By far, the most common question I get asked is, "How do I get started flipping houses?" There are 5 crucial steps that you must take, things that must be in place, in order to be able to jump on that deal.
I'm going to tell you the exact 5 things that you need to do to start flipping houses. But, you've got to go do them! I can't do them for you; I can only show you what to do based on years of experience.
I talk to lots of hope-to-be-flippers and they often tell me they’re out and about looking for a deal. They claim to be ready ready ready. I ask a few questions and I quickly learn that they are not ready ready ready. In fact, they don’t have the things in place they MUST have in order to even make an offer on anything!
These are the exact things I’m about to share with you. If you don't have these things in place, you are not ready to put an offer in on any property.
Unless you like to gamble and just go on hunches. But, I’m pretty sure you don’t want to make costly mistakes or look like a fool, so let’s tackle these 5 things.
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Hey there, I am so glad you are here. This is Debbie DeBerry and today I am tackling the number one question that I get asked and that is, "Debbie, how do I get started flipping houses?" So I'm laying it all out for you here. The exact first five steps that you've got to take. But guess what? After this episode you've actually got to go take the steps. I've also got some super helpful guides for you to download, so be listening for how to get your hands on those. All right, stay tuned.
You're listening to the flip houses like a girl podcast where we educate, empower and celebrate everyday women who are facing their fears, juggling family and business, embracing their awesomeness and wholeheartedly chasing their dream of flipping houses. Each episode delivers honest to goodness tools, tips and strategies you can implement today to get closer to your first or next successful house flip. Here's your spiky-haired, breakfast taco loving host house flipping coach, Debbie DeBerry.
Okay, so in this episode we are talking all about the exact first five steps that you've got to take to start flipping houses. One of the questions I get asked most often is, "Debbie, how do I get started flipping houses?" Now, before we get too far into things here, let's make sure we're talking about the same kind of flipping because there are a lot of people out there, coaches, gurus who say they teach flipping houses when in fact they are only flipping contracts, they're wholesaling houses. That's it. "Why do they call it flipping houses, Debbie?" Well, probably because it sounds a heck of a lot better than saying they wholesale them. Okay, so the kind of flipping houses we're talking about here is the kind where you buy, renovate, and sell the house quickly and for a profit. And I want to qualify this even further because the way we do this is with tremendous respect for the community, the neighborhood, and the buyers seeking houses.
Now I'm going to tell you the exact five things that you need to do to start flipping houses. But here's the thing. You have to actually go do them. I can't do them for you. I can absolutely tell you what to do based on years and years of experience flipping houses myself and teaching other women how to do so. Now I talked to lots of want-to-be house flippers and they often tell me that they're out and about looking for a deal. They claim to be 100% ready to find a house and move forward on it. Once I ask a few questions though, I quickly learn that they're not ready at all. In fact, they don't have the things in place that they must have in order to even make an offer on a property. So these five things I'm about to share with you are exactly the first five things that you need to do to start flipping houses.
They're the things you need to have in place or else you are not ready to put an offer in on any property. Unless you like to just gamble and just go on hunches. But I'm pretty sure you don't want to make costly mistakes or look like a fool. I'm not only going to tell you what the five things are, I'm going to tell you why they're important. Why you need to have them in place. All right? All right.
Step number one is you've got to form a business entity and there are several types that you can form. You've got to talk to a real estate savvy CPA and or attorney in order to determine the most suitable entity for you and your specific financial situation. Nobody has any business telling you what the best entity is unless they know your story, your financial picture, okay?
If you do online searching, of course you're going to see, oh, you should form an LLC. And while that is usually the best entity, there are sometimes other options that are better for you. So that's why I am not wanting to tell you the best one for you when I have no idea what your situation is like.
Now why do you even need a business entity? Well, for lots of reasons, but these are the top three. Number one, you've got to keep your business and your personal finances separate. Uncle Sam will thank you and you'll get to enjoy a myriad of business write-offs. That's the whole point, right?
Number two, you've got to protect your assets and limit your liability. With my students and in my programs I talk a lot about minimizing risk because there are so many ways to do it across the entire project, and setting up your business entity the proper way from the get go is the best way to start off doing it.
The third reason I'll give you is in order to secure financing for your flips, you're likely going to need a business entity. Now, any type of commercial loan or real estate investing loan like hard money will be required to be done in a business name, a business entity.
Okay, so again, you must speak with a real estate savvy CPA and or attorney in order to determine the best entity for your protection and taxation purposes.
