What Nobody Tells You About Flipping Houses (& The Secret to Success)Jul 07, 2020
Unlike wholesaling (quick profits) or buy-and-holds (ongoing profits), fix and flips have an elevator pitch that falls somewhere in the middle:
Make more money than wholesaling ... quicker than buy-and-holds.
You’re no longer just the deal finder cashing in without risking your own coin...
...and you’re not assembling a personal portfolio of properties either.
Instead, you’re in, out, and on with your life — hopefully with a fat stack of cash from a job well done.
While TV glorifies “flipping” as a seemingly effortless (and equally thrilling) sport anyone can compete in, it’s actually a high-risk, high-reward opportunity brimming with uncertainty.
As a former general contractor and a current real estate educator and investor, I’m uniquely qualified to reveal the good, the bad, and the ugly of flipping homes.
Let’s dive in...
What Is Fix & Flip?
In its absolute simplest form, it’s a 3-step process:
- Buy a house.
- Fix it up.
- Sell it for more.
And yes, it’s that simple — on the surface (we’ll peel back the curtain in a minute).
And for most real estate investors, it’s the next logical step after mastering wholesaling.
What’s the Allure?
It’s a seductive opportunity for massive paydays that can dwarf wholesaling payouts:
The average gross profit for fix-and-flips in 2020 is $62,300 per home
And in some markets, like San Francisco, that number skyrockets to $171,000 per home.
For comparison, wholesaling properties average a return of $10,000-$15,000 per home (my Real Estate Freedom Formula students average $12,000-$20,000).
So from a sheer numbers standpoint, flipping is a no-brainer.
Tack on its time in the limelight, and everyone’s banging at the door to get in.
The Truth About Flipping Homes
Flipping can unlock fortunes...
...but it can also be a one-way, high-speed ticket to debt, despair, and destruction.
So hear me out before you buy in. If it still feels like the right move after this, do your thing (and I can even coach you up to minimize your risk and maximize your profits).
But first, let’s revisit the equation from earlier:
- Buy a house.
- Fix it up.
- Sell it for more.
That’s the ‘for dummies’ version.
The real equation (from someone whose been there) is:
- Find a deeply discounted property, negotiate a killer deal, & pay in cash.
- Hire & manage the right team, make the best moves, & cover the bills.
- Survive inspections, schedule showings, & sell high at hyper-speed.
It rivals the near-impossible ones Matt Damon solves in ‘Good Will Hunting.’
How To Win At Flipping: The Real 3-Step Formula
You need the right blend of capital, expertise, and teamwork (perhaps a little Lady Luck too) to avoid emptying your pockets on a fix-and-flip and never refilling them.
If things don’t go your way, you could dump your life savings into repairs for decades, stockpile debt, and take a hit on the sale (if it ever closes).
It’s like going one step forward and hundreds backward.
Now that I’ve fired a few warning shots, let’s unpack what makes flipping homes so challenging, step by step (and why it can be the kiss of death for overly ambitious investors).
Step 1: Find a deeply discounted property, negotiate a killer deal, & pay in cash.
To survive step 1, you must have a keen eye for spotting deeply discounted properties.
Unlike wholesaling (where you don’t need a dime to your name), you must have the bankroll to buy said property — in cash.
Cash will get you hands down the best deal so you can actually turn a profit (and maximize it) as soon as the house is ready to sell.
And if you don’t have boatloads of cash on hand, you’ll need to sign a deal with the devil to get hard cash at a sky-high interest rate, as is the norm in the fix and flip game.
If you can close on a unicorn (40 cents on the dollar or less), you’re off to a promising start.
Step 2: Hire & manage the right team, make the best moves, & cover the bills.
Ah, the rehab and renovation…
...the trickiest of the 3 steps.
Don’t be swayed by what you see on TV:
Transforming a property from an eye sore to an eye feast is never easy.
While you invest in the property to get it all spick and span, you’ll also foot monthly homeowner bills like the mortgage, HOA, and property taxes until that badboy’s ready to show off its facelift.
Knowing you’re in a high-risk, high-reward game, property insurance should make the lengthy (and pricey) list of recurring costs, too.
And let’s get real about timeline:
You’ll be covering the bills for 5-6 months (and no, I’m not just throwing numbers at the wall to get you trembling).
This makeover is going to require upgrades and repairs to happen as fast as possible. That way you can crawl out from under the recurring bills ASAP.
So you need to recruit, vet, and hire a team of contractors you can count on and get them working at turbo-speed.
The right team — often like finding a diamond in the rough — can move mountains. The wrong team requires you personally oversee their every move (does “adult daycare” sound appealing?).
And let’s not forget: You’re calling the shots. So you’ll need to decipher required, needle-moving repairs (that will pay off tenfold) from non-essential items you can skate by with leaving as is.
No pressure: But if your renovation strategy is off, you’re hosed.
All that to say: Once you buy a property, you need:
- Cash: 6 months worth to cover homeowner bills, repairs, and contractor fees.
- Expertise: To make all the right repairs (and none of the wrong ones).
- Teamwork: Contractors you can count on to execute your plan fast.
But that’s not all…
Step 3: Survive inspections, schedule showings, & sell high at hyper-speed.
You’ve been on the hook for pesky property taxes, mortgages, and contractor fees for what feels like forever now.
So you need to flip the property lightning-fast.
Every day it’s still in your hands you’re bleeding money and wasting brain space.
But before you can flip it (and finally cash out), you have 2 crucial steps to check off the to-do list:
A fancy way to say more time and money.
Then you need to find a buyer willing to pay your price and sprint to close.
Make that happen and you can finally breathe a sigh of relief and get closer to cashing in.
Question is: Was the juice worth the squeeze?
The Secret to Successfully Flipping Homes
One word: Conditions.
Consider conditions a checklist of requirements the property must meet to be deemed worthy to flip (and virtually guarantee a light at the end of the tunnel).
If you pair the prerequisites (money, expertise, and teamwork) with the right conditions you can hit the jackpot flipping homes.
And if your conditions really hit the mark, you can confidently invest knowing you’re set up for success (in almost all fix-and-flip scenarios, you will uncover surprises along the way. But with conditions in place, you mitigate as much risk as humanly possible).
The right conditions set you up to buy low, sell high, and sell fast. Nothing less will do.
Part of my “ABC Exit Strategy,” I don’t go near fix and flips with a ten-foot pole unless they meet every condition I’ve outlined in the Real Estate Freedom Formula.
My Advice To You
En route to constructing my 7-figure real estate empire, I waited more than 2 years before my first flip.
I didn’t want to lose focus on my wholesaling business just to chase a shiny object drenched in risk. After all, half effort does not equal half results. It equals zero results.
There’s a library of horror stories out there you can page through anytime. And I’ve personally seen plenty of eager investors make the jump from wholesaling to flipping and nose dive almost instantly.
My advice to you: First and foremost, master wholesaling.
As you become the go-to deal finder with a massive cash buyer’s list that constantly closes, begin developing a team (more advice here).
That way, when you have the prerequisites, the right opportunity, and a flawless list of conditions, you can confidently transition into flipping without risking everything you’ve worked so hard for.
Even now, I don’t consider a flip unless the property meets every condition I’ve outlined in my “ABC Exit Strategy.” And I continue to pour the majority of my time, effort, and money into wholesaling — because that’s the foundation to real estate success you can always count on.