Class 100 - Getting Started Flipping
Flipping & Rehabbing - How to get Started
What Type Of House To Flip
You say you want to buy a property, rehab it, and then flip it. Where should you start? How do you find these properties? It is easier then you think, it just takes a little effort on your part.
First you need to know what your target price range is.You are the only one who will know this because it is different for everybody. Also you need to know what you’re looking for single-family homes or a duplex. You need to do a little research to figure out what you want, your price range and target areas
Motivated Sellers:
Here are some very good ways to find great deals.
Check foreclosure listing – where you find foreclosures the homes can normally be purchased at 60% - 70% of their value or even less depending on the amount of rehab that needs done. It is not uncommon to purchase these properties with little or no rehab needed, sometimes just carpet and paint.
Bank owned – many homes that go into foreclosure are bought back by the bank, the bank will put these properties back on the market and just like the foreclosure properties it is not uncommon to purchase these from the bank for 60% to 70% of their value. The process requires you to make bids on the property.
Vacant homes – these are generally easy to steal, whether bank owned or owned by an individual. If they’re vacant you can bet someone will be glad to here from you and that you are interested in purchasing it from them and more than willing to negotiate on the price. To identify these houses when driving through these neighborhoods, look for houses with an unkept lawn (high grass), mail hanging all around the mailbox, broken or boarded up windows, and doors hanging wide open. These signs usually mean the house is vacant.
Auctions& Ads in the paper – make sure you keep an eye on auctions through the paper. Also look in the real estate section and pay attention to key words like: needs rehab or needs TLC. When you see these words, homeowners are always very willing to negotiate the price because they either don’t want to do the rehab themselves or don’t want to spend the money to have it done. Either way they are likely to entertain all kinds of offers.
Real Estate Agents – one of the best sources to use to find great deals on houses. Get to know agents in your area that deal mainly on bank foreclosures and figure out what banks they are receiving their listing from. Let them know who you are, what you do, take them out to lunch frequently, and build a relationship with them. They will be able to give you information about houses and allow you to make bids on these houses before they are listed. In some cases they can even have some influence on how much a property sells for.
Watch the listing – Your going to run across some properties that your interested in but are not quite good enough deals for you or are a little out of your price range. Don’t forget about these properties. In fact, keep a close eye on them becausew the situation with houses could change in a blink of an eye. Look for: price reduction, expired, off the market, or withdrawn which are all words that could mean the homeowner is now ready to do some serious negotiations.
HUD homes – you can find some great deals on these homes. Just be ready to make a bid when they become available.
Run a newspaper ad – run an ad letting people know you are interested in vacant, distressed, and foreclosure pending properties. Instead of spending all your time looking for these properties, let them come to you.
Check out our marketing section to find out more about how to get motivated sellers to call you.
Set Up an Office
You are going to need an office to get started with all of the following items:
Set up an office in your home so you have a place to run the business. Get a desk with a computer, internet access, cell phone or land line phone, accounting software, business cards, set up a business name, set up an LLC and get educated.
Setting up a business office
Make sure you treat this like a business, you do not have to get anything expensive to get started but do make sure you get what you need.
Computer
Desk
Cell phone
Internet
2nd phone line VOIP
Accounting software
Your team
Tenant screening company
Copier / fax
Business cards
Website
Join local real estate group
Digital camera
Real estate forms
Training
That should do it for what you will need to get started, now lets go into detail on each item listed.
Computer
You do not need a $2,000.00 computer. The computers out today are cheap and fast compared to what was on the market 2 years ago.
I would go with:
Dell
HP
Gateway
You can follow the links to research different types and what they include.. I would make sure you get something with the numbers below. I found a Dell Inspiron 530 for only $349.00, with the numbers listed below.
250 GB hard drive
1 or 2 GB RAM
At Least 1.6 GHZ
Desk
You can get a desk anywhere. Just use an old one if you have it. If not just get one from OfficeMax, WalMart or Staples. They are not too expensive if you get one on sale.
Business Furniture go here.
Cell Phones
Just use the one you have right now if you want people to call your personal cell phone. If you need a separate cell phone for the business, which a lot of investors do, then get a cell phone for the business.
To compare plans check out the link.
