Updated: Mar 5, 2021
This blog is written by Jen Josey, Real Estate Investor, and REIGN Coach. She is not a professional writer and writes like she talks so put your red pen away. Jen is extremely opinionated but reserves the right to change her opinion at any time because, well, that's the way she rolls. She may also use colorful language so don't be offended. Jen does not claim to be an expert, she is just sharing her personal thoughts and adding a perspective on investor topics that may benefit her readers. Jen also finds it strange to write in the third person. Enjoy!
House flipping shows are a dime a dozen and man, do they make the process look easy. Of course, you have to add a little drama to entice ratings, but all these shows end with the house flipper walking away with buckets of cash. Typically the house is quite rundown and the renovation requires a full gut job. For most starting out in this industry, that is the dream, at least it was for my husband and me.
While we loved to watch all of those shows, Vance and I knew we needed a proper education before we chased after our own buckets of cash. Throughout our educational program, I still had the vision in my head that all our projects would be these big gut jobs where we would take out walls or add square footage. In fact, our very first renovation was just that...we added 750 square feet and removed a few walls to create an open floor plan. Yes, we made a profit but certainly not the buckets of cash like the TV shows sensationalized. In reflection, the most important aspect of that experience was the hands-on education we learned. Here are four steps we used to help fine-tune where we wanted to focus our flipping future.
1. Determine Your Business Core Values
All the flipping shows are based on the experience of the real estate investor. When you get into this business, you quickly find that your renovations affect many people so it's important to develop core values for your business...and stick to them.
I spent many years as a public school teacher and I can remember telling a former co-worker, that I was getting into the house flipping business. He responded with, "Seriously? That's such a dishonorable industry." Ouch. Wasn't expecting that! I have not seen Coach S since that day but his words have really stuck with me. Let's be honest, house flippers in general, have a bad reputation. They post their annoying signs at intersections, typically give low-ball offers and some cut corners on renovations providing a shoddy product. I made it my mission to run our business to the highest standards possible.
Here are the core values for our investment business:
Integrity: We will ensure honesty and fairness in all our actions while always striving to do the right thing for our clients and team.
Growth: We have an unyielding drive to increase our knowledge with continuous learning. We will invest in ourselves through personal development to better prepare us for future opportunities as they arise.
Innovation: We will provide homeowners with affordable and safe homes while implementing new technologies as the advancement of home efficiencies increase.
Compassion: Homeownership is one of the biggest investments an individual or family makes. While we provide options to help in several situations, we must always respect the client's hopes along with their fears.
Drive: We will always go above and beyond the call of duty because it's who we are.
Take the time to create your core values and review them periodically as a reminder of how you want your company to be reflected to the community.
2. Establish Your Time Commitment
If you are a one and done, you have all the time in the world. If you are starting a house flipping business, there are several factors to consider when it comes to time. Are you one of those talented people that can do all the work yourself so you can save on labor costs? If not, then you're like the rest of us who will have to hire experts. If you plan on managing the projects yourself, your time will be divided up between hiring and onsite management of contractors, purchasing and delivering materials, deciding finishes, and shuffling paperwork like payments, contracts, insurance, receipts, etc.
If you have a day job, managing the project yourself will be tough so it is recommended to hire a project manager or General Contractor (aka GC). A GC will be the most expensive option but the job will be essentially hands-off for you, except for picking finishes. I will be honest though, a good GC is tough to find. When we were first starting out, I was ghosted by more than I'd like to admit. When you do find a good GC, make sure you treat them like gold! A project manager will cost less and act as your eyes and ears for all onsite activity and materials. You will still be responsible for hiring contractors, deciding finishes, and shuffling paperwork, which can all be done remotely.
Your time commitment must be decided because, well, time is money, which leads us to...
3. Decide Your Revenue Per Month
What is the average you would like to earn in your investment business per month? Most people will say, "As much as possible!" and yes, the sky's the limit, as long as you have the right systems in place.
Some investors use the BRRRR strategy to buy and hold properties. They Buy, Renovate, Rent, Refinance and then Repeat. This option does not produce a large payout but establishes passive income, with smaller payments coming in monthly. You must factor in the on-going maintenance, vacancies, late or missed rent payments but the typical steady cash-flow is appealing to many.
The biggest payouts will come from your flips where you buy low, renovate, and then sell high. Unlike passive income, this requires several balls to be juggled at once and money is dependent on external factors. There are times when the market will slow down and even finding deals will be tough. On the other hand, you could have a few projects going while the demand is high, yet you can't find reliable contractors because they're all booked out for weeks at a time. While the profit is great, it's also the highest risk for your investment.
4. Process Your Priorities
To formulate where you should put your focus for your investment business, you need to combine all of the above to process your priorities.
When we got into this business, Vance and I thought we would be flipping large project after large project. As far as the financials for this approach, we quickly found out that paydays are not guaranteed and can be quite sporadic. When we did have a payday, spreading those funds out over the next several months was challenging. Time-wise, I managed the projects which was fine, but as the investor, I didn't get paid until the end. Not to mention, the buyers interested in these larger projects with higher price points are not easy to work with. What we never considered, in the beginning, was our core values. Yes, large paydays are great but we needed to rethink our strategy if we were to honor those core values for our business.
About 9 months after we started our business, we had the opportunity to flip a condo. The seller was in a pinch and needed to close quickly but had several items to repair and no cash to pay for them. We were able to give her the price she wanted, repaired the necessary items, updated the countertops, painted, and then listed it two weeks later. With a condo or townhome, you don't have to worry about the exterior (covered by the HOA) which reduces the risk of having to replace a roof or siding. It was under contract within days, over the asking price. We earned just under $10,000. Some investors would look at that like chump change but we not only helped the seller out of a difficult situation, we provided a safe and updated home to a hardworking, single public school teacher...and it took only two weeks!
Vance and I took a step back and reviewed both types of projects. We applied a rating of 1-5 for "revenue per month" but added a rating for "core values" as well.
That first condo renovation really opened our eyes to new possibilities while aligning with our core values at a much higher rate. Another bonus to doing these smaller projects is we provide consistent work to our contractors thus developing a sense of loyalty to our investment business. There is very little onsite management with these projects because we use the same paint colors, flooring, countertops, fixtures, etc. We know our contractor's price per square foot so there is no need for estimates. As soon as we close, we give them the door code and the work gets done.
Seeing all those numbers on paper really helped Vance and I fine-tune our focus towards the smaller projects. Don't get me wrong, we still enjoy the larger, more challenging projects, but we target our marketing towards condos and townhomes and try to flip one every month or two. We have been very fortunate to help many homeowners out of sticky situations while also keeping our contractors busy...and happy.
I wonder if I'll ever get to see Coach S again so I can let him know how much his words meant to me and helped to shape our business values.
To read more blogs by Jen Josey, please visit www.REIGNmastermind.com.