This week, our guest at Agent First Summit was Ian Flannigan. He’s worked in real estate for about 17 years and does a lot of work with land development, flipping multi-family homes, single-family homes, and diving into other investment opportunities.
Our Agent First Summits happen every Tuesday morning! It’s a perk for all our real estate team members and any of their guests who want to grow their real estate business. To get an invitation, RSVP here: Save Your Seat!
In this session, Ian shares with us how to buy, fix, and sell a property.
Finding Fix and Flip Deals
There are many ways to find a good fix and flip deal as long as you have the dedication to see it through. The most powerful source of finding new leads for fix and flip homes is going to be through referrals.
However, there are a variety of other ways that you can find clients, especially if you’re just starting out:
- Your database—people you’ve worked with in the past
- PPC marketing and Google and Facebook
- Social media and content marketing
- Wholesalers
- MLS—look for homes that have a wide margin for improvement, i.e. for homes that you can buy for less, improve for $100,000 to $200,000, and consequently sell for a few hundred thousand more. Of course, this varies by real estate market.
- Direct mail
- Outbound telesales calls to targeted lists such as probates, free & clear houses, etc.
- FSBO and expired listings
- Radio and TV
- Billboards and signs
Once you’ve gathered some leads, you’ll likely begin to see which methods of lead generation work best for you to focus on.
Buying Fix and Flip Deals
Once you get some leads, it’s time to decide whether or not to buy and flip a home. First things first, you need to evaluate a deal. Start by going to Google Maps and looking at the neighborhood, the neighbors, and the birdseye view. Find out about commercial buildings, nearby railroads or water towers, etc. that can affect the value of the home.
Keep an eye on homes that come with great flow and layout. You want a home that’s relatively easy to renovate and that isn’t so old that everything under the walls is rotten. Start by renovating newer homes that are already well designed so that you don’t have to spend too much tearing them apart.
Next, view the tax site to see who’s on the mortgage, if it’s in a trust or LLC, etc. You want to understand who you’re dealing with if you’re going to buy the home as a fix and flip.
Finally, go to the MLS and start looking at comparable sales to see what number you can put on the home after it’s renovated. This will help you determine if the home is actually worth it—if you’ll be able to make back what you put into repairs, it’s usually a good fix and flip option.
Fixing Fix and Flip Deals
Once you’ve decided to take the deal, start by budgeting how much you’ll need to make repairs. Estimate repairs by calculating about $18 to $25 per square foot to repair cosmetic issues (flooring, paint, kitchen, etc.). Then, take a look at “The Big 6”:
- The Roof
- The HB/AC system
- Plumbing
- Electrical
- Windows
- Foundation
You’ll want to add any cost you’ll need to repair these big ticket items to the square foot estimate to know how much repairs will ultimately cost you.
When you know the approximate cost for repairs, you can make an offer. Start by calculating the After Repair Value (ARV). Then multiply the ARV by 75% and subtract the estimated cost of repairs. The number you end with should be your offer price.
Find Private Funding
Getting loans from a bank is not the most lucrative method. It’s better, if you can, to find private funding from people who have capital and want to invest in real estate. Go to investor meetups…you’re going to find people with capital and people with deals, and people that are like-minded. This is a great way to source money and deals!
As an example, once you find an investor partner:
- Get the 1st lien deed of trust (to learn more about how this process works, read this article).
- Set a 6-12 month interest only term.
- Negotiate an interest rate before you enter into the deal—ask what type of return they want.
- Offer an “equity kicker” such as an offer to give them 10% of the net profits.
- Negotiate a joint venture equity split on the back end.
As you’re looking for a lender, make sure you’re transparent. Don’t deceive or exaggerate about how much you can earn on the home. Instead, focus on building relationships and proving yourself trustworthy. Show them how you’re going to pay their money back through a clear plan and examples of past work.
Hiring Contractors
To find a contractor who won’t bankrupt you, you need to have a budget in mind initially and create your own scope of work. Start by writing out each cost for the renovation line item by line item and estimate a total price. Then, go out to find contractors who meet that price (within a small margin) and can accomplish what you need to be done.
Never give a single contractor the entire job—you want to pay each contractor individually to use their specific expertise and create the best renovation. Contact people you know to find out about good contractors in the area. Then, ask contractors for good references to ensure they’re willing and able to provide proof of their trustworthiness and work ethic.
When you hire a contractor, be sure you sign a contract with a timeline, set payment periods, etc. You need to make it crucial that they complete the job on time and are held accountable to do what they promised you. Otherwise, you’ll end up losing a lot of money.
Bonus tip: be very wary of change orders. Know what you want to do before you enter into the project, because adding new big changes in the middle of a project will cost you a LOT more.
Finally, hold payment until you know the project is complete and the contractors haven’t left any holes (literally or figuratively). Take your blue tape through and mark anything that doesn’t look complete (commonly known as the “punch list”) so that they don’t leave a mess. Once everything in the home looks great, you can pay them and send them on their way.
Surprise Expenses
Make sure that whatever you’re doing, you budget at least 10% to 20% for any surprise expenses so that you don’t lose too much when you get there. Plumbing issues are the number one surprise issue expense, but you may run into other things you didn’t plan for. It’s crucial that you have enough money set aside to deal with those emergencies.
Get projects flipped as quickly as you can. Your interest and taxes are only accruing the longer you work. Do your best to get homes finished quickly, though not sloppily.
Selling Fix and Flips
When you get ready to put a home on the market, use professional and well-done photos. Stage the house accordingly. Create descriptions that align with the amenities and the area; i.e., show people what it will be like to live in the home, don’t just provide a list of what the home has with it.
With effective marketing, you should be able to sell the home quickly and make back all that money you spent in repairs. And with that, you’re the proud agent of a successful fix and flip home! Fixing and flipping is a great and effective way to earn more money and create more business for yourself if this is a process you enjoy.
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