Phone Plans
Internet
I do not know what type of internet connection you have but I highly suggest getting high speed internet access. Dial up is too slow and you will not be able to open up multiple windows on the browser. The cost of high speed internet access is so cheap its worth it just for time saving cost.
I use cable for my high-speed internet connection. You can also use DSL, which is cheap and fast, if you live less then 15,000 feet from the nearest telephone company’s central office. If you live in a city there should be a central office close to you, just ask you telephone service provider when checking on availability for DSL in your area.
VOIP
If you get internet service from a cable TV provider then you can also get VOIP phone service. VOIP means that the phone signal goes over the internet and will connect just like the calls you make with the telephone companies.
The cost is very cheap to do this and there are several ways to get the service. You can get VOIP with your current cable TV and internet provider. You can also contract with several other independent carriers such as:
VOIP Carriers Independent
Packet 8
Skype
Cable Companies
Comcast
Time Warner
Cox
Wide Open West
Charter
Telephone Companies for DSL or Fiber to the Home
Verizon
AT&T
I currently use Packet 8 for my VOIP service. I tried to switch to my internet provider but the phone number is not capable of being switched.
I spend $24.99 for unlimited calling nationwide using Packet 8.
Accounting Software
You need to track this as a business so accounting is very important. I use accounting software to track our company expenses and income. The software I use is Quickbooks. There are many great home business software programs to choose from. Here is a small list to help you.
Quickbooks
Peachtree
Quicken
MS Money
Your Team:
You should have some experts on your team to help you with the things that are specialized. Here is a list of people that you need on your team.
Accountant
Attorney
Insurance Agent
Loan Brokers
Banker
Real Estate Agents
Other Real Estate Investors
Hard Money Lenders
Private Money Lenders
Repair men and Contractors
Here is how this list breaks down for my business and me. I have 1 accountant, 1 lawyer, 2 insurance agents, 3 loan brokers, 1 banker, 4 real estate agents, 20 investors, 4 contractors, 1 hard moneylender and 2 private moneylenders. You do not have to have the same number of teammates as I have but you will at least need one of each. If you are new and have one property you may not need all of these right now but as you get bigger you will have to get this team together.
Tenant Screening
You have to check each and every tenant by doing screenings. There are a lot of companies out there that will do your screening. Just charge the tenants an application fee equal to the credit check cost. Here are a few companies you can use on-line.
AmerUSA.net
AlliedCreditSystems.com
I would do a credit check, background check, verify employment and call previous landlord. A tenant screening will make sure you cover all your bases and ensure you get good tenants.
Copier / Fax
I have a Brother MFC-8440 that does everything fax, copy, scan and print. I needed a bigger printer because I do a lot of faxing with short sales. If you do a lot of copying and printing I would go with a fax / copier that has drums and not the ink jets. Drums last a lot longer and are cheaper in the long run.
I bought my printer on-line, here are a few places to shop.
Wal-Mart.com
TigerDirect.com
Business Cards
You can really use a business card to stand out. I pass mine out everywhere and on the back I put a message like.
I buy houses any area and condition. We pay a $250.00 referral fee for every house we buy.
You can get 250 free business cards at www.vistaprints.com. This is where I get my business cards.
Website
Now you have to put a website together. I learned to do html design on my own and so I designed my own websites. If you are not capable of doing design or you do not want to do it then you will have to hire someone or go with a company that already has pre-set designs for you to use. With a company, The monthly cost will be more expensive then doing it on your own.
Here are two companies that will help you set up your real estate investing website.
InvestorPro.com
Invest-O-Matic.com
Set your site up for what you are an expert in such as foreclosure, short sales, lease option, etc. The goal of your website is to find motivated sellers and connect with lots of buyers. The more buyers and sellers you connect the more money you make.
The design needs to be clean and professional. Do not use dark colors as a background. You will want to use appealing colors with a white background for the text.
Another great thing to do is to have a video introducing your site and what you are about. Video is the best way to connect with people quickly on line.
Website Templates
TemplateMonster.com
TheTemplateStore.com
Check out the marketing section internet and websites to learn more.
Local REIA Groups
You should check out your local REIA group it is a great resource to learn more about real estate investing. Go to our REIA group section to find a group near you.
Most groups will have educational workshops, expert speakers, vendor nights, and networking and buy / sell meetings and much more.
