• Discuss Entrepreneurship | Start-Ups | Starting a Business | Wealth | Money | Success | Investing
  1. Escape the Grind. Resurrect The Dream. Live Happily Ever After.

    Become an UNSCRIPTED™Entrepreneur.

    Don’t just build a business—build a life and a legacy. UNSCRIPTED™ Entrepreneurship is a specific subset of business creation that awakens dreams, frees time, and explodes incomes—but more importantly, it changes lives.

    Make no mistake; this isn’t something you “try”— this is something you live.
    KICKSTART YOUR PERSONAL REVOLUTION TODAY.
    Get The Book(s) Download More Info Register
    Registering for the forum removes this block!

Change Yourself.
Change Your Life.
Change The World.

Tired of broke bloggers giving you advice? Within minutes, get millionaire advice from real entrepreneurs who live the dream.

Notable! AMA: Rehabbing & Flipping - Ask Me Anything

Discussion in 'Real Estate Investing' started by JScott, Oct 7, 2013.

FORUM SEARCH


Need answers about entrepreneurship? Search FIRST! More than likely your entrepreneurial topic has already been discussed.
Powered by Google Site Search.
  1. Blueskies4me
    Offline

    Blueskies4me Bronze Contributor Read The Millionaire Fastlane Speedway Pass

    Messages:
    188
    Likes Received:
    225
    Joined:
    Jan 9, 2014
    Gender:
    Female
    Location:
    Noblesville, Indiana
    Rep Bank:
    $1,315
    How has the shortsale game changed over the last 5 years? I was in the REI game when preforeclosures were fresh in 2008. We outsourced our loss mitigation / shortsale to a 3rd party. Just wondered if it's gotten harder...I know lenders were starting to get skeptical of investors and sometimes got tough with us. We were able to push through so many more with a 3rd party doing the negotiating and doc sorting.
     
  2. JScott
    Offline

    JScott Platinum Contributor FASTLANE INSIDER Speedway Pass

    Messages:
    3,035
    Likes Received:
    3,043
    Joined:
    Aug 24, 2007
    Rep Bank:
    $21,107
    It really depends on the house. If it's a house that has a major/expensive issue -- for example, foundation/structural issues, termite damage, mold or major damage to the roofing system -- these repairs will take the house from unsellable to sellable, which is about the best value increase you can get... :)

    Now, if the house is in livable condition, the best bang for the buck (in my experience/opinion) are things like:

    - Painting (both Interior and Exterior)
    - Replacing Kitchen Cabinets/Countertops
    - Replacing Appliances
    - Replacing All Light Fixtures w/Matching Fixtures

    These are the things that a buyer will most easily notice, and quickly grabbing their attention in a positive way will create a strong positive emotion -- that's what sells houses.

    But, there's something even more basic you can do: Ensure that you have great staging, great pictures and great MLS listing copy. I can't tell you the number of times we've had a buyer's agent call us to schedule a showing and tell us something to the effect of, "My clients took a look at your MLS listing and they've fallen in love with your house. If it shows anywhere near as nicely in person, you can expect an offer." Not only do the potential buyers have a positive first impression (and positive emotional response), but they then get to think and dream about the house between that time and the time they actually see it. I'm convinced that we've actually sold some houses long before the buyers even walk through the door.
     
  3. JScott
    Offline

    JScott Platinum Contributor FASTLANE INSIDER Speedway Pass

    Messages:
    3,035
    Likes Received:
    3,043
    Joined:
    Aug 24, 2007
    Rep Bank:
    $21,107
    We didn't start doing short sales until about 2012. That entire year, and through the start of 2013, short sales were EASY. Plenty of homeowners underwater who were happy to try the short sale, the banks and the IRS were happily forgiving the debt, and BPOs were coming in very low, so investors could pick up houses at well below market.

    But, by mid-2013 -- at least in my markets -- lenders were starting to realize that prices were rising, and they weren't willing to accept low BPOs anymore, they weren't willing to take repair costs into account, and their was enough competition among buyers that BPO prices didn't need to be discounted for buyers. We haven't purchased a short sale since April 2013, and have stopped putting offers in on them.

    In fact, this is what led us to leave our home market, move someplace we preferred to live and start doing spec builds instead, along with big rehabs (adding square footage, etc).
     
