Flipping Houses Part 2: Renovation Realities

Posted by on Jul 12, 2013 in Blog, Featured, Real Estate | 0 comments

Please see Part 1 of this series.

Once our bid was accepted by the auctioneers we would sign over our cashier’e check and immediately spring into action. We first would call our insurance agent and insure the property. Next, we would call a locksmith to open the house and change the locks. I was fortunate to only deal with empty houses. However, my partner once purchased a home and found it occupied. To make things worse the spouse who answered the door did not even know it was being auctioned off and was caught totally off guard. It was sad, but in that situation you offer them some money to both protect the property and move out as soon as possible.

We reviewed each home and tried to spend money where it is most visible. We did not want to spend money on roofs, energy efficient windows or garage doors.  Those items do not excite the buyers as much as bathrooms and kitchens. We then have our construction team come in to bid the renovations. The bulk of our budget was spend on drywall, paint, bathrooms, kitchens, lighting and carpet. Curb appeal is important, so the final touch was a front yard landscape overhaul.

There are several things about flipping that many people may not know about.  First time flippers need to consider hidden costs like utility reconnection fees and homeowners association dues in the rears. Additionally, local CC&R’s in certain neighborhoods need to give approval for exterior paint colors and front yard enhancements.  This can take valuable time.

We would try to be back on the market in 30 to 60 days. The houses looked great after the makeover and were well received in the market place. We often had multiple offers and had to weigh the positives and negatives of each offer–more money for a slower, riskier close or an all-cash offer to get your money out quick.

We were fortunate not to run into any major surprises. We supervised all the work and did some work our selves. we would profit about $30,000 per home after all expenses, but we felt we earned every penny. The whole process would take about 120 days from courthouse to cash in hand.

Keys To Success

  • Flipping houses is not a recipe to become an instant millionaire
  • Do your homework first and don’t jump in too fast
  • The business takes a lot of capital, banks don’t want to finance these deals anymore
  • It’s harder than it looks, but it is still possible
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Flipping Houses Part 1: Circus on the Courthouse Steps

Posted by on Jun 28, 2013 in Blog, Featured, Real Estate | 0 comments

“Dominate your real estate market”

“No Money Down”

“No Experience”

“Flip your way to wealth and security”

Business #12 was an experiment in following the news and the hype.  The collapse of the housing market made waves across the world.  Several TV shows popped up showing people scooping up cheap real estate for next to nothing.  With foreclosures all around, the business of buying, fixing, and selling homes for a big profit seemed possible. We thought it was a good fit because many of my companies did residential work like electrical, HVAC and gutters.  I could give these businesses more volume and save money on hiring outside subcontractors.  We also thought our wives could help us with the interior decor like fixtures, paint, kitchens and carpets.  So, we tried it.

We started by creating an LLC and funding it with enough money to buy our first house.  Then we pursued our real estate licenses in order to save the commissions when we sold the homes.  It is not hard to get your real estate license, you just need to buckle down and study for the test.  There was some useful information, but it was mainly a “cram and exam” process.  We signed up under a broker in southern California that would allow us the freedom to do our deals the way we wanted.  The broker charged a fixed fee (very reasonable) per transaction for assisting with the paper work and providing errors and omissions insurance.  It was a great deal and his office was very helpful.

We started by tracking foreclosures in neighborhoods we knew well.  We tried to purchase foreclosures from the banks, but found most of them were very hard to work with and they did not price their homes properly.  We then went to the court house steps and find out what buying homes at auction was like.  For those that don’t know, the courthouse steps is where daily auctions are held to quickly sell foreclosed properties.  There did not seem to be a rhyme or reason why some houses found there way to the court house steps.  It seemed like the banks had foreclosure reduction quotas and if they could not sell enough houses the traditional way, they would auction off some of their inventory.

Everyday we would do drive-by reviews of the houses coming to auction.  The rule of law is you should not trespass or cause damage to the home as you inspect it.  We mostly looked for cosmetic fixes: carpets, paint and some drywall issues.  We did not want major structural problems or serious plumbing or electrical work.  Sometimes we would come across other bidders doing inspections in a very aggressive way.  If the house was empty they would break in to get a close look.

The experience on the courthouse steps was a trip.  When we showed up there was a whole cast of characters.  There was the gangster, baggy pants, cap turned on 45 degrees, Bruce Lee, Danny boy (doing an Irish gig), Lindsey Lohan and Charlie Sheen look-alikes complete with his tiger blood.  Here is the deal: all of them were packing a million dollars in cashier’s checks.  All of them had a neighborhood they were after and they were very protective against outsiders.  When newcomers arrived they would often start telling horror stories to deter would-be buyers.  They would say things like “Do you remember when that guy won the bid on a house only to find out it burned down the day before?” Or, “I just saw someone that bid over $100,000 on a 3rd mortgage thinking it was for the first mortgage!” Admittedly, it was a little intimidating.  The dishonesty of the bidders carried to the auctions.  We saw obvious bid-fixing, secret deals and signal calling from the McDonald’s across the street.  Over time, the authorities began catch on to these illegal activities and people across the country began to be charged with fraud.

We stayed focused and did buy some homes, but it was no slam dunk.  In the next article we will cover the fix and flip side of the story.

Keys To Success

The everyday players have deep pockets

They regulars are educated on values, liens, judgments, and loans

Know your costs to purchase, fix, and flip.

Come ready to play and when your houses come up,  jump on them

Operate with a strategy, i.e. resales, rentals, lease to own

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