(upbeat music) - You're listening to the My Flippin' Life podcast, where we're talking all things real estate, renovation, and real life. - Welcome to another episode of the My Flippin' Life podcast. I'm your host, Amber Miller, and today's episode is gonna be a part one of two. So make sure you check back next week for the second part of this episode. But I'm gonna talk about 15 flip lessons that I have learned from actually having the experience of flipping houses since 2008. Now, I did a podcast on something similar. 15 lessons learned from flip experience about a year and a half ago, and it's actually one of the most listened to podcasts in all of the episodes that I have released, but I'm actually updating this. So some of these might be similar, but I'm going to include some more updated information or insight about them, and then I may change a couple along the way. So this first episode is gonna cover one through seven, and then the other episode next week is gonna cover eight through 15 so that we can make sure we are getting insightful, helpful information to you on your flipping journey, but in quick bite-sized pieces so you don't have to listen to an entire 47-minute podcast and try to remember where you left off because if you're like me, a 47-minute podcast doesn't necessarily get listened to in one sitting or walk or car ride. It might be three or four. So that's what we are covering today. So if I think about the last 16 years and how slipping and shifting markets and different circumstances and my business and how it has changed, there are some really core areas that I want to focus on. Obviously, more than 15 lessons have been learned over that time, but these are the ones that I think are most helpful and beneficial to people who are in the business right now or considering getting started and scaling their business. So I'm gonna go ahead and just jump in. So when you think about flipping houses, of course, everybody has the ideal expectation that, oh, I'm gonna buy this house for somewhat of a discount. I'm gonna make amazing renovations to it and improvements and I'm gonna turn around and sell it for a profit. And while that is always the intent, the number one lesson that I would share with people about this process is make sure that you've got multiple strategies in case that original plan of flipping and selling does not work. And the reason why I want to make sure people include that when they're looking at their numbers is because that one property, the more options you have with it, depending on what happens with the market, what happens with the financial side of it, the more opportunity you have to do different exit strategies with it, then the more valuable it is for you, both as a flipper and as a business owner. So thinking about looking at the property and going, okay, here's my best case scenario, we're gonna sell this property and make $50,000. However, if for some reason that doesn't happen, what are the other things I could do with this property? And it used to be a little bit easier a few years ago when everything was basically, could this also be a rental property? But now we've got short-term rentals in that mix as well. However, there might be restrictions based off the city that the house is located in. So knowing what those rules are will help give you different options. But the other thing I always like to look at not even a short-term rental situation, I know for some people that's great and that can be really profitable, but I live in a market where it can vary so significantly from city to city. Some cities might allow them and some right next door might say you can't have anything less than 30 days. So I don't ever use that in a mix for my analysis on my properties. What I'm looking at is if this doesn't sell in the ideal circumstance for me as a flip, is this a property that I could rent out as a long-term rental and would the rent cover the expenses? And if that is the case, then I've got another option, right? So I am always looking at properties for flips where that is the possibility. Now, in all of the years that I've done this and I've done over 250 projects, I've done several, several, several flips. I've only ever had to convert one property ever to a rental property. And I still own that property as a rental today. And it was just a function of circumstance and timing when I went to put that property on the market back in 2011. That's how long I've had it. And so having that opportunity to be able to convert that renovation loan into a long-term mortgage at a reasonable rate and then also get the market rate to cover the cost of that, that property has just kind of been the little engine that could, having two different occupants over the last, I don't know, what, 14 years now, 13 years. So that is something that can be a good thing. It can be a nice addition to your portfolio. It doesn't have to be long-term. It could be something that is much shorter term as well. So just being aware that you have those options and knowing what the numbers are, it alleviates a little bit of that stress and uncertainty, which for some people is the reason why they never get started in the first place. So that is a key strategy that I like to include and incorporate in all my property analysis. And I would suggest that you consider that as well. All right, number two, funding sources, always having multiple funding sources. And I understand for people when they're getting started, this can be one of the areas where you're a little bit less familiar. You don't have as much experience. You may not have the confidence to be having conversations with a variety of lenders and banks, credit unions, hard money lenders, private lenders. But this is an area where the earlier in your business you can start working on it, the more advantageous it's gonna be to you because it's gonna become a source of funding that can allow you to stack your strategies and really minimize your own personal capital. So when I talk about lending, there's banks that do commercial lending for flip properties or there's banks that specialize in fixed and flip properties. Those are always great to have. However, I would always caution against just