Digital Cameras
I use my camera a lot to take pictures of property when I inspect to buy or when a renter moves out or in. Make sure you take the necessary photos to cover you in case of lawsuits or any other legal issues. I also take photos of properties that I am listing or renting to put on the website.
Real Estate Forms
Go to our real estate forms section to get forms for free.
Continue Learning
Continuing education is a must in this business because it is always changing. Always network with fellow investors in your area. Use our training website to get you up to speed quickly.
Inspecting the Property to Estimate Repairs
Estimating is not an exact science. You can get close to the rehab cost but it will never be exact. You will have to have reasonably accurate rehab estimate to know if the property is a good enough deal to make a profit.
Class 200 - Pricing Rehabs & Doing Inspections
What To Inspect
Landscaping
Do you need bushes
Tree limbs cut
Grass need mowed
Do the bushes need trimmed
Flowers planted
Need mulch
Landscaping cost – $250 to $1,200
Patio / Deck
Is the wood rotted?
Does the deck need stained or painted?
Is the patio pitched for drainage correctly?
Deck repair - $250 to $600
Patio repair - $250 to $800
Driveway
Does it need gravel
Re paved
Seal the asphalt
Asphalt Driveway – Seal and Repair $75 to $5,00
New asphalt driveway - $700 to $3,000
Pool
Above ground yank out of the yard
In ground pool check the liner
Cost varies
Exterior Inspection of House
Roofing
Are the shingles buckling, missing or curled up
Does the roof have sags in it
Is the roof properly vented
Check to see if roof has more then on layer of shingles
Repairing roof $500 to $1,400
Replacing roof – (depends on if removing shingles; 150 -200 sq) - $2,000 to $4,500
Foundation
Are there large cracks in the wall
Are the walls straight or leaning in
Check for water leaks in the walls, mold or heavy moisture
Any concerns get a structural engineer for about $250 to inspect
I-Beams to brace walls - $170 to $200 a beam
Other foundation issues you will have to get quotes, no set prices
Outside Door
Check for gaps in the door
Look for crooked frame
Door replacement $175 to $700
Pre-hung door replacement (wood) $400 to $900
Windows
Look for moisture between window panes
Check to see if windows open and close
Check for screens and storm windows
To replace glass $25 to $50
Window replacement in rental home $175 to $225
Window replacement in higher end flips $250 to $450
Siding
Exterior painting house $1.00 to $1.50 a Sq Ft
Aluminum siding repair – depends on repair $250 to $1,200
Brick and stucco repair - depends on repair $250 to $1,200
Asbestos siding (removal) $1,500 to $5,000
Asbestos should not be as bad as you think to remove. Do not let companies gouge you and, if the siding is in decent shape, leave it and just do repairs. That is what I did on my duplex in Merion Village.
Vinyl siding (Replacement per sq ft) $2.00 to $3.50
Garage
Look at walls for cracks and wall problems
Check roof the shingles and wood rafters
Check on the gutters and downspouts
Make sure garage doors work
Make sure windows work
Garage door repairs $100 to $400
Garage door new or replace $400 to $1,500
Porch or Deck
Look for rotted wood
Make sure beams are in good condition
Termite damage
General repair $100 to $700
Build new or replace $2.00 to $4.00 sq ft
Interior Inspection
Walls & Ceilings
Check walls to see if drywall or plaster
Check for damaged walls or walls bowing out
Flaking paint in older homes could be lead
Look for water leaks or brown stains which means water leaks
Plaster repairs $175 to 275
Replace sheetrock $0.70 to $0.95 sq ft
Taping and spackling jobs $125 to $300
Carpeting
If carpet needs replaced,check to see if there is a hardwood floor that can be salvaged
Check for animal urine in carpet
Replacement of carpet $1.00 to $1.25 per sq
Carpet cleaning 5 Rooms for $89.00
Hardwood Floors
Look for uneven boards
Scan for stains such as water or pet urine
Need to replace boards that are missing or damaged
Floor staining and refinishing $1.25 to $2.25 per foot
Kitchens – Very, Very Important
Look at condition of cabinets
Inspect sink for issues with drain or garbage disposal
Check walls and ceilings for stains or issues
If gas stove check gas line
The kitchen is the most important part of the home when flipping, so you may have to move cabinets to maximize open space. The bigger the kitchen. the quicker you can sell it.
