I flipped 26 houses in 2017, and I am on pace to flip even more in 2018. I have scaled my house-flipping business over many years to reach this point. I have learned a lot over 17 years, and I am always looking for better ways to repair houses, find deals, and improve the business. I still run into problems and even lose money on the occasional deal, but it is a really fun and interesting business. Some of the things I have learned over the years to flip more houses is to hire people to help with all facets of the business, be open to new ideas from other successful investors, and not get caught up in the little details. I also am constantly looking for new ways to finance flips, find money to buy the flips, and find better ways to repair the houses. How have I been able to scale my flipping business?
How long has it taken me to scale my house flipping business?
I was not able to flip 26 houses overnight. It has taken many years to get to where I am today, and I know there is still room for improvement. I first started flipping houses with my father around 2001. He has been a real estate agent since 1978 and started flipping the occasional house in the 1990s. When I went to work for him part time after college, he was flipping a few houses per year. His primary business was selling houses as an agent, and that was my primary business as well. However, what I really loved to do was flip. I was lucky that I had someone to help me get started as it takes a lot of money and connections to successfully flip houses. He was very conservative in what houses he flipped, what repairs he made, and how many deals he was willing to do. When I started to work for him, I helped to scale his business by finding more ways to get deals, better ways to repair houses, and more money to flip. It was a little easier to find the money before the housing crash as banks were much more willing to give lines of credit to house flippers. It was as easy as calling them up, telling them the address of the houses, and withdrawing money later that day to pay for the house. Things have changed a lot!
Over the years, we went from flipping a few houses per year to flipping up to 8 in 2013. There were not huge changes in the business, and my father was not looking to make huge changes. One reason I bought him out in 2013 was so that I could really scale the business. I went from flipping 8 houses in a year to flipping 26 because I was willing to take some risks which included:
- Finding new ways to get deals. Most of the houses my father found were from the foreclosure sale. I started to find houses from the MLS, auctions, wholesalers, FSBOs, and my own marketing.
- I was willing to explore new ways of financing the properties by talking to more banks, finding private money, using hard money, and investing more of my own money into the business.
- I hired more people to help with the business so I did not have to do everything.
- I was willing to buy houses that were riskier. I bought older houses and houses that needed more work.
You can see all my active flips here: Fix and Flip Property Scoreboard
How much money do you need to scale a fix and flip business?
I know many investors who need the money they get from flipping houses to live on. It is really tough to scale your business if you have to use all the profits from the flips. I made/make money as a real estate agent and did not depend fully on the flips for my income. Over the last few years, I have invested many of my profits into buying more and more houses. I have needed that money because our housing prices have increased and it takes much more money to flip now than it did a few years ago. I used to buy most of my flips for under $100,000, and now I am paying over $200,000 for most of the properties. Here is how much money it may take to flip a house:
- Purchase price: $200,000
- Repairs: $30,000
- Carrying costs: $2,500
- Selling costs: $13,000
- Financing costs: $7,000
If I were paying cash, it would take about $232,000 to flip one house (excluding selling costs and financing costs)! I can flip three times as many houses by getting loans, which makes me much more money (I average about $30,000 profit on each flip I do). There are many different loans that I can get on my flips from bank loans that are 75% of the purchase price with no funding for repairs to private money that finances 100% of the repairs and 100% of the purchase price. The private money is usually much more expensive than the bank loans, so I have to weigh which option is better on each deal. I also do not have unlimited private money or unlimited bank loans.
On the deal above, I may need from $10,000 with a private-money loan to $90,000 with a bank. I also have private lenders who do not finance the repairs, which means I would need about $40,000 on those deals. It takes a lot of money to flip houses unless you have a partner to fund the deals. The problem with a partner is they want a pretty big cut of the profits, and I was getting a pretty small portion of the profits when I flipped with my dad. Over the last year, I have had from 10 to 22 flips going at once. I have needed up one million dollars to invest in the flipping business aside from the loans I have on the properties!
How I have I scaled my business by finding new ways to fund deals?
As you can see, it takes a lot of money to flip houses. This is one reason why my father and I never did more than a few at a time. One thing I did when I took over was find new ways to pay for the flips. In fact, I had to find many new ways to fund the flips because the bank that helped my dad did not want to help me. Luckily, a bank that had lent to me on my rental properties was willing to do flip loans as well. I had some of my own money, but I knew I would need more money to take the business to new levels. I started looking for more sources of funds to pay for down payments and repairs.
- I got lines of credit on my personal house and a rental property I owned. This provided a couple hundred thousand dollars to the business right away.
- I got a personal loan from a family member (not my parents) for $160,000.
- I decided that I would save as much of the profits as I could to reinvest in the business.
This money allowed me to keep the house-flipping business on par with what my father and I had done in the past. However, I knew I needed more options if I were to expand. This blog actually helped me with attracting private money from local investors. I have been very open on the blog about my deals, what I make, and what my goals are. I have also been very keen on building a strong reputation in the community. I found local investors who were willing to lend me private money. I had to pay an interest rate that was twice as much as the bank, but I could finance more deals and therefore make more money. In fact, a private lender was the only way I could have pulled off the high-end flip I completed last year. I still have a lot of my money invested in the business, but private money has allowed me to scale things bigger. I also have used hard money twice, but I vastly prefer private money.
Here is a video of my latest flip:
How have I scaled the business by finding more deals?
