When I got my start in 2008, I jumped right in. As I scaled my business over the years, I have made changes and learned a lot of things. Now, I’m sharing three absolute musts for scaling your flipping business.
After getting started, my focus was to do a few properties a year. I was content with this for about five years and realized the unlimited opportunity before me. I have always valued time with my family, and running a house-flipping business made it a reality. Plus, having flexibility and financial freedom are huge bonuses. I thought, if I’m willing to put in the work, this can truly be what I want to do. Once I started considering making this a full-time business, I began scaling.
I looked back on this journey and came up with three musts for anyone looking to scale. Unfortunately, there isn’t much talk about scaling house flipping businesses or how it can work overtime. I think the reason for that is that most people start in a spot and then transition to something else. For instance, some flippers that started in the business have pivoted to real estate investing.
You can go so many paths, and there is no right or wrong way. It’s really about where your interests lie, where you want to build, where you see opportunity, where you feel comfortable, and what you strive for.
Let’s get into the three areas I owe my scaling success to. While I didn’t start with these since I was focused elsewhere, I have come to find they’re critical, and you will need them to scale your business effectively.
#1 Laddered Lending Options
The first “must” I have for you is laddered lending options, and I have coined this term after finding the immense importance of finding lenders and using more than one lending source.
I always say you never want one of anything. Whether electricians, plumbers, HVAC technicians, or you guessed it – Funding.
My first bit of advice is to start looking and making connections before you need to. While you might not be ready to take the following steps now, you can be soon, and it’s best to get approved and foster relationships early, significantly since anything can change.
Now, when I talk about laddered lending, one source I’m talking about is private money. So those are people who may be using their IRAs or self-directed plans to invest in real estate.
Those lenders will be a little more challenging to find, but they’re out there. If you’re fortunate enough to have some of those people in your life, I would start by having a conversation with them. If you know others who have utilized people with private money and they can refer you to them, that’s a great opportunity as well.
The other part of this laddered lending option is your bank. For the past five or so years, banks have been lending money at a competitive interest rate. So commercial lends of credit for some of the projects we work on have been carrying an interest of about 5.25%, sometimes they’ve been closer to 6%. The majority of the time, it’s been in that 5%-6.5% range, which makes money incredibly competitive when laddering these options.
So when you use 70% at 5A% interest rate, 70% of your projects funds come at a bank loan with a 5% interest rate, and then you have the rest that you’re borrowing at a private lending rate, you wouldn’t be bringing any money to the table. What does that mean? You have potential. You’ll have the potential to buy more projects.
The big light bulb moment for me happened in about 2011 when we were working with a hard money lender only, and for every project we did, they were great to work with. They were quick, fair on rates, easy to communicate with, and supportive. I realized after about two projects when we started to get that third project, we usually had one if not two of the others sold. We were just waiting on them to close, so until those closed, we had no funds.
Without any funds, we couldn’t go in and put offers on properties because we didn’t save. We needed 25%-30% to bring that property to close. So what was happening was that for every project, we had about $50,000-$75,000 tied up of our own money, and we couldn’t do anything more until the property sold and closed.
I realized this wasn’t the best way to do things, and we had to figure out how to make it, so we’re not bringing in so much of the money. I understand, in the beginning, when you don’t have lending options, bringing in your own money is sometimes the only way you can get projects done.
I was there myself. I used cash and cash advances from credit cards when I was getting started (that’s another story). The bottom line here is the more options you have, the more ways you construct projects for funding.
Now, a word of caution. We have learned that anything can happen, and your house flipping business may not be immune. For instance, when March 2020 hit, we closed on a house on Match 11th, and two days later, that lender said they’re not lending any more money right now. They were lending to 12 different investors and therefore had a lot of exposure during the uncertain time.
At that time, he had a few projects with us, he wasn’t holding the entire funding amount for the project, but it was enough that it made him uncomfortable. In that scenario, I had to find more private lenders, and I then went back and used some of the lending strategies I had used years prior. Thankfully I had good relationships with those lenders and a great track record, so they were willing to invest in us. Therefore, we didn’t have to stop flipping when many other people either quit or put things on hold.
That is a benefit to having laddered lending options. If I had a project right now, I would like to get lending on, I have two solid hard money lenders who I have worked with over the last 13 years.
Additionally, I have three private money lenders who I could reach out to and say, “Hey, I’m looking for $150,000 funding for the construction and closing costs of this project. Would you be interested?”
And next, I have four banks with commercial lines of credit that I could contact who fund flips and fix and flip projects and ask them if they would be interested in funding one of our projects.
So that is a good mix of resources I could put together to make a project work (and not have to walk away because I didn’t have options).
Laddered lending is the number one “must” to scale your house flipping business. I find it’s sometimes overlooked and not talked about, but it has led to a lot of my success.
#2: Structured Processes
My second recommendation for scaling your flipping business is creating and sticking to structured processes. With that said, each project will have a different approach, and you will not have success with doing one process on every project.
