Last week, I bought three new flips, which means I now have 20 in the works. These are not wholesale deals but rather are 20 houses I will rehab and sell. It has taken me many years to get to this point. I have made many mistakes, learned new ways to buy properties, tried different financing methods, and constantly dealt with struggles with repairs. In a perfect world, I would not have 20 simultaneous flips because I would have sold many of the properties I am holding. When flipping houses, you run into many problems that slow you down. After 15 plus years, you would think I have it all figured out, but I am still learning and developing new systems. In this article, I will discuss how I find deals, how I finance them, how I repair the houses, and the problems I’ve encountered.
How I am I finding so many houses to flip?
Over the years, I have had to change how I buy houses. I used to buy 90 percent of my flips from the public trustee foreclosure sale. Competition got tougher and tougher at the trustee sale until prices became too high to make a profit. I started buying flips from the MLS, even though most people assume you cannot get a good deal from that source.
I have had a lot of success buying flips and rentals from the MLS. It is not easy, but I am in one of the hottest markets in the country and am still finding deals. There are a few things that give me a huge advantage:
- I am a real estate agent, which allows me to save money on commissions and find deals faster.
- I am a full-time real estate investor, which gives me more time to find deals.
- I have been investing in the same market for 15 years, and I know it better than anyone.
The last two years, I also started buying more houses from wholesalers. This year, I have bought more houses from wholesalers than from the MLS. I have also bought properties from auctions and have bought off-market properties.
How do I finance my flips?
Finding deals to flip is a huge part of the business, but paying for those properties is also very important. I have multiple sources of funding that include banks, private lenders, hard money, lines of credit, and my own money. In the past, I only used bank money for my purchases, which meant I had to invest a lot of cash in each deal. I still have a lot of my own cash invested in the business, but by diversifying my funding sources, I have been able to buy more properties while avoiding relying on one source.
- Bank Financing: I have always used local banks to finance my flips, but lending policies are always changing. The banks have tightened up since the housing crash. I have two local banks who lend me 80 percent of the purchase price at around a 5 percent interest rate.
- Private Money: In the past, my sister has lent me private money. She lends me a set amount year round, and I can use it however I want. In the last two years, I have added two more private lenders who will finance 100 percent of the house purchase price. They charge from 10 to 12 percent interest and two points. Recently, my mom has even loaned me a little money because she wanted a higher return than what she was getting in a CD.
- Hard Money: I never borrowed hard money until recently. I have only used hard money to purchase two houses. I was able to finance 85 percent of the purchase price on one along with 100 percent of the repairs at 8.75 percent. I had to pay 2.75 points to get the deal done.
- Lines of Credit: I have a line of credit against both my personal residence and a rental property, which helps me pay for down payments and repairs on the flips I complete.
- My Cash: While I have many sources of funding, it still takes a lot of money to flip houses. I have to pay for carrying costs, down payments, and repairs, which can add up when you have 20 projects going.
Many people may wonder if using this many different types of funding leaves me over leveraged. However, I have a lot of equity in all of my properties. I use bank financing on most of my flips, which means I usually have financed 50 percent or less of the house’s value by the time I sell it. I typically buy properties in the $100,000 to $150,000 price range and sell them for twice that much. The lines of credit I have are not maxing out the value on my personal home or rental either.
How hard has it been trying to get 20 flips repaired?
One of the biggest challenges with completing this many flips is getting them repaired. I use multiple contractors, sub contractors, and my own employees. I have sold a few to other investors without making many repairs and have tried making minimal repairs on properties to get them repaired and sold fast. If I complete a full rehab on a flip, it could take me two to four months to complete the work after I buy the house. If I complete enough repairs for the house to qualify for an FHA loan, I can cut the repair time down to a few weeks. I tried this strategy with a house I listed last week, and we had five offers in the first couple of days, all of which were over asking price. Our market is extremely hot, and it is tough to find any affordable housing. Houses that are not fully repaired but still qualify for financing are selling for almost as much as a repaired house.
Below is a video of the house we did not fully rehab.
One reason I have so many flips is because it has taken me too long to get houses fixed and sold. It seems like we run into problems on almost every flip.
- On one house, we had to have the hardwood floors refinished three times before they looked right. That same house was flooded from recent rain storms.
- On another house, we had to delay painting the exterior for two weeks because of rain.