    Russ H and Mrs. BRKb like this.
  4. Blueskies4me
    Offline

    Blueskies4me Bronze Contributor Read The Millionaire Fastlane Speedway Pass

    Messages:
    188
    Likes Received:
    225
    Joined:
    Jan 9, 2014
    Gender:
    Female
    Location:
    Noblesville, Indiana
    Rep Bank:
    $1,315
    Good to know. Thank you for that information. I didn't realize they went that far into 2012 with being that flexible. Interesting spec builds are coming back. How's the financing going for getting resales on your rehabs? Are you holding notes / lease option or just purely hold and rent? In some ways I miss that market but in a lot of ways I don't. Congratulations on your success. Please let me know if there's anything I can do to help you. I still have some colleagues in my network that are still in that field. Speed to you.
     
  5. JScott
    Offline

    JScott Platinum Contributor FASTLANE INSIDER Speedway Pass

    Messages:
    3,035
    Likes Received:
    3,043
    Joined:
    Aug 24, 2007
    Rep Bank:
    $21,107
    Financing is about as easy as it's been the past several years for our buyers, so that's good. As for holding notes/LO/rentals, we essentially resell everything that we buy (i.e., we don't hold notes or properties). We're actually in the process of buying the first property we plan to hold long-term, so perhaps there's a rental portfolio in our future, but for the most part, the bulk of our long-term assets are not real estate...
     
    MidwestLandlord and Russ H like this.
  6. SteveO
    Offline

    SteveO Legendary Contributor FASTLANE INSIDER Speedway Pass LEGENDARY CONTRIBUTOR Summit Attendee

    Messages:
    2,930
    Likes Received:
    9,661
    Joined:
    Jul 24, 2007
    Rep Bank:
    $66,742
    Way to go JScott!!!
     
    JScott likes this.
  7. Russ H
    Offline

    Russ H Gold Contributor Read The Millionaire Fastlane Speedway Pass

    Messages:
    6,556
    Likes Received:
    1,199
    Joined:
    Jul 25, 2007
    Location:
    Napa Valley, CA
    Rep Bank:
    $1,910
    I still get tongue-tied talking to my mentor in acoustics. He's the nicest guy, but I'm so blown away by his expertise that I have a hard time being normal.

    -Russ H.
     
    Last edited: Jan 29, 2014
    Freedom4e, PrincessK and JScott like this.
  8. Freedom4e
    Offline

    Freedom4e PARKED

    Messages:
    3
    Likes Received:
    0
    Joined:
    Sep 24, 2007
    Location:
    New York City
    Rep Bank:
    $22
    Hello, Russ

    How are you?

    I am in NYC and I want to get started as a real estate investor that specializes in flips. Do you know of any NYC real estate investors that can mentor me? Do you have any advice for a newbie flipper?

    Thanks

    Tracy
     
  9. JScott
    Offline

    JScott Platinum Contributor FASTLANE INSIDER Speedway Pass

    Messages:
    3,035
    Likes Received:
    3,043
    Joined:
    Aug 24, 2007
    Rep Bank:
    $21,107
    My first piece of advice is to not ever ask for someone to mentor you without offering something in return. Why would someone voluntarily choose to spend their time training their competition without getting something in return?

    If you want a mentor, here's what you do:

    1. Start spending a lot of time around successful investors. Go to REIA meetings, stay active on investing forums, etc.

    2. When you meet someone who appears successful at doing what you want to be doing, asking him/her if you can volunteer your time to his/her business, whether that be helping with rehab tasks, making phone calls or running to get coffee.

    3. When you find someone who agrees to let you help (for free), go out of your way to do as much as you can for the investor, and ask some questions along the way. And spend as much time on the jobsite learning as much as you can.

    4. Once you have a good relationship with the investor, he feels that you are providing value in return for his letting you volunteer, and you feel he's providing value with his knowledge, then ask if you can formalize the relationship -- you continue to work for free, he mentors/trains you.

    This who process could take a year or more...it's not something that happens overnight. But, nothing comes for free, and you have to be willing to give in order to get...
     