To have success and be able to scale, you need to get your processes down. When I’m talking about a structured process, I mean the process you go through with each project.
Your process can start by getting multiple bids from multiple contractors (we do this every single time, even after 13 years in business). We schedule one day where we bring everybody in, and we give everybody a scope of the job and take bids right there based on one project.
Then, we decide who we will work with after reviewing bids and putting everything onto a calendar. Everyone then knows the start and end dates. Establishing these goal dates ensures everyone knows what they need to do to get things done efficiently.
We have found our average timeline is between 16 and 18 weeks. From the time we start demo to the day the house is staged, photographed, and listed is about 16 to 18 weeks. Of course, this can vary, but structured processes allow for the unexpected. For example, we can accommodate that if we lost two weeks because we couldn’t get the plumbing inspector in for an inspection, which held up insulation and drywall. In this situation, we would try to make it up somewhere towards the last quarter of the job.
Having that calendar in place allows you to order materials promptly. Over the last year or so we’ve changed some processes to work with the supply chain issues. One example of this is how we do our windows. We used to order windows about halfway through the project to avoid them breaking on-site, but now that there are delays, we have changed this process.
These changes go right onto our calendar. Now, we measure for windows and have the floor plan ready about 99% of the time before closing the property. That way, once we close, we have a cushion of a few extra weeks in case there are additional unexpected delays.
Having a realistic, nailed-down timeline helps the entire team. Another way your structured process will come into play is knowing who is responsible for scheduling inspections and what will need to be done before and right after the inspection is complete.
Anytime you’re guessing about anything on your flip project, there is potential for error and problems.
#3: Access to Properties
My final “must” for scaling your business is access to properties, and this is one I firmly believe people need to be aware of and have at their disposal.
If you’re looking to scale a flipping business to be full-time and allow for your dream lifestyle, you need to have access to properties. The foundation of house flipping has properties to flip, and the more you can access (and earlier), the better.
If you don’t have those or only have one source for properties, you’re going to be limited in how much you can do. For example, some of the top communities in which I typically purchase properties now have about 80 to 120 active listings. Of those, 20 are available for sale. The majority of those will be retail buyer-type houses, or they’re going to be priced at a retail buyer level. I have gotten to the point where I have built relationships and gained resources to find off-market homes (meaning they never get listed).
One perfect example of this is a home we purchased in late 2021. The home was inherited, and the family didn’t want to deal with it. They were willing to hear an offer, and thankfully an agent aware of what we do get us in contact with them. We looked at the property, made an offer, and closed a few weeks later.
Networking and building relationships are huge in house flipping and critical to scale your business. Why? Because you need properties all the time, and you’re not always going to have these homes fall into your lap, so we combine resources.
Additional resources to find properties include:
- Direct mail
- Get your real estate license
- Use social media
Of course, some of these strategies might not be right for you. For example, getting your real estate license might not be of interest to you, but it was to me and has proven to be a great asset.
I got my real estate license for a few reasons. First, it was about security. When jumping into your own business full-time, it can feel scary. I wanted to continue being a W2 worker and created a system to separate my flipping income from real estate. Secondly, I was interested in getting the databases real estate agents’ perks. Real estate agents get access to new listings immediately, and for those sellers who are open to bids right away, I can swoop in early. They also have long lists of homes that have been on the market so long you might overlook them.
There are also some other benefits to having your real estate license as a flipper that I have found valuable. Having your license takes a person out of the equation, so you won’t be relying on an agent to do things. You are handling it yourself. And another huge benefit is how much you can learn. Having that education under your belt gives you a new perspective on properties and the ability to view flips to compare to ours. We always want to be at the top of the pack when it comes to value. With a license, we can view more properties that breed more ideas and keep us in a constant state of evolving and growing our skills.
Overall, having a real estate license gains you access to homes in more ways than one, which has been a primary pillar to success for us.
Again, this route isn’t suitable for everyone, and that’s okay. But you need to make sure you’re replacing this access with another way to find properties—for example, off-market wholesale. Make contacts and let people know you’re buying. Always work to have a steady stream of properties.
The Three Musts
If you’re looking to scale now or in the future, getting a sense of these three tips early will only help you. I highly recommend laddering lending options, creating a structured process, and finding multiple avenues to discover properties. As I mentioned, there are dozens of routes you can go with your flipping business, but from our experience of scaling and flipping more properties each year, these “musts” have been invaluable.
Ready to take that next step when it comes to flipping?
Perfect! I’ve got additional resources to help you get the information you need to move forward on creating your flipping life.
Make sure you have the Fixer Upper Checklist so you know which areas are key to added value in a home.
There are several videos available on finding houses, renovations, and funding on the Threshold Homes YouTube Channel. Check out your favorite flipping topics and new videos weekly.
You can’t close a successful and profitable flip unless you start. What is your biggest challenge with getting started house flipping? Let me know. It may be an area I’ve also had questions about myself. I’m here to help so drop me a DM.
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