5 Secret Skills of a Successful House Flipper
The business of flipping houses is growing in popularity more than ever. Scores of reality shows portray house flipping as if it's all fun and no fuss. House flippers present the beautiful before and afters, but rarely do you see how much truly goes on behind the scenes. There's so much more than flipping a house that meets the eye in this business. Very few real estate investors are successful in flipping houses, and most give up in their first year because not everyone is ready for the industry's pitfalls and challenges. Here are some skills and tools you can develop to overcome these investing issues.
Secret #1: Smart Investors Are Patient In House Flipping
The big money is not in the buying and selling… but in the waiting.
- Charlie Munger
The first and most important skill for a successful investor to have is prudence – BE CHOOSY! Real estate market could be loosely compared to dating: you have to trust your knowledge and gut and wait for “the right one.” Many seemingly attractive deals come along, but one of the best rules of thumb is “When you’re unsure, it’s ALWAYS better to pass up a deal and risk missing out than get into something that’s going to flop.”
You’re going to be one of the house flippers. And, it’s your duty to think about the profit you’re going to make, the risks of buyers & sellers that are coming along, your budget & make money options. Also, you need to consider the cost for renovation & repairs, the neighborhood, short-term & long-term projects, taxes, offers, and everything that can come of value to you while making this bigger investment. You need to know the possible mistakes that can make your house flipping business a failure.
Secret #2: House Flippers Know How To Do Their Own Due Diligence
There are many opinions as there are lots of experts. Whether you get your deal from a wholesaler, real estate agent, or property owner, they will each offer you their thoughts on values, rehab costs, and property details. These are indispensable and extremely helpful (especially when you’re first starting out), but you should always make sure to double-check all the numbers and information by yourself prior to closing deals. You need to run your own comparables, get contractor bids, do a home inspection, verify square footage and permits, understand the sell opportunities, etc., to flip a house.
Everyone will have the best intentions at heart, but once you’ve signed on the dotted line, the ultimate responsibility falls on you. If you go over budget because you have let someone else “ballpark” it and failed to seek your own independent bid, that money is out of your pocket, no one else’s. No harm was intended on anyone’s part, but you’re paying for your own oversight, and you should look at your personal finance. Again, be prudent.
Secret #3: Successful Flippers Move Quickly
Time is money. Unless you’re buying properties all cash, you have a mortgage that collects daily interest. Each day of delay in flipping a house costs extra, which cuts into the profits – and it can easily run-up to a few hundred or even thousands of dollars per day. To make things even more complicated, the timeline of many things is outside of the investor's control. That said, there are certain things you CAN do to manage the timing of investments better.
First, have all your ducks in a row before the closing (plans, contractors, permits, etc.). The minute the deal closes, you're on the clock. Do your best to have everything arranged so you can start the flipping project as soon as you have the keys in hand.
You should expect to oversee the house flipping project closely. Unless you have a GC (general contractor) you know and trust, don't assume that you’ll hand it over to them and come back to a completed rehab. This can be very time-consuming, but any good rehabber knows you must supervise your contractors’ work. Things constantly come up, and there are always decisions to be made – you want to make sure you’re there when this happens. If possible, order your materials ahead of time: you don't want them to show up late, especially now, during the COVID, with worldwide shipping delays and items on back-order.
Unless you plan on doing a DIY, make sure to vet your GC. If you find a good one, keep them happy. Be fair, do your best to always pay on time, and it wouldn’t hurt to bring them lunch once in a while. It’s easy to forget the simple, little things when you’re in a mad dash to the finish line.
Secret #4: You Should Know How to Gather the Right People To Flip A House
Many people become house flippers to be their own boss and invest multiple-figure cash on it. But the house flipping business is built on relationships. To have an advantage over the property investment competition, you need to build your network. We've already talked about your general contractors (GC), but you will also need a good real estate agent and a lender you can trust.
Make sure everyone you work with is experienced and reputable in your market. If you don’t have good real estate agents, you may not only be missing out on great deals but also the agents may do a poor job in marketing and selling your property, which costs you precious time and money. If they don’t have enough professional connections or slack on setting up open houses, your property may sit on the market, gathering dust. An agent's bottom line doesn't really change in step with the sale timeline, but you have to shell out for every day of delay while trying to make a profit out of the market.
Cheaper is not always better. We know that to be true for material things, but the same applies to money. Many lenders advertise rates lower than the market standard, but this discount may come at a cost. Their rates may be low, but some will make up their fees in hidden charges that a borrower may not see until it’s almost closing time. We’ve also all had experiences or heard stories of private or hard money lenders who promised the world but, when it came down to the wire, were unable to come up with the cash in time, leaving the house flippers high and dry right before the closing. Not only that can cost you your reputation, but you may end up losing your earnest money deposit.
And what if the project hits a snag and is delayed? Will your lender charge you an arm and a leg for extending the loan? Would they be willing to work with you, or will they call the note due, forcing you to secure an entirely new loan altogether, cutting, again, into your profits? Make sure to ask all the right questions upfront while flipping houses and only work with someone who is transparent and reputable in the investment industry.
Secret #5: You Have to Love What You Do!
This may sound cheesy, but it doesn't make it any less true. Many investors say they got into Real Estate after reading Robert T. Kiyosaki's book "Rich Dad Poor Dad.". Younger investors are drawn in by flashy “Fix and Flip” shows, which are so much fun to watch. But despite what the entertainment industry wants us to believe, house flipping is not easy. It is extremely demanding, competitive, stressful, and requires oodles of patience to buy a house and make it work.
Most people hear about or know successful investors and are lured in by the dollar signs. They may not realize how much work it takes to flip a house and how stressful it is. In real estate investing, nothing ever goes according to plan. Nothing. EVER. No matter how much you plan, there are always unpredictable variables – a pipe bursts; the permits take longer to approve, it rains while you’re painting the exterior, etc. The bottom line is, you have to want to learn about flipping houses all the time. If you don't like this real estate investment business, you'll be miserable.
What skills are you relying on when it comes to house flipping? Leave your comments below and share your thoughts with the community!