I am a natural skeptic. So when my current business partner approached me in 2008 about purchasing, renovating, and ultimately selling (for a profit) a local foreclosed home, my first thoughts were centered on doubts, not possibilities. This proved to be the wrong approach.
I, like most people, would consider myself a busy person. Full-time job, wife, 2 kids under age 4, maybe a little free time to read a chapter or two of a paperback fiction or dabble on the computer for an hour. So when my partner approached me about joining forces to tackle a renovation project, I immediately told him that I was way too busy. Luckily for me, he was persistent and asked me multiple times over the following few weeks, and after much thought and deliberation I took the plunge. As I mentioned, I had (and still do have) a full-time job, and when he assured me the project would be done in our "spare time," I would be lying if I said I was convinced. So, how did I do it?
Lesson One: Attitude Adjustment:
It has taken me a long time to accept this as a truth, but if mentally you believe that you cannot succeed at something then there really is no purpose to entering the fight. So if you don't believe the validity of the title of this article, then you might as well stop reading now. If you do believe the title of this article, or have doubts but are willing to consider what I have to say, then I certainly think it is worthwhile to continue.
When my initial reaction to flipping a house was time constraints that is where I had to step back and really analyze where my time was going. I won't bore you with the details, but needless to say there were amounts of time I could dedicate to this pursuit that I would label as non-critical activities. After that analysis I mentally committed right then and there that I COULD do this, and without that mental acceptance then no matter how many properties I looked at/bid on, I was not going to (profitably) flip a house.
Lesson Two: You Make Your Money When You Buy
There is a ton of detail I can go into here, but I'll make this as simplistic as I can. When you rehab a house for profit, you must be completely unemotional and STICK TO YOUR NUMBERS. When I speak to people who are new at this business the majority of them tell me this is their biggest mistake, and it is an easy trap to fall into. I may not particularly like a chrome toilet paper holder, but if my market and numbers tell me that is what should be purchased and installed and not the $10 more oil rubbed bronze holder, then I do what my numbers tell me to do (this may seem like a simplistic example, but there are literally hundreds of these types of decisions needed to be made during this process that will determine if you make money or not). This is an especially hard concept for those of us (like me) who are homeowners; if you try to run this business the way you operate your decision-making process for your home, then I'll save you the suspense and let you know right now that you will fail. The lesson is simple: you stick to what your numbers (that you figured out BEFORE you purchased the property) tell you and you stay disciplined to that principle.
So, speaking of numbers, here is the little tool I use to determine potential profit before I ever LOOK at a property:
Purchase price x 8% (factor in closing costs, taxes, real estate commissions, et cetera, will need to find what number works for where you are purchasing properties)
Sale price x 8%
Many people I speak with do not believe me when I tell them I run this exercise before I ever look at a property, not even a picture. Remember, it is a numbers business; it doesn't matter if the website photo shows a beautiful brick front or a home with no roof, your profit is in the diligence you spend upfront in knowing how much you need to buy, fix, and sell it for (obviously you will need to look at the property before estimating repair costs, however the other numbers should be run and a reasonable repair cost inserted in the formula before looking). It is a simple model, but it is one that makes me a lot of money each year, and it does not interfere with my “9 to 5” job. That leads me to Lesson Three:
Lesson Three: You control your schedule
This is where the “spare time” explanation comes in. I can only write from experience, and my current work status requires a physical presence at my employer pretty much from 8:00 A.M. until 5:00 P.M. Monday through Friday. I already mentioned that I am a family man, so I refuse to sacrifice from 5:00 P.M. to 8:30 P.M. Monday through Friday or the majority of my weekends to being away from my wife and children. So where am I finding the time to do this? Yes, I am giving up the television and going out with my buddies to make my side business profitable. When I started the first project, I committed to my wife and myself that 4 nights a week, from 8:30 P.M. until 11:30 P.M., I was going to work on my renovation project. I’m not going to lie, when I first started I was just telling myself “Steve, you can do this for 5 months, you can do this for 5 months and be done.” But a funny thing happened: I actually found out I didn’t MISS what I was previously doing during that time period. Not only that, but I found myself ENJOYING what I was doing instead. It might not sound like much, but at the beginning of next week commit yourself to 12 uninterrupted hours of one activity. Watch how much you will have accomplished at the end of that week, it is simply amazing. So, this is how I did it. Whether it was emailing local contractors for bids (remember, you are buying a renovation project, contractors can come and go through the house WITHOUT you, there’s nothing there!), paying the weekly bills, preparing next week’s schedule, et cetera, the majority of the work was done from my home desk. I was able to get into a routine where I would check the work progress physically onsite twice a week for one hour each time I was there. Where there bumps along the way? Absolutely. Challenges? Oh yeah. But did it cut into my work/family time? No, it did not. I stayed disciplined, and when I hit an unexpected obstacle the extra hour or two I needed was taken out of my time, not my employer’s, wife’s, or children’s. It is a sacrifice, and I’m not saying it is easy or for everyone. But it absolutely can be done, and done profitably.
Lesson Four: The deals are out there, let the professionals find them for you
The most difficult part for profitably flipping a house is finding the right property. This is especially difficult when you have no experience. I already told you in lesson two that I refused to look at a property unless my numbers work. So where do you find the properties that fit the criteria? Answer: I have no idea, so I found the person who had the answer. It took a lot of asking, pleading, begging, but eventually I found a credible local real estate agent who was willing to send me leads that fit my criteria. Please understand, for every 100 properties I was sent, only 1 or 2 were worth a look after running my numbers. So there is a lot of upfront frustration when you are spending time searching for the right deal and constantly not finding it. Doubts creep in: could I be spending my time in a more useful fashion? No easy answer to this one, this is where the majority of people I talk to fold up the tent and go home; for those willing to stick with it, well, I’m a living example of that choice. The other challenge is most agents are not willing to spend the time sending leads, or quality leads, when there is no guarantee they will get paid. Again, no easy answer to this one, you must be diligent, keep asking for agents to be open to possibly securing a long term investor who will feed them commissions on a future on-going basis.
So fast forward 3 and a half years and I’m still going strong. I’m now doing about 4 projects a year, still working full-time, still dedicated to my growing family. And while I haven’t watched as much football these past few years as I used to, I sure have learned a lot about building a small business and provided my family with some secondary income channels that have proven to be way more valuable than watching a Monday night football game.