    Freedom4e and jon.a like this.
  10. Freedom4e
    Offline

    Freedom4e PARKED

    Messages:
    3
    Likes Received:
    0
    Joined:
    Sep 24, 2007
    Location:
    New York City
    Rep Bank:
    $22
     
  11. Freedom4e
    Offline

    Freedom4e PARKED

    Messages:
    3
    Likes Received:
    0
    Joined:
    Sep 24, 2007
    Location:
    New York City
    Rep Bank:
    $22
    Thank you for giving me some advice Scott.
     
  12. Chazmania
    Offline

    Chazmania Silver Contributor Read The Millionaire Fastlane FASTLANE INSIDER Speedway Pass

    Messages:
    444
    Likes Received:
    644
    Joined:
    May 23, 2013
    Gender:
    Male
    Location:
    USA
    Rep Bank:
    $3,000
    Great AMA, thanks for taking the time to do it!

    Is there a particular holding period you shoot for before selling?

    I would think you get hurt if less than a year and paying short term gains. Sounds like you're doing enough volume to still come out pretty good though.

    I'm a total buy and hold type by nature, but I've been wanting to flip something. My rentals are going so well that I worry about stepping away from that as my core business and buying something to flip, and then getting caught holding it. I am trying to expand my comfort zone though.

    Also, how do you structure all of the people doing the work?

    Are your project managers GC's basically and have their own crew(s) and bring in the other trades as needed?


    Thanks again for your thread!
     
  13. JScott
    Offline

    JScott Platinum Contributor FASTLANE INSIDER Speedway Pass

    Messages:
    3,035
    Likes Received:
    3,043
    Joined:
    Aug 24, 2007
    Rep Bank:
    $21,107
    First, it doesn't matter how long you hold a flip -- it will *always* be subject to ordinary income tax at your marginal rate (plus self-employment taxes in some situations). When you flip a house, the IRS considers the house inventory, not a capital asset (investment), no different than if you were buying and selling shoes through a shoe store or buying and selling food in a restaurant.

    Unfortunately, flipping houses is not a good way to minimize taxes, and other than minimizing self-employment tax, there isn't much you can do to reduce your tax burden.

    In terms of project managers and structuring my teams, it's different in each state where we do work. In Atlanta, where we do the bulk of our projects, I have a full-time project manager who essentially acts as a GC -- he is responsible for all day-to-day aspects of the projects, including getting bids, hiring contractors, managing the rehabs, quality control, etc. He's basically my right-hand man for the business.

    In Wisconsin, we had a full-time project manager, but it didn't work out, as the projects we're doing up there require a more technical oversight than a non-contractor could provide. So, we've moved to a structure where my carpenter pretty much runs the projects day-to-day, while also contributing much of the carpentry labor. And in Maryland, where I just moved, I don't yet have a project manager, so I'm managing the bulk of the work myself, even though we've only done a couple projects so far. As we ramp up over the next few months, I'll either move my project manager up from Atlanta or hire someone else for the Maryland market.

    In general, we don't use GCs, though sometimes we need to bring one in to pull permits in certain jurisdictions. We tend to just hire our subs directly and manage them individually. The nice thing is, once your subs have worked together on several projects, they tend to be self-managing. Most of our subs will communicate with each other as necessary to revise schedules and ensure things are getting done in the most optimal fashion.
     
    jon.a and Chazmania like this.
  14. JScott
    Offline

    JScott Platinum Contributor FASTLANE INSIDER Speedway Pass

    Messages:
    3,035
    Likes Received:
    3,043
    Joined:
    Aug 24, 2007
    Rep Bank:
    $21,107
    Just thought I'd bump this thread, in case anyone has any questions and they didn't know it was here...

    Since I started this thread 3.5 years ago, we've done about 100 more deals, and have branched out into spec building, landlording, lending and a few other areas. I'm mostly hands-off of the business these days -- most of our projects are with partners -- but am still well entrenched in the industry.

    Any questions about any aspect of real estate investing, I'm happy to try to answer...
     
  15. MidwestLandlord
    Offline

    MidwestLandlord Platinum Contributor Read The Millionaire Fastlane I've Read UNSCRIPTED FASTLANE INSIDER Speedway Pass

    Messages:
    927
    Likes Received:
    4,949
    Joined:
    Dec 6, 2016
    Gender:
    Male
    Rep Bank:
    $20,920
    Thanks for bumping, never saw this thread before.