Once you come up with your entity and your name, you get to do some really fun stuff. For starters, you get to form your entity. You can do it yourself by filing directly with your secretary of state if you want to save some money. If you don't trust yourself, you can absolutely find companies who will do it for you, but you shouldn't really pay more than $25 for somebody to do that for you. The second thing is you get to buy your domain name and a ".com" is always best. The third thing you get to get a logo, so fun, it's my favorite part. So check out 99designs.com, they're great, super fun. You basically put out a proposal of what you're looking for and multiple designers give you their renditions of a logo for you, and then you get to sort through and choose your favorites and so on until you get to your final design. You could just simply find an online DIY site if you want to do it yourself.
Once you've got a logo that you love, you'll want to get some business cards printed and then finally create a free Facebook business page and start to build some credibility there. It's a great place to get engagement with your friends and followers because everybody loves before and after photos. It's just a great place to engage with people. Not to mention that posting consistently on your social media networks, will let people know what you're up to. If people don't know that you're looking for distressed properties, guess what? They won't bring you any.
So, step one is your business entity. The next four steps are going to be around setting up your team. So, who needs to be on your team, how to find them, and why they need to be there.
First, you've got to have a real estate agent. And if you already have your real estate license, fantastic. Make sure you've got access to the MLS. If you don't have your real estate license, you've got to find a real estate agent that you connect with and who actually has really deep knowledge about the areas and the neighborhoods that you're going to be looking in.
Ask your friends, family, and neighbors for referrals. There are plenty of us real estate agents out there. And when you're trying to decide if they're the best fit, you'll need to be looking for these qualities. They've got to be responsive. When you reach out to them, they need to be getting back in touch with you quickly. The house flipping business is a quick one. You've got to be able to make quick decisions and jump on the good deals. Secondly, they've got to be available if you need to go see a house quickly; they've got to be able to accommodate that. This is a quick business. Thirdly, they need a strong understanding of the nuances of the neighborhoods and the local demographics. This will bite you if either you don't have this strong understanding or your agent doesn't. Ultimately, this needs to fall on your shoulders, but when you're just getting started, you're going to have to rely on the knowledge of your real estate agent.
You need to spend time learning the neighborhoods. You've got to be driving the neighborhoods and studying the data. Until you know those nuances, you're going to be relying on your Realtor. What will the real estate agent actually need to be able to provide when determining the exact areas you're going to target? You're going to need access to active, sold and pending data, including the months of inventory, average days on market, property criteria, school zones, and everything else that is important in your market, and you'll need that specifically for certain zip codes or neighborhoods. Also, when determining the after repair value or the ARV, you'll need sold data and photos so you can determine the exact level of finish out required to hit that value.
In summary, your real estate agent or yourself if you're licensed, is going to be providing you with an after repair value or ARV specific to a property. The ARV is a very important variable in the formula for determining your maximum offer on a property, which is why this is one of the first five steps you've got to take in order to get started flipping houses.
The third thing you need to do is you've got to identify your financing sources. Look, I'm all about minimizing my risk everywhere I can. I've mentioned it before and I will mention it again. Look, I may feel like a broken record and that's okay because I think it's really important for people to have an honest understanding instead of just going by what they hear from random people who aren't actually actively flipping houses. Because why would we ever listen to them? Right? It's crucial to know ahead of time how you're going to finance the project or how you're going to creatively structure the purchase. But for the purposes of this, we're just going to talk about financing.
It's crucial to know ahead of time how you're going to finance the project. Why? Because you've got to know the terms of any financing. In order to properly come up with your maximum offer, you've got to know how much the financing is going to cost you upfront, how much the carrying costs are going to be. You've got to factor in the other project carrying costs aside from the loan. You've got to know this ahead of time in order to even be able to somewhat accurately analyze a potential deal.
Here's a list of the most commonly used sources of funding: hard money lenders, private money lenders, crowdfunding, self directed solo 401k, home equity line of credit, and rental property cash out refi. There are other ways to do this, but these are just the most popular that I see, especially amongst my students. Now the vast majority of house flippers use a combination of hard and private money loans, and a lot of people also use the retirement accounts or equity in their other real estate holdings.
Let's talk about hard money for a minute because I know that initially when people hear the term, if they don't know what it is, they have visions. They think of somebody taking them out back and taking them out at the kneecaps or something if they miss a payment or they're late on a payment, and that is not the case. Why is it called hard money then? The name comes from the fact that hard money lenders qualify the hard asset, the house, the property, and not necessarily the borrower. It's an asset based loan. And that's why it's called a hard money loan.