Another problem with flipping more houses is finding more deals. It is not easy to find houses to flip, especially in our market in Colorado. There is a ton of competition and very little inventory. When I flipped with my father, he bought everything from the foreclosure sale. There were usually good deals at that sale and only a few investors going after them. In the last year, I have bought zero houses from the foreclosure sale. In fact, I have bought zero foreclosures or short sales in the last year. There are almost no foreclosures in our market, and the foreclosures that I see are usually not good enough deals to flip.
Here is how I expanded how I find deals:
- I started to look on the MLS for houses I could flip. I was a real estate agent and had a huge advantage when flipping houses. I could save the buyer’s agent commission and could act faster than most buyers after I found a good deal. No matter what anyone says, there are deals on the MLS. I bought three deals from the MLS this month!
- I reached out to wholesalers. I did not know what a wholesaler was in 2013 when I started my blog. I had never met one, let alone gotten a deal from one. In the last few years, many of my deals have come from wholesalers. Most wholesalers are not going to have great deals, but there are some out there who can get you houses to flip.
- I looked at all the auction sites and found a couple that had good deals. I bought many houses from HUBZU. HUBZU is a mess: their listings are not accurate; their title company is a mess; they often make huge errors; and that is why I love them. Other investors do not want to deal with them because it is such a pain, and that leaves a better deal for those who will deal with them.
- I started to pay attention to FSBOs on Zillow and Craigslist. There are deals everywhere if you take the time to find them!
- I started my own direct marketing campaign. I sent letters out to people who may want to sell their house directly to me. I ran my own campaigns in the beginning and now outsource most of the work to another company.
It has not been easy expanding the business. It is fairly simple buying a house from the MLS or an auction once you figure out the process. However, when you are buying directly from sellers ,you have to learn how to talk to them and make them feel comfortable with you. I have always been an introvert, and I don’t like talking to people I don’t know, but I do it anyway.
I have much more information on how to flip houses in my book: Fix and Flip Your Way to Financial Freedom Finding, Financing, Repairing and Selling Investment Properties.
How have I scaled the business by improving my repair process?
I was also lucky when I started with my father in that he had a contractor who was awesome. He was affordable, worked quickly, and was reliable. When I started to scale the business, I could not have one contractor repair all my houses. That contractor also eventually quit the business and got a regular job. I had to hire more contractors to complete more flips. It is really hard to find good contractors who are also affordable. It does me no good to hire the most expensive contractors because I would make no money on the flips. I have found many good contractors and many horrible ones over the years. I have also changed the repair process in the following ways:
- I use as many subcontractors as I can to reduce the work of the contractors. This saves time and money but takes more management.
- I hired a project manager to help manage, find, and pay the contractors. I failed on the first hire but have an awesome person in the position now.
- I am always looking for new contractors as even when I find good ones they tend to eventually raise their prices or their work falls off.
- I work closely with Home Depot to keep costs down.
- I have hired employees who work full time on only my projects.
- I have tried different ways to pay the contractors to keep them motivated and working fast.
The most difficult part of the business is finding good people to fix the houses. I am always looking for new and better ways to do things.
How have I scaled the business by hiring people to help me?
I tried to do most everything myself when I took over the business from my father. I was not doing the manual labor, but I was doing almost everything else. I outsource most of the business now:
- My project manager deals with the contractors, deals with budgets, deals with designs, and helps with many other parts of the business.
- Even though I am an agent, I do not list the houses myself. I own a real estate brokerage, and I have one of my agents list the houses for me.
- I have a bookkeeper who keeps track of the expenses and reports for taxes.
- I have someone manage payroll, taxes, and paperwork for the people I employ and the contractors.
- I outsource my direct-marketing materials and use an answering service to takes those calls.
- I have a property manager who deals with tenants who may be in some of the properties.
- I use lawyers to handle evictions and other situations that may arise.
It costs me money to outsource these tasks, but if I was doing them all myself, I would not be able to handle close to as many deals as I do now and I would go crazy! Another benefit of hiring people is that I get to concentrate on the part of the business that I love—finding deals.
How can worrying about everything hurt your ability to scale?
I had someone recently comment on one of my YouTube videos about the sheen of paint we use on the ceiling. He asked if we were using gloss paint and thought it was a bad idea. My response was I have no idea what paint we are using on the ceilings, and I don’t care to know. If I want to run a large operation, I cannot worry about all the little details. I have people to worry about those things, and it does not matter to me if every little thing is done perfectly. I have taken a lot of coaching and learned a lot from those who have succeeded ahead of me. One saying I love is:
“The last 10% of a job will take just as long as the first 90% of the job. But 90% of people will not notice the difference between a job that is 90% and 100% perfect.”
The point is that you do not have to do things perfectly to have a good product that sells. If you must have everything perfect before you consider a job done, it will be almost impossible to scale in this business. Even brand new houses built from scratch are not perfect. It would be awesome to be able to make every house look like an HGTV house, but it is not realistic.
House flipping is a lot of fun, and you can make a lot of money doing it. However, it is not easy and takes a lot of money to run a big operation. I have not learned everything on my own. I have learned a lot from other people in the industry. If you want to scale your business, you must be willing to learn from others no matter how big you get. I have been doing this 17 years and still have a lot I can learn. I am constantly trying new things so that I can improve the business.