    I live in an area where I don't think flipping would work. Most of the houses that get flipped around here don't even make it to MLS, get bought by a real estate broker, and then flipped. Huge competition. A friend of mine is a realtor and will sometimes send deals my way before they get listed, but they are few and low margin.

    The one's that are available need major work, like slab foundations that have cracked and broke the water pipes that were installed when the concrete was poured. I've looked into those, and it's actually cheaper to jack up the house and set in on a cinder block foundation than it is to repair the slab. In the end, no margin.

    Is it possible to do this long distance, or do I need to move?
     
  16. Midas
    Offline

    Midas Contributor Read The Millionaire Fastlane

    Messages:
    17
    Likes Received:
    34
    Joined:
    Jun 10, 2016
    Gender:
    Male
    Rep Bank:
    $168
    @jcscott Thank you for your contribution, Sir. I look forward to being in a similar position someday and helping others. I was able to check out 123flip and just from the information you provided on your first flip, I know you're going to be my new inspiration.

    I'm somewhat of a local handyman. I love doing the work, painting walls and cabinets, flooring, molding, and fixtures. If I could be at Home Depot at 6AM every morning, I would be living a dream. My wife and I decided to get into flipping. She is currently studying for the Real Estate exam and I'm networking with contractors hoping to get in where I fit in.

    My question is: The market we would more than likely start in(due to financial constraints) would probably yield poor returns, but I'm ok with that. 99% of the properties($65k-$100k) in my area listed are outdated. Sellers do not try to fix them up and there must be a reason. But I see a property that could use $.99 sq ft laminate flooring, painted kitchen cabinets with new hardware, countertop resurfacing, crown molding. $2500 could easily bring these houses up to date. Since I love to do this kind of work myself. Do you think I could find a little profit in these lower end flips?

    Sorry for the long post. Thanks in Advanced!
     
  17. Chris Milan
    Offline

    Chris Milan New Contributor

    Messages:
    2
    Likes Received:
    2
    Joined:
    Sep 25, 2015
    Gender:
    Male
    Location:
    PHOENIX, AZ
    Rep Bank:
    $48
    There is Hard money lenders that do 100% financing if you show them the deal you have and comps of what it will sell for after rehab. Use zillow to check for sold properties same room and bath, around same sq ft and call up some agents with listings in that area. get some bids from contractors and present numbers to lender.
     
  18. danoodle
    Offline

    danoodle Freedom Seeker Read The Millionaire Fastlane FASTLANE INSIDER Speedway Pass Summit Attendee

    Messages:
    252
    Likes Received:
    264
    Joined:
    Feb 1, 2011
    Location:
    Kansas, toto
    Rep Bank:
    $675
    I fix up houses to rent and do all the work myself. I need to start hiring out the work but am having a hard time letting go in this area when I can do all the work myself. Any and all advice welcome when it comes to hiring out work and shifting my mindset to more of an investor instead of a handyman is appreciated!
     
  19. JScott
    Offline

    JScott Platinum Contributor FASTLANE INSIDER Speedway Pass

    Messages:
    3,035
    Likes Received:
    3,043
    Joined:
    Aug 24, 2007
    Rep Bank:
    $21,107
    First, it's certainly possible to flip long-distance. There are lots of investors who make a living doing just that, and we've done it a bit ourselves. That said, I don't generally recommend it, as here are things to consider:

    - The only way to be successful long-distance is to have a team on the ground that you trust. It takes time, energy and experience to build a team, and if you've never done it before, you'll spend months at the remote location building your team before you get it right. Are you willing to spend months remotely to build a team? Will you do enough projects in that location to make it worthwhile?

    - You're going to have issues come up on your flips. If you're experienced, you may be able to handle those issues remotely (especially if you have a good team on the ground). But, if you're not experienced, you'll probably be making trips back and forth to that location to handle the issues. Are you willing and able to do that?

    - If you've never flipped before, you'll spend 60-80 hours/week on your first project (if you're doing it right). If you're doing your first project long-distance, that adds additional time/complexity/risk. I couldn't imagine the learning curve of both flipping and remote flipping at the same time. Learn to flip first, then branch out remotely.

    - Unless you plan to get your real estate license in another market, make sure you find a GREAT real estate agent who can help you with data, buying and selling. I don't know anyone who has been successful long distance without a great agent supporting them.