So when I say that you don't need a fat bank account nor excellent credit, here's what I mean by that. Since most hard money lenders are really only qualifying the asset, the property, they're typically not qualifying you. They're not pulling your credit, they're not requesting bank statements. I have been doing this for over 13 years and I've never been asked for any of those things and I use hard money all the time.
Now the way hard money works is they have a threshold that they will end up to. So let's say that they will lend up to 70% of what the house will be worth after you've repaired it, which we know is the after repair value or the ARV. They will finance up to 70% of the ARV and if you can keep the purchase price, the repairs, the closing and carrying costs as well as your contingency or buffer underneath that 70% threshold, that's how you finance these deals 100%.
This is precisely what I have done for over 13 years investing in real estate and the times that I haven't used just hard money for the purchase, the repairs, the closing and carrying costs and that buffer that we should be factoring in, I have used private money. I've always used hard money for the purchase though starting about five years in, I started using private money for the renovations and everything else because I had a lot of people wanting to invest in my projects. I was able to give them a really great return and I got better terms. So it was a win win for everybody. And yes, it is absolutely doable to finance everything because it is what I have done time and time again.
Once you've identified your financing sources, you will know exactly the fees, the carrying costs, the terms, everything that you're going to need to know in order to factor that into your equation, your formula for coming up with your maximum offer. That's why you need to know your financing sources before you find a deal.
The fourth thing you need to do is you've got to line up your contractors before you ever dive into a project. You've got to understand the numbers. You're going to hear me say that over and over again. If numbers scare you, change your story around them. You cannot be a successful business person and not understand your numbers. Plain and simple. Unless you're a highly skilled repair estimator, you can't understand the numbers if you don't have a contractor giving you a repair estimate. Especially as a beginner, you need someone with a trained eye to walk the properties with you and to give you an estimate based on the repairs needed and the level of finish out required to hit your targeted ARV. Now, even if you're a great estimator, if you're hiring a GC, you better know the fee they charge, which will usually range from 10 to as high as 25%.
Personally, I use what I call key contractors instead of GCs. I manage the projects myself and my key contractor can do about 80 to 90% of the work. Basically, he can do everything that doesn't require permits. Beyond that, what I'll do is I'll sub out any plumbing, HVAC, electrical, maybe roof work that needs to be done. Running a project this way saves so much money and that ends up as profit instead of overhead. However, most flippers don't start out as their own project managers. It just depends on your level of comfort.
My advice to my students and to you as well is to do whatever you need to do to have a successful first flip so that you'll want to do another one. If that means hiring a GC for the first few flips, then do it. If it will help you feel more confident while you're learning the process, then by all means hire a GC. Knowing ahead of time who you're going to use will allow you to have an accurate estimate and run the numbers the most accurate way, thereby again, minimizing your risk. See ... lots of ways to do it.
Now, the best ways to find contractors are honestly referrals from real estate agents. We have got to have contractors in our back pockets and vendors that we can refer out to our clients, so real estate agents are a great resource for referrals. You could also ask other investors. You can search in online forums. You can ask friends, family, neighbors, posted on social media, ask, ask, ask, and then once you get that list, vet those people and see who you fit with the best.
Finding and managing contractors really isn't as difficult as some people make it sound. It really is all about your approach, all about the due diligence that you do and just making smart choices. If you go into this assuming it's going to be difficult, then that's exactly what you'll experience.
Now, I've got some quick tips for vetting contractors that you can get your hands on in the GOODIES section below. I'm going to share with you some awesome resources. I'm going to share questions you need to be asking hard money lenders. There are 21 questions that you've got to ask them. I'm also going to be sharing with you questions that you've got to be asking contractors to vet them.
But here are some quick tips for doing so.You have to get references. You want to see the quality of work in person. You want to make sure that they're qualified to deliver the level of finish out required to reach your targeted ARV. And you're going to want to examine nonverbal cues like: are they on time, are they responsive, are they nice to engage with or do they totally drain you? Don't settle for that. All right, so now you know you've got to also line up your contractors or at least your GC so that you can have an accurate estimate that you're working from when you are determining your maximum offer on a property.