Replace kitchen cabinets – I replaced the cabinets and countertops for $1,500
Sink $150
Faucet $50 to $150
Refinishing Shop around
Bathrooms
Check for cracks or stains on the walls or ceilings
Check out fixtures
Make sure the vanity has enough lighting
Look at the flooring to see if old, cracked or worn
The bathrooms are just as important as the kitchen. Put your money into these two things.
Toilet $68 to $100
Surround tub $175
Vanity $100 to $200
Medicine cabinet $150
New sink $150
Faucets $39 to $100
Tile floor $200 to $300
Bedrooms and Family Rooms
Check the ceilings and walls
Make sure closet doors work
Open and close doors to ensure they close tight
Basement
Sump pump $175 to 450
Waterproofing $40 to $85 per sq ft
Mechanicals / Systems
Heating System
Check for age of furnace
If gas and electric on turn on furnace
Do not be afraid of a gravity furnace
Check bottom of hot water tank, look for rust
New gas furnace $1,200 to $1,800
New electric furnace $1,200 to $1,800
Repair electric or gas $45 to show up + Labor & Parts
New hot water tank $300 to $550
Central Air Conditioning
Check on year of furnace
Make sure grill is clean
Turn it on see if works
New air conditioner $800 to $1,300
Heat pump $1,500 to $2,800
Electrical System
Look for knob and tube
See if electrical box needs updated
Upgrade if electrical box is a fuse system
Upgrade old knob and tube $1,000 to $3,000
Upgrade electrical box $800
Repairs $50 to $60 an hour
Plumbing System
Check for leaks in plumbing
Look for a mixture of galvanized, copper and plastic piping
Flush toilets and run water to check drains and pipes
New plumbing entire home $1,500 to $4,000
Repairs $50 to go there + labormaterials
Well System
New well $2,000 to $8,000
Depends on depth of well, you can call county and find out the average depth for that area. The deeper they have to go the more expensive.
Refrigerator $350
Stove $258
Dishwasher $150
When you do run across a great deal, make an offer ASAP because other investors are going to see it as well. Run the numbers and remember to keep your offers low. Cash offers are always more appealing to sellers and they may take less knowing you don’t have to go through the financing. When counter offering, the golden rule is to never increase your offer by more than $500 to $600 at a time. Make all counter offers quickly and never counter verbally, always put it in writing and fax it. If your offer gets rejected don’t get frustrated. Many times the REO manager that rejected your offer will end up calling you back because their other buyer or buyers didn’t make it through the financing or had bad credit. The bank may tell you they have a bottom line that they must meet and that they can’t go any lower than a certain number for the property. Don’t believe this, they will take every offer seriously especially if your offer is the highest even if it doesn’t meet their bottom line.
Do the Numbers When Buying to Flip
The number one factor you better know when buying an investment property is the ARV (after repair value) which is what the property will sell for after you have made the improvements. Use comps within a one-mile radius of properties that have sold in the last 6 months and make sure these properties are comparable to yours. Also make sure that properties in that area are selling. Ideally you want to purchase the house for no more than 60% to 70% of their ARV to give you sufficient room for profits and a little breathing room if you make a mistake.
You must pay close attention to your cost when determining whether it’s an equitable deal for you. After you come to a determination on the ARV, figure up the taxes on the property and how much it is going to cost you everyday you own it. Do the same for insurance on the property. IF you have a mortgage or use a hard money lender, remember to calculate in their cost and profits as well. Figure in the average cost of utilities per month. remember you are going to have 2 sets of closing cost with the title company, the first when you buy the property and the second when you sell it. If you are going to use a real estate agent to turn the property over, they will be taking their standard 3% profit for selling and additional 3% for the agent that brings the buyer. If you have a good relationship with your agent they may take 2% but regardless remember to calculate all these numbers before buying an investment property.
Advanced classes include these Flipping/Rehabbing classes:
Class 200 - Bandit Signs
Class 300 - Website and Internet Marketing
Class 400 - Skip Tracing
Class 500 - Billboards, Taxis, Bus Benches and Bus Marketing
Class 600 - Newspaper Ads
Class 700 - Craigslist to Buy and Sell
Class 800 - Radio & TV Ads
Plus you will get advanced classes on short sales, landlording, wholesaling, financing and much more.