having one that you work with. And the reason for that is because they're always trying to mitigate their risk. And especially if you're building your reputation and your experience, it may take a little while before they're able to lend on more than one property. So in the meantime, building relationships, creating other opportunities for lending for yourself are gonna be very key. That's gonna include hard money lenders. I would also advocate for having more than one of those as well. And then also as you move your business into a more advanced realm, you might also look for private money. And that is individuals who are looking to invest in real estate without necessarily doing the activity themselves of the flipping or the wholesaling, whatever it may be. So anytime you have multiple options for lending, you are gonna be so much more powerful in your buying ability. Now, the other thing that having multiple options will do for you is as your business progresses, you can obviously run more than one project at a time because your capital investment is minimal. The other thing you can do is stack strategies. So using more than one to make it so that when you close, you're actually not bringing any money to the table. And that's the goal, is to have a business where your numbers, your purchases, your flips, your renovations, everything is being funded by the sources that are available to you. So you don't have to leverage any of your own capital. So keep that in mind that the earlier you can start becoming really familiar with the banks, the credit unions, the hard money lenders and the individuals as private lenders, then the earlier you're going to be able to start toing those projects at a more, at a faster rate or layering them on top of each other and having a little bit of overlap. If the idea of doing multiple properties scares you right now, please stay with me, wasn't my intention. But imagine if you were almost done with a property, getting ready to list it. And instead of having to wait for that to sell and close so that you could have the funds to buy your next property, what if you could already be looking? Because we all know that the amount of properties that are available or that are suitable for flipping is not a significant amount of property. There's not an excess amount of these homes, right? So when you have the opportunity and you see a property, to be able to act on it is incredibly valuable. And having multiple sources of funding will allow you that flexibility. All right, next, the other thing I wanna talk about is not being afraid to take on properties as projects that maybe don't have as high of a profitability as you would like. And I'm coming at this from an angle of experience and also from seeing other people have some similar questions or criteria about properties. And it all kind of ties into that 70% rule that everyone has probably likely heard of, where if your purchase price and your renovations shouldn't be more than 70% of the ARV, the after repair value, right? So if you're gonna flip a property and the ARV is $200,000, then that means 70% of that's $140,000. That means if you buy the house for $100,000 and your budget for repairs has to be 40. That's how that works, right? But the problem with that is that we all know that buying properties at a level that low is, that is and has been incredibly difficult and maybe not even realistic for probably about 15 years. Truth be told, right? Because when you think about that formula I just shared, you're saying that on a $200,000 house, 30% of that, which is $60,000 would be your profit. And then also some of your other expenses maybe holding costs, maybe utilities, insurance. But that's still a really sizable profit for a relatively small project, right? So when it comes to numbers, here's what I want you to think of instead. Have a baseline for what you're comfortable making on a property, right? Now it can be a range, right? I know some people are really, they're really looking and targeting that $50,000 price point, right, for profit. They're like, I wanna make $50,000 on that property. Great. What if you made 40? Would you be okay with it? Well, yes, it's usually what most people say, right? And some people will say, I'm even okay with it being 30 or 35. And it's all gonna depend on where you are at in your business and in your process because if you've got other income and you're learning how to do this, an extra 30 or $35,000, not a bad deal. I know when I was getting started my annual salary for the career that I had at the time and I have to remember which level I was at back then. I mean, I know my introductory and this is a long time ago. I mean, I was in the high 30s for my base salary, right? So when I made 27,000 dollars on my first flip, I thought I had won the lottery and that was in 2008. So the thing I like to remind people of, is especially when you're getting started and especially when it's not your sole source of income, it's okay to let yourself maybe have some of those smaller wins because everything you do in the beginning is going to strengthen you and build you for your business, for the future. I like to say that flipping is like a muscle. Every flip you do, you get stronger, you get better, you're able to manage the project better, you're able to manage your budget better, you're able to move faster on your scheduling, you're able to be more efficient with your contractors and your construction. And so every single project you do may not be the most profitable, but it's helping you to get to those ones that are. And the other thing I like to remind people of is that if you don't take the smaller properties, then you never get the chance to have the big win. And what I mean by that is, if you say, I'm not gonna do that property because it's only 30,000. Well, what if that property by the time you're ready to list it is going on during a market where there's a lot of buyer demand and that property ends up getting two or three offers goes into multiples and goes 50,000 above list. Now your $30,000 profit became 80. So the prediction we can never make is what is going to happen at the time that that property is listed, but you wouldn't even be in