    - If you've flipped before, expect that when you start doing it long distance, it will be 10x more frustrating and time consuming than your local flips. It will also be more expensive. Will the profit margins you expect justify the extra cost and stress?

    For most people, I don't recommend long distance flipping. We did 40 houses in Milwaukee back in 2011-2013, and it was hell. Tough market, bad weather, difficult contractors, relatively long plan flights, etc. We made a decent profit, but it wasn't worth the extra stress, time and energy that went into it. These days, we only flip long-distance when we have a partner on the ground who can handle 100% of the work.
     
    MidwestLandlord likes this.
  20. MidwestLandlord
    Offline

    MidwestLandlord Platinum Contributor Read The Millionaire Fastlane I've Read UNSCRIPTED FASTLANE INSIDER Speedway Pass

    Messages:
    927
    Likes Received:
    4,949
    Joined:
    Dec 6, 2016
    Gender:
    Male
    Rep Bank:
    $20,920
    Thanks for the detailed answer!

    I've flipped 2 houses, and over a dozen mobile homes. So I wouldn't say I'm "experienced" with flipping at all, because I found out that flipping mobiles is much different than actual real estate.

    Remote flipping is probably out than, with my "job" and all that taking my time.

    That leads to the question, how would I determine if where I want to move is a "good market" for this?
     
  21. JScott
    Offline

    JScott Platinum Contributor FASTLANE INSIDER Speedway Pass

    Messages:
    3,035
    Likes Received:
    3,043
    Joined:
    Aug 24, 2007
    Rep Bank:
    $21,107
    A few things:

    - Make sure you approach investing/flipping as a BUSINESS, not a job. Don't think about your investments as a contractor -- think about them as a business owner and investor. If you approach investments as a contractor, you'll find that you're focused on buying yourself a job, and you'll never make the profits you deserve. When evaluating deals, assume that everything will be hired out to other contractors -- if you can still make a reasonable profit in that situation, it's a good deal. But, if you can only make the numbers work by YOU doing the work, it's a not a good deal. Perhaps it's a nice hobby, but it's not a good deal.

    - Along with the above, you're never going to maximize your profits by doing the work yourself (I have a feeling you realize this). If you're doing a job (like painting) where you could be hiring it out for $15/hour, you're basically earning $15/hour. I prefer to hire it out and take on more projects with the time I'm saving.

    - That said, if you're a contractor and you don't mind essentially earning $15-50/hour (whatever you'd be paying your contractors), doing your own properties provides the advantage of control and the additional profits that come the investment. I know many contractors who have started by doing their own work, and then transition to hiring it out. But again, make sure the deals work WITHOUT YOU, as you never know what might happen -- you might find another opportunity, you might break your hand, etc. If the project is going to blow up without you doing the work, it's not a good deal.

    - As far as slim profits go, that's up to you. I would caution that if you've never done this before, slim profits can turn into a loss pretty easily/quickly. But, if you're VERY confident of the numbers, and if the profits are worthwhile to you, go for it. I know people who are happy to make $10K on a deal, expecting that they can do one every 2-3 months -- they are happy earning $40-60K/year. I know other people who won't get out of bed if they can't make $100K on a deal in 4 months. That's a personal decision, and only you can determine what level of profit is reasonable for you. But again, you MUST be sure the numbers work before taking on a slim deal, especially when you're new at this.

    - Btw, I started with low-end flips. I was buying $30-50K properties in the Atlanta suburbs, putting in $15-25K in rehab, and reselling for $70-100K. We made about $15-20K per flip, and were doing enough volume that we were thrilled with our results. It's certainly possible to be successful in this type of market. Just make sure there is buyer demand at that price point and for those types of houses (a real estate agent can help you with this), and make sure that your rehabs are at least as good (if not a little better) than the other properties selling in that area and at that price point.
     