The fifth thing you need, and this is the one that gets the most overlooked, is you've got to have support. You do not need to figure all of this out on your own and you shouldn't. Why would you want to? Why reinvent the wheel and make things more complicated than they need to be. Let's choose the route of ease and flow. That is where I am in life is choosing the route of ease and flow. You've got to know where you're going to turn for support before you actually need support. Otherwise, searching around in a panic for the right resource could actually cause significant project delays and that impacts profit.
You need to know ahead of time who you're going to turn to when things go wrong. Maybe the time management of your project gets all screwed up. A hefty repair item comes up that you didn't anticipate. Maybe you need help making a quick decision on your project or you need help solving problems. They come up on every project. Or maybe something comes up that you just have no idea how to handle and you just want to bury your head in the sand.
And I guarantee you at some point you're going to feel defeated, frustrated, and or stuck and you do not need to feel any of those things or try to figure out any of those things on your own. Here's what I have found to be one of the top qualities that I see in people who are successful and that is being resourceful.
There will always be something different you learn on each project and surprises do tend to pop up. Now, honestly, these are two reasons why I love flipping houses, but I also had my mentors and my experts and I knew exactly who I would go to for help when I was starting out. Every problem can be solved, maybe not by you, but knowing where you're going to turn to for help will keep the project and your profit on track.
All entrepreneurs experience the roller coaster of emotions, excitement, frustration, loneliness, fear, and everything in between and these feelings are completely natural. But if you're in isolation without someone to reach out to who completely understands and has been there, this can lead to quitting way too soon.
You want to know a little secret? Usually people quit just before something amazing is about to happen.
Being an entrepreneur is 90% mindset and you have to work on this every single day. Unfortunately, there are going to be people who yuck your yum, meaning they're going to dump all over your house flipping dreams. You may hear, "Oh, that's dangerous. That's reckless. You can't flip houses, or you shouldn't do that." You know why they say those things? It's because they're not actually doing anything extraordinary in their life. They aren't bravely going after anything. They're just spewing fear and hate because they live in fear.
If a person is spouting opinions at me, but they aren't actually out there doing the thing that I want to be doing, then frankly, their opinion does not mean anything to me. In order to have any sort of say in my life, they've actually got to be in the arena just like Brené Brown talks about. And if you haven't read any of her books, please do yourself a huge favor and do so. Brené Brown is fantastic. Read anything she's written and read everything she writes in the future.
Remember, you are the average of the five people you interact with the most. So look around. Are you spending time with people who are actually elevating you, elevating your game, and lifting you up? Or are you with people who are pushing you down all the time? You have to take control of your life. That doesn't mean it's easy, and that doesn't mean it doesn't come with challenges, but you've got to make changes. If you keep doing the same things, but you're expecting different results, that's the definition of insanity according to Albert Einstein. So just don't be insane.
So, why are these the first five steps that you should take? Because these are the exact things you need to know in order to calculate your maximum offer and you get this info from the sources that we just talked about.
What goes into that formula? There are five things. One is the ARV and remember that's provided by your realtor or your comps - the data. Number two, you've got to know your closing and holding costs. Those are determined by your lender's terms and the projected timeline. Number three, you've got to know the repair estimate that comes from your contractor. Number four, you've got to know your desired profit. Are you using a flat amount or are you going with a percentage of the ARV? And then lastly is to use a contingency or a buffer amount. And usually I recommend using a percentage of the ARV, and hopefully that buffer or contingency amount will account for any major Uh-ohs.
And by the way, this buffer amount you would use is in addition to any contingency or buffer amount that you're accounting for in the repair estimate as well. I like to have layers of buffers so that I feel super protected in my projected profit.
All right, so now you know the first five steps that you must take to start flipping houses. Now go do them. Go take action. It's really important to me that in each of my episodes I actually deliver you actionable steps that you can take.
In this episode I delivered five of them. All right? Now go check out the GOODIES section show notes because like I mentioned in the episode, I'm going to link to two really helpful guides for you. One is 21 questions that you must ask hard money lenders. And the second one is questions that you need to be asking contractors to properly vet them. Okay, so look for those links in the show notes.
All right. Lastly, would you do me a huge favor and wherever you listen to this podcast, would you write a review and give us a rating? Because if I can reach one more person just like you, and instill in her the belief that she can actually flip houses for a living successfully, profitably, and have a blast doing it. That's my ultimate goal. And by leaving reviews and ratings, you helped me achieve that. So thank you for spending time with me. I'm super grateful and I can't wait to connect with you on the next episode. All right. Go out there and make it a great day.