Heartfelt Message To House Flippers
September 22, 2008
There literally has never been one single year over the time that we have flipped houses that I haven't heard the statement (or some variation, and 90% of them came from agents), "oh, you can't flip in this market".
And each year, I answer, "Maybe so", or "Hmm, could be", as I wait for our latest escrow check to arrive.
You will never hear that statement come out of my mouth.
This being said, I will say that flipping in a declining market does sort of remind me of learning to snowboard on a black diamond slope. In 2002, 2003, and 2004 if you had started flipping then it was more like learning to ski or snowboard on a bunny slope.
The reason is that if you had miscalculated during 2002, 2003, or 2004, the rapid appreciation of the market combined with the greater fool theory bailed you out every time. Leased land, floor-plans that resemble a labyrinth, war zones, glop ons (really bad add ons), overestimating value, underestimating repair and carrying costs, taking 3 months longer than you thought to make your repairs...all of these sins were quickly forgiven by the voracity of the market.
In this market, if you commit these sins, you can and will be punished, "Thank you sir, may I have another?!"
Right now, it is raining foreclosures. You have to be spot on...spot on with your rehab, spot on with your repair estimates, and one of the most important factors, aggressive in your marketing of the property...in other words, you better have some idea of what you are doing.
If not, the risk is that in the time it takes to fix up that property, 3 or 4 new foreclosures go up on your street that are priced $50,000 below the last lowest priced property. There is a LOT for a buyer to choose from.
Without espousing all gloom and doom, there is still a SHORTAGE of freshly remodeled homes out there. Even more exciting than that, every month more and more families can afford a home who could not for the previous 5 years (and chance are their families are bigger!).
There is a lot to be excited about...but you have got to be focused, you have to be accurate on your repair costs and timetable, it has to look GOOD (or why wouldn't a family save $50k and pick the REO across the street?)...
You need to get creative and put something like a plasma HD flat screen with an Xbox in the living room, a spa in the backyard, or something that makes a family emotionally attached.
You need to make the property enticing to agents and add at least 2% to the commission of the agent or a free trip to Catalina Island (not as pricey as you might think) for the agent who finds you a buyer......AND, you need to factor these costs in advance!
If you are a beginner and you are saying, "no sweat, I can do that", then I will always reply, "Go for it!".
Really, no matter how much advice we or anyone else gives you, the only way to get to consistent success is to get that pesky falling-flat-on-your-face part out of the way...unfortunately, there is no way to avoid it that I know of. It is the only way to get a deep understanding of the game the same as any other hobby, business, or sport. You can read hours of books and videos about snowboarding, it's not going to prevent you from feeling like a complete jackass the second you click your boots in and try to stand up!
This doesn't mean you will have an unmitigated disaster, it does mean that at the end of each project if you don't slap your forehead at least once and say, "Dohh, I should've", or "I could've", or "Why did I....?" then you didn't really learn anything, and there is ALWAYS something you could have done better.
........hey!....image how easy the rest of your snowboarding or skiing trip will be when you do learn how to get down a double black diamond!
If you don't like snow up your nose, and you want to take a more balanced approach, then I have another suggestion for you: consider wholesaling. The money can still be great and the risk is considerably less.
Again, CONSIDER WHOLESALING. The money can still be great and the risk is considerably less.
If you are looking to change careers, get out of your current line of work so you can have your own hours and be your own boss, but you aren't crazy about going down a black diamond right away, don't you dare give up that dream or tell yourself that you'll do it when the market changes.
Wholesaling means you go on the hunt for amazing deals, but then you take what amounts to a small finder's fee, pass the lion share of the profit to another investor, and go on to the next one.
But do NOT stop there - make it part of the deal that you can check out what your investor buyer does (or doesn't do) to the property, how they market it, what it costs, and learn everything you can from it. Who knows? ...you may just get hooked on the thrill of the hunt and never even care about fixing them up.
I'm torn between the two. The feeling you get when you take a trashed, smelly, abandoned pile of wood and turn it into a beautiful home....there is no feeling like it. No matter how many times we've done it, my jaw hits the floor when I see the work my brilliant and artistic wife pulls off time and time again..
....BUT, for me, I'm all about the fun of the treasure hunt. I'm not a fix up guy. I tried to put in a doggy door once. The box said 15 minutes. It took me two hours and put me in a really bad mood, and Cindy basically redid it anyway...sorry, I just suck at it. I admit it. But if you want a direct mail marketing system to absentee owners or a screening system to find the best repos fast, stand back!...Cindy often struggles with email....if we were good at the exact same thing we'd be in big trouble.
But the number one reason is risk...no repair costs at stake, no mortgage payments, no agents and picky end user buyers to deal with...if you are bound and determined to get out of your job, don't have a lot of money, and not a lot of contractor experience, give wholesaling a serious thought to launch your investing career..........and as always, call us if we can help you in anyway. You can wholesale a deal to us if it's good enough, or we can wholesale a deal to you if you are bent on fixing it up yourself, just don't try and add a doggy door, it's impossible.
Be Happy and Prosper,
Kurtis
http://www.FarBelowMarket.com
Kurtis Squyres lives in The Coachella Valley in Southern CA, about 30 minutes from Downtown Palm Springs.
Kurtis has personally bought and "flipped" over 300 homes in San Bernardino, Orange County, and Riverside Counties over the past 12 years.
For six years, Kurtis served as a Merrill Lynch Financial Advisor to high net worth clients and managed over 25 million dollars of financial assets. Kurtis left the finance industry to pursue real estate in 1999, and is now a leading authority of the non-judicial foreclosure process in California. Kurtis continues to invest in and teach real estate investing full time. http://www.farbelowmarket.com
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