I left my previous job, and began flipping houses in Portland, Oregon in 2010. Having a love for architecture, renovation, and real estate in general, was necessary. It can never just be about the money, or it won’t last. That being said, it wasn’t until my first house sold, on the first day on the market, for the full asking price, that I was convinced I made the best decision. Here are the four things you’ll want to get right.
First, work with a Realtor who really knows the local market that you’re looking in. Hire a savvy agent who demonstrates they’re in the know of what’s happening in the neighborhood, what houses are selling for in terrible condition, but also the ones in great shape. Your Realtor should also know what houses people are flocking to right now. When I first began, I got my real estate license at the same time and I searched the MLS database for local houses that sold within the first seven days on the market. I wanted to discover some common characteristics. One of those was that in 2010 in Portland, Oregon, about two thirds of houses had white kitchen cabinets. Interesting. When it came time for my first flip, guess what color cabinets I chose? J Find a Realtor who gets it.
Second, come up with a great investment and profit plan, or just use mine. When figuring out how much money I should pay for a fixer house, I use this formula: 0.75(ARV) – Cost of Repairs. What that means is take 75% of the “after repair value” or how much the house will sell for fixed up, then subtract the estimated cost of repairs. That is the most I should be paying for the house. For example, if my savvy Realtor shows me comparable houses that have sold for $300,000 fully fixed up, and the fixer house I’m looking at needs about $30,000 worth of work, then the most I should be paying for it is: 0.75($300,000) – $30,000 = $195,000. After all of the agent, interest, and listing fees, this would leave about a 15% profit on the sales price, or about $45,000 in this example.
Third, hire a great crew. On that first house I flipped, my husband, father in-law, step-dad, and even friends had a hand or two in helping make it profitable. Let’s be honest, when you flip your first house, it can be a bit unnerving. For that first one, I am all about having a little sweat-equity in there to ensure you don’t spend too much money. But I always recommend hiring licensed professionals for the big stuff. And after you gain some confidence from successfully flipping your first house, for the next ones, hire it all out. When I’m looking for new people to work with, I first ask for personal referrals from friends and family. If your best friend has a great heating and cooling person they have been working with for 20 years, start there. If no referrals are coming your way, go to a trusted source online where consumers rate their experience with contractors. Either way, I recommend having at least three people come out to the house to talk with you about the scope of the project, and give you an estimate. It’s also a great time to set up expectations with these potential contractors to make sure you and your project are a good fit for them. Ask them for references, and call those references! One of the things I always ask is: What was the best part about working with this contractor, and if you had to pick something, what could they have done better? Don’t let them off the hook. Have them tell you something.
And lastly, create a project calendar and tight timeline. The calendar should include all the work happening at the house, and how many days each project will take. I let the contractors know they will be working with others each day they’re there. There is no reason you can’t have a water heater replaced in the basement, at the same time kitchen cabinets are being installed, and the exterior of the house painted. Most of the projects I take on, ranging from $25,000-$150,000 remodels take about 4-6 weeks. The three main reasons for tight timelines are: 1. Buy and sell the house in virtually the same market. The housing market can change quickly. I want to make sure that ARV I calculated before buying the house hasn’t changed by the time I sell it. 2. There’s a great energy generated when there’s so much work happening at once, especially with a great crew. Momentum builds, and with each week that passes, the house transforms. That’s great for morale. 3. The less time you own that house, the lower your expenses are. Most of us don’t have $200,000 in the bank to buy a house for cash, so we pay a lot of interest, fees, taxes, and bills the longer we own the house. Lower those by being efficient and having a tight timeline.
I have been flipping houses since 2010, and have done well on each one. Does luck play a role? Maybe, but having tested guidelines certainly helps. For me, there really aren’t any secrets. If there are flipping secrets out there, I don’t know them. I’ve learned these four things will get you moving in a successful direction.
Bobby Curtis is a serial renovator and principal broker with Living Room Realty in Portland, Oregon.