the game if you didn't take the chance and be okay with the 30,000. So something to think about when you're looking at your numbers, all right? Next, number three. So finding the right property. Okay, so I talk to people quite often who are like, I'm not really sure what I'm looking for. And even when people are more experienced with flipping, sometimes they'll look at properties and they'll second guess themselves or they'll say, well, I thought this was okay, but obviously it's not selling now. And so now I know what I knew before has come true. So quick little example. If you're buying a property in an area where everything you see and everything that's reselling has four bedrooms and you buy a property and it only has three bedrooms and it has no potential to add a fourth bedroom, that house that you're purchasing is likely not going to sell at the same price or in the same timeframe as the other properties around it because it is an anomaly. There's something that's odd about it that is different from all of the other homes around it. And so what you really want to focus on with your properties is location, of course, but your familiarity with those areas as well. I like to encourage people to look for like three to five areas and get really comfortable in looking at those numbers, looking at the properties that come on the market, looking at the conditions of them, the square footage, the style of the home, the neighborhood characteristic. So parks, highways, like areas where you can see there's a marked difference between pricing, if something backs to a highway, it's going to take a hit and its value, right? So that's just a less desirable feature of a property that buyers would calculate in with their pricing. So what you want to do is you want to make sure that you're finding the right property. Is there ever a perfect property very rarely? What there are are the properties that have the potential to be as appealing to buyers as possible. So that's what you really want to focus on. So you want to look at properties that are in these three to five areas that have the surrounding homes that are obviously showing the increased value support. And then you're also going to want to make sure that you are not looking at areas where there's less demand. Now, I know it might seem strange 'cause right now at the time of this recording, there's a lot of supply, or I'm sorry, a lot of demand and not a lot of supply. And that's probably the case in a lot of areas in the country, but there are areas where buyers are just not as likely to buy as in other areas. And maybe it's certain school districts. Maybe it is proximity to like commercial areas, right? I know that there's been properties I've looked at online where I'm like, gosh, why did that sell so much less? Like that's not the standard for that area. And when I go look at the property, I'm like, oh, let's backing up to a commercial building. That's three stories. And every office window looks into the residential homes backyard, right? That's going to affect the value, but you wouldn't necessarily see that in the comparable sale listings. So find the right property, find the property in the good areas that are within your budget, that have the potential to have additional value created with renovations, and look at the data and the numbers that support that buyers are looking in that area. You want to make sure that you're not purchasing properties that are so odd that like the layout can't be changed. Like if it's just so small, it can only ever be a two bedroom. If every other house in that neighborhood only has, you know, has a one car, has a two car garage, and this property has a one car garage, that's going to hurt potentially your value. If the property doesn't have a garage at all, and every other house has a garage, right? So there's things that you cannot necessarily change about a property that you're going to just want to be very mindful of, because anything that is unique, that is keeping it from selling as a flip before renovations can likely be attributed to a little bit longer market time on the back end too. That goes for neighbors. I remember looking at this adorable house, it was a wreck, it needed so much work, and it was so cute, it had so much potential, but the minute I looked out the window in the back of the house, like out the kitchen window over the sink, I could see the neighbors and the disrepair and the personal belongings, and there was no garage for their storage, and so things were just stacked up in the backyard, and I was like, no matter how well you renovated the interior of this house, you are not going to be able to remedy that. And that view is not something that a buyer is going to pay for, especially top dollar, right? So knowing that, so finding a property that meets the criteria of the area, the demand, and the potential is really where you want to focus. All right, next. Making sure you identify the repair necessities versus what you want to do because you want to make it as pretty as you possibly can, right? And that's a simplification, but one of the things I know people struggle with is budget. And part of the reason people struggle with budget is because they look at a house and they see all of the things that need to be done and selected, and so if they're not careful, it's very easy to go over budget on materials. So when you're looking at a property, really, especially in the beginning when you're getting yourself familiar with this process, make your list and your scope of work. Number one, first and foremost, based off those things that are absolutely required to be done. What are the things that, for the integrity of the house, are a must? Or does the windows need to be replaced? Is the siding damaged? Is the roof 30 years old? Does it need a new furnace? As soon as you start to separate those lists out, it'll be very easy for you to figure out what do we need to do? What would be expected if we were listing this house in this area to be like, what would the condition of these things be expected to be for us to get this price, right? You'll start to see very clearly what those required repairs are, and then the wants, right? Or the I want to make it