever team!
Who out there has thoughts to share? Questions? Comments? Compliments? Insults? I’d love to hear them!