I recently did a Q&A session with my Instagram followers where they submitted their house flipping questions about 1st house flips. I already answered the first set of house flipping questions here, so make sure you don’t miss that post. There are so many things you learn on your first house flip. No matter how many books you read, people you talk to, or even blog posts you read, you will still learn something new. There are a lot of misconceptions and myths about house flipping (like these), but I hope between my last post & this one, many of your novice house flipping questions will be answered!
Novice House Flipping Questions Answered- Part 2
How Do I Find A House To Flip?
There are several different methods of finding houses to flip. I’ve tried just about all of them! I’ve purchased off the MLS, from “we buy houses” mailers, from probate, at a public auction, and from past clients. A lot of the success in finding flips is your circle of influence and who you know. So the first step is making sure your circle of influence knows you’re looking to flip a house. Tell your bank, your neighbors, your relatives, your coworkers, your social media followers, your dentist…TELL EVERYONE!
Other ways to find flips:
- Search auction websites like Hubzu & Auction.com. Before you buy an auction house, check out my tips here.
- Most local banks have a list of homes they’ve foreclosed & have website pages dedicated to those foreclosed homes. Ask your banker where you can see a list of bank owned foreclosures
- Don’t forget about the MLS. The deals are rare, but they are there!
- Connect with wholesalers. Begin by creating a profile on Bigger Pockets and try to connect with local investors.
- Some counties & states publish probate records. Probates are a great way to find homes to flip. Try contacting the person in charge of probate to express interest in purchasing.
How Do I Know What To Update In The Home?
I get a home inspection on all of my flips. Of course purchasing via auction doesn’t allow for an inspection before purchasing, but so the inspection happens after purchase. I’m looking for the home inspector to identify major problems or fundamental problems that might be unseen. While those items are never fun to update because they aren’t pretty, they will definitely appear on the buyer’s home inspection report. Tip: Even if you create a stunning, amazing home, buyers won’t be interested if it has fundamental problems like electrical, plumbing, roof, etc.
After I’ve identified the major items that need repaired, I focus on the kitchen and bathrooms. The adage “kitchens and baths sell houses” is 100% true, so these are the areas to spend up. But that doesn’t mean you have to gut everything (actually, here are some tips for that). There are ways to update without overspending!
Tips for updating:
- Keep the original cabinets and reface them
- Before you gut- paint! It’s the best secret weapon when flipping a house!
- Adding an accent wall can be an easy & affordable way to update a space
- Always update the appliances. They typically don’t break the bank and really appeal to buyers.
- Sometimes you can focus on cleaning up what is existing rather than totally replacing everything– like I did with Flip 6.
- I try to tour comps in the same market area to see what upgrades they have (or don’t have). I try to stay close to the existing comps on finishes.
What’s The Biggest Mistake First Time Flippers Make?
If you watch HGTV for any length of time, you’ll see house flippers gut kitchen cabinets, toss interior doors, ditch kitchen sinks…until they’re basically left with just the studs of the house. And not only is that sad to lose the integrity of the house, I think it’s a monumental deception to how to responsibly flip a house. I’m a firm believer in reusing- and even repurposing…whether that’s keeping the cabinets but painting them, or rearranging the kitchen cabinets, or refacing the cabinets. I always like to work with the existing foot print if I can.
I don’t think it’s reasonable or responsible to deliver jaw-dropping, over-the-top kitchens or bathrooms. While you should sink your money in those two rooms, I believe responsibly updating is a better route.
Tips For Updating Responsibility:
- Search stores like Habitat Restore for used items. This significantly helps the budget, supports a non-profit, and prevents these items from ending up in a landfill
- Look for 2nds, scratch-n-dent specials…often times the “blemishes” aren’t even visible but can save you hundreds of dollars!
- Keep the existing ugly bathtub but give it a face lift with new glaze & a new tile surround.
- Splurge on one big statement piece- maybe gorgeous marble for the island countertop. It’s a smaller area so it’s less money but you still get the impact of a high-end finish and opt for a more budget friendly, complimenting countertop for the rest of the kitchen.
- Scour the internet for knock-offs. It’s one of my favorite tasks is copying a high-end look for a fraction of the price.
I see so many rookie flippers buy these unbelievably dilapidated houses…and they have zero experience. We aren’t just talking about peeling wallpaper, stained carpet, and a broken oven. I’m seeing on forums like Bigger Pockets rookies using hard-money loans (which I don’t encourage) to buy houses that probably should just be demolished.
I think a first time flipper should stick to a lipstick flip- cosmetic updates. Yes, the profits will be smaller on this type of flip, but the experience & lessons will be just as valuable! Don’t get in so deep that you lose your shirt!
What Are Some Resources To Learn How To Flip?
Public Service Announcement: Don’t pay to attend a house flipping seminar or workshop. Some of these workshops are upwards of six figures. YOU DON’T NEED TO DO THAT!
Instead, start locally. I’d strongly suggest sitting down with not only a secondary market loan officer, but also a commercial in-house loan officer (the type I use!). These two loan officers will be a wealth of information regarding your financial limits. This is often the most overlooked part, but you want to invest sensibly– don’t over-extend yourself!
Consult a Realtor. Realtors know the market better than anyone. They’ll know the hot areas and hot properties- and what’s not. As the saying goes, invest in what you know. If you don’t know your market, you shouldn’t invest in it.
If you haven’t already, hop over to Bigger Pockets. It’s a great forum of real estate investors. You can learn a lot from house flipping questions asked by others, their podcast, or you can ask your own house flipping questions. Just be cautious that you don’t drink everyone’s kool aid on there…some people aren’t dispensing the most sensible advice.
Another area that can kill a deal is not knowing how to budget. Consult contractors, sub-contractors (tile guys, plumbers, electricians, roofers, etc). The goal is to be able to reasonably ballpark how much you’re going to spend on a house, and sometimes you don’t get the luxury of having your subs come bid the jobs before you purchase the property. Shop around at your local tile and flooring stores, plumbing stores, etc. Learn where you can buy in bulk and what discounts are available. Saving money here can earn you money later!
How Long Is Your Timeline?
As they say, time is money, & depending on which type of loan you’re using, time can cost you a lot of money! I avoid those full-gut flips now, and I stick to “easier” flips. Apart from my live-in flips, I tend to expect to spend a month rehabbing the property; although, Flip 7 was only 2 weeks but Flip 4 was 3 months.
The key to getting a house flipped in a month or less is to know what needs to be done before you ever close on the property, and I have my guys lined up to start work on Day 1. This is where it’s critical to have a crew that understands the urgency of the timeline, and they are willing to make it happen.
The type of loans I use charge me a daily interest, so every day I can cut from the rehab time, the more it saves me money. I see some flippers spend a week or a month after closing meeting with contractors to plan the work. I think that’s expensive wasted time. Before I’ve ever even purchased the property, I’ve already scheduled an appointment with my plumber & purchased fixtures, scheduled with my electrician & purchased fixtures, and same goes for the rest of my subs. Of course, surprises pop up, but staying on a tight schedule helps to finish the project faster.
Regardless how many questions I answer, you will still encounter things that happen that are scary, expensive, and cause delays. That’s how house flipping goes. But, and I can’t preach this enough, if you will invest sensibly and with caution, it can be a tremendous tool to wealth building!