pretty. Now, the one thing I will say that I have shifted on significantly, and this can vary from market to market in price point to price point. If you are doing a more expensive property, the opening of walls, especially between kitchen, dining rooms, living rooms, creating that open floor plan, that is not necessarily a want anymore, that is actually a need. That is actually moved to a different column, because from a buyer perspective, that's what they want. That's what sells the home. So you're going to want to make sure you include that as part of your plan. Because again, your plan shouldn't just be the things that need to be done from an integrity standpoint. The other thing that needs to happen is they need to be the decisions that are going to be the game changer or the thing that sets your property apart so that it does sell. Okay, next, estimating repair costs. When you are going to estimate repair costs, often there are schools of that where it's like you have to have every line item completely figured out before you get started, before you put that offer in, like you can't even do the offer until you know this. And unfortunately, we live in a world where things move quickly. And so that's not always an option. And contractors aren't always available to walk through and give you a full scope bid in a very quick amount of time. So a couple of ways that I have found that work well in this scenario is do you have enough spread or gap between the purchase price and the resale price that you could have a generous budget should you need it? So for example, if you find a property for $300,000 and you can solidly look around and go, okay, like well done homes or updated homes or other flips sell for the 600s here, or even high fives, right? That's about double of the current list price. If you can do that, so then you can say to yourself, okay, with a $300,000 budget or gap between purchase and resale, do I think I could put some pretty significant renovations in place in this property and make a profit and cover my expenses? And if the answer is yes, that's what you need to know. The waiting to see if you get a budget that has, you know, if you can get all the numbers beforehand, it just, it simply doesn't work in the world that we live in now. The other thing that you can do is as you're doing more projects is use the comparisons from those projects to do projections for your next one. So when you start to do more houses or maybe you do multiple properties, a lot of times you can carry over for square footage and overall, you know, size of the house, the number of stories on it, how much work you're being done. The more properties you do, the easier it is to say, okay, well, this property was $15,000 for the plumbing. We're doing the same thing here. We're replacing three bathrooms, full goods, right? Kitchen, laundry, gas lines, right? So you can say, well, we can say $15,000 here. You know, if the roof for that property was $10,000 and it was a similar size or the same number of squares, was similar, then we can apply that over here. But again, until you have the experience of having projects completed that you've gotten bids on, you're not gonna know that information. So that is something to use kind of that 50% and just run some numbers and see what that looks like. Get some good ideas once you've figured out those areas about what your purchase price would need to be or your resale, and then go from there. It's amazing what you can start to identify and figure out just by even doing practice deal analysis on areas that you're looking at. All right, last number seven for this episode is gonna be planning and scheduling projects. I am a huge believer that for the majority of people who flip houses, there is no calendar. There is no timeline and communication may not even be very strong about expectations and timeline. When you make the decision to flip a house, you have a little bit of time before you close that you can use to capitalize on your planning. But once that house is yours and you've signed on it and you've got the money in place to finance it, that property needs to be a green light, which means you have to have everybody lined up, everybody needs to know what their role is, what their timelines are, when the start date of the project is and when the completion date is. If you can do that over the course, so putting together a calendar for every single project allows you not only to make sure you're staying on track because a busted budget is often related to a busted calendar, right? Or a non-existent calendar. If you make sure that everyone knows what the expectations are for their work, especially when you're managing subcontractors, it can make the process so much easier. I see people often who have properties go seven, eight, nine months, the longest I've seen is two years. And I promise you there was never any conversation when the contractors were hired and subcontractors were hired, but a timeline or completion date or individual responsibility. And those small shifts can make all of the difference in the profitability of the project. So that's why putting together just, you can print it out. There's templates online that's like a monthly calendar. For every property we do, we print out those monthly calendar sheets. We mark off when demo starts, when rough and for plumbing, electrical, each back is supposed to be done. We make sure everyone knows when they are supposed to have their inspections. We make sure that everyone knows when we start drywall, when floors are going in, if hardwood floors are being re-finished, when the home won't be available. We coordinate our exterior work around that. So there's never any time where there's nothing going on on site. But without a calendar and communication, that would never be the case. So if you haven't started to do that or incorporate it into your flips, start now, you will thank me. Okay, that's it for this first part of the 15 lessons that I've learned from the last 16 years of flipping. Make sure you stay tuned for next week's episode, where we'll catch you up on part two. Thanks so much for listening. Bye for now. (upbeat music) (upbeat music) (upbeat music) (upbeat music)