    Midas, Chazmania and MidwestLandlord like this.
  22. JScott
    Offline

    JScott Platinum Contributor FASTLANE INSIDER Speedway Pass

    Messages:
    3,035
    Likes Received:
    3,043
    Joined:
    Aug 24, 2007
    Rep Bank:
    $21,107
    Ready for some tough love? :)

    Start by asking yourself two questions:

    1. How much would you be paying contractors on an hourly basis to take over the work you're doing yourself?

    2. Do you want to work for that much per hour?

    For example, if a painter is going to cost you $15/hour, then you need to ask yourself, "Am I looking for a $15/hour job?" If so, do it yourself. If not, hire it out. Personally, I don't want to work for $15/hour -- it's part of the reason I got into this business. So, I wouldn't do a job that I can hire out for $15/hour. Likewise, I personally wouldn't do a job that I could hire out for $25/hour or $50/hour.

    People will argue that doing the work yourself increases your profits. In my opinion (and I can basically prove this mathematically), that's not true. Your profits are exactly the same. All it does is provide you some contracting income in addition to your profits. The cost of labor is the cost of labor, whether you're doing the work yourself or you're hiring it out. You can play accounting games and trick yourself into believing that you're making extra money by doing the work yourself, but in reality this is no different than hiring out the work to a contractor at $15/hour and then going to work a retail job for $15/hour. The math is the same.

    Again, when you do the work yourself, the most money you're saving is typically about $50/hour (in theory -- I actually can't think of any contractors I pay $50/hour to that don't do VERY specialized work). But, I can name lots of RE tasks that consistently generate more than $50/hour (fundraising, marketing, strategy/planning, networking, etc) -- do those and you'll make more than you're saving by swinging a hammer.

    Look at it this way -- I typically earn about $25K on a house flip. I spend about 40-50 hours on a deal these days, between raising funds, finding deals, managing my team, etc. Simple math says that earning $25K on 50 hours of work is putting my time at $500/hour. Why would I spend time swinging a hammer (saving $20-25/hour) when I could be doing more deals earning $500/hour. And why should you???

    That said, if you're doing the work because you love the work or because you take pride in doing it yourself, go for it. Those are excellent reasons. Just don't try to convince yourself that it's making you a better investor or making you more money. It's not... :)
     
  23. JScott
    Offline

    JScott Platinum Contributor FASTLANE INSIDER Speedway Pass

    Messages:
    3,035
    Likes Received:
    3,043
    Joined:
    Aug 24, 2007
    Rep Bank:
    $21,107
    I'm not looking to promote my Flipping book here, but I will say that I devote an entire chapter to this question.

    There are both quantitative and qualitative measures you can use, but for me, it boils down to 5 sets of data:

    1. Price Ratios Between Distressed and Retail Sales

    2. Are There Buyers In The Area?

    3. How Much Real Estate Supply Does The Area Have?

    4. Are There Other Investors Active In The Area?

    5. General Market Indicators and Trends

    Again, not pushing the book, but if you're interested, I have a chapter where I delve into the quantitative measures behind each of those sets of data. Unfortunately, it's too much to post here in one post... :)
     
    jon.a and MidwestLandlord like this.
  24. MidwestLandlord
    Offline

    MidwestLandlord Platinum Contributor Read The Millionaire Fastlane I've Read UNSCRIPTED FASTLANE INSIDER Speedway Pass

    Messages:
    927
    Likes Received:
    4,949
    Joined:
    Dec 6, 2016
    Gender:
    Male
    Rep Bank:
    $20,920
    Well, you sold a book anyway lol. I'll make sure to read that chapter.

    Chiming in on not doing the work yourself:

    I've never done any of the work myself with any real estate deal, rental, not even my own home. There is no way I'm going to spend my precious time doing stuff like that, when I could be either out earning more money or spending time with my family. It's just not worth it to "save" $50 an hour or whatever.

    It helps that I despise manual labor though haha.

    Does the CEO of Ford assemble his own cars?
     
    danoodle and JScott like this.
  25. JScott
    Offline

    JScott Platinum Contributor FASTLANE INSIDER Speedway Pass

    Messages:
    3,035
    Likes Received:
    3,043
    Joined:
    Aug 24, 2007
    Rep Bank:
    $21,107
    For anyone interested, I released a new book a couple weeks ago. A topic that is not discussed often enough, but is key to success in this business these days. I'm obviously biased, but I think it's better than my first two (which have sold over 100,000 copies):

    The Book on Negotiating Real Estate

    If you decide to check it out, please let me know what you think!
     
    LiveHappy, SteveO, Midas and 5 others like this.