- It has taken the city two weeks to open an electrical permit on a house we are flipping now. We cannot start other work until the electrical is done and we know how much damage the electricians will do.
- We had a house fall out of contract twice, once because the buyers didn’t like that a basement finish was not permitted even though the basement was finished decades before we bought the house and permits may not have been required at that time. On the second contract on that house, the buyers found out one week before closing that they could not qualify for the loan. That never should have happened, and I was not happy with the agents or lender on that deal since it cost us two months.
- We always seem to run at least a month longer on rehabs than the contractors estimate. This delays the next project on their schedule by a month, and the delays keep snowballing.
We have done a much better job of getting houses repaired faster than in the past. We keep hiring new contractors and are not shy about firing contractors who do a poor job. I have also started to hire my own repair team. It is so nice being able to direct where and when people work. It takes time to find reliable and affordable people to work for you.
How have I used systems and a team to help me flip houses?
I use “I and we” interchangeably through this article. At times in my career, I flipped houses both with my father and on my own. Lately, my team has been a huge part of my flipping business. I hired a project manager a couple of years ago to help manage contractors, and that turned out horribly. I had to manage everything myself until I hired Nikki to be my project manager. Nikki does an awesome job managing contractors, valuing properties, working with cities, and deciding what to repair. I also have agents on my team who help list the flips, and I have a transaction coordinator who writes contracts for me, schedules closings, and keeps track of lenders.
Even with a team, I spend a lot of time on the flips. I love to find deals, and I am the source for almost every house we buy. I do not like to be stuck in the office, and I spend a lot of time out in the field looking at houses and checking on the houses we own. I try to do things that I love to do and delegate other tasks that I do not like doing. I also have to be very careful with my time. I schedule everything in my phone, including phone calls. In fact, I do not answer my phone unless I have a scheduled call. My phone number is not listed on the blog for a reason. I do not have time to talk to people on the phone unless I know exactly what they want to talk about and it cannot be handled through email. I have to turn down calls and meetings all the time because not only do I need time for my work, but I also need time with my family. The ability to say no to people and delegate tasks is key to working multiple flips, not to mention handling my real estate team and the blog.
I also try to build as many systems as I can for my business. I make checklists for how I find deals; I write down plans for how to handle and hire contractors; and I have a system for my houses. We use an online management system to manage contractors, bids, invoicing, and even contracts. I have a giant whiteboard with all my flips on it, another whiteboard with all our contractors and subs on it, whiteboards with goals, and even a whiteboard with our blacklist. The blacklist includes the names of both people who we do not like doing business with and names to watch out for. I also have accounting software that keeps monthly track of what we make from flips and from the entire business.
None of this happened overnight. I slowly implemented systems over time and have improved them through trial and error. For a long time, I “winged it,” finding deals, lining up financing, and managing contractors all on my own. I was still successful, but I had many more problems and a lot more stress!
What are my goals for flipping houses in the future?
I flipped 17 houses in 2016, which I was very proud of. It was the most houses I had ever flipped in a year. Funny enough, I wrote an article a couple of years ago about the possibility of making one million dollars a year flipping houses. At the time, I had never come close to making one million from flips, and my article suggested I would need to flip at least 30 houses to make that much money. In the article, I said that I did not want to flip that many houses because it would take so much time and money away from other investments. I have stopped buying as many rentals because prices have increased so much in Colorado and it is so hard to cash flow here. My choice to stop buying rentals worked out perfectly because I could invest the extra money I made from flipping into more flips.
I made a goal to flip 30 houses this year, which I think I will do. I have only sold 7 flips so far, and we are in May, but I have five houses under contract to sell, another two listed, and four more that will be listed in the next week or two. I have 20 properties in my inventory, which should all be sold this year, and it should be no problem picking up a few more that will sell this year. Even if I do not hit my goal of 30 flips, I will blow away my previous best. Although I would love to buy more rentals, I am not disappointed that I have not. The markets change, plans change, and I have to be flexible. I am working on new strategies to buy rentals again, and in fact I bought a new rental property recently.
Having 20 simultaneous flips has been exciting, a little stressful, and made me improve my business. I did not expect to ever flip this many houses, but circumstances change, and we have to adapt and change with them. It has been fun finding new properties to buy, finding new financing partners, and building new systems to handle everything. If things calm down and I have fewer flips in the future, it will be a piece of cake to handle them! As a reminder, my new book is still on sale and an awesome resource for anyone looking to buy or sell a house.