Today I’m sharing the three most common questions people ask when they discover what I do. These are very common questions I’m asked on social media, in comments from posts, or in DMs. You might be wondering about these things as well! Let’s get into it.
Question #1: How Do You Buy a Flip?
This is a question that I get from people at all levels of flipping. Some have a real estate background, and some are starting from scratch. It’s a good question and one you may not know the extent of opportunity.
A lot of people think there’s something complicated about the purchasing process for a flip. While this can be true, it’s easier to understand when it’s broken down and applied to your circumstances.
The simple way to buy a flip is to use cash. But for some people, that’s not an option. When I was getting started (when housing was more affordable), I used cash and a traditional 30-year mortgage, which was a standard purchase.
You can use cash, you could use a traditional mortgage if the house meets the criteria, and also if your finances work in that situation. Another funding option is private money from people who invest in real estate. Unfortunately, without successful flips under your belt, this might not be possible.
The next funding option is a hard money lender. A hard money lender will loan on a property that needs work that doesn’t necessarily need to be habitable, but they also use that house as collateral. So if something goes wrong with the loan, if you don’t fulfill the terms or complete the repairs, they will take the home back.
The trade-off for using a hard money loan is that there are some significantly higher expenses to it. And so you’ll need to calculate that into your numbers. The nice thing about using a hard money lender is you don’t need to have a significant amount of experience behind you to qualify for that loan, and they do walk you through the process. They’re great from an education standpoint, and the process with a hard money lender is one that you’ll replicate with other lenders that you might qualify for down the road.
TIP: When looking up hard money lenders in your market (Google: Hard money lenders [location]), see their qualifications. Find out if you’re even close to qualifying for one of their loans and maybe online you don’t know, and you just want to speak with somebody or shoot them an email, do that.
The next funding option is bank lending which isn’t a traditional mortgage but may be considered a commercial loan. Bank lending is the type of loan that we primarily use now. They can be combined with something else, like a private money loan to create a transaction where we go to the closing table, we send the paperwork, I own the house to flip, and I didn’t bring any money to the closing table because of how I structured my financing.
Bank lending doesn’t require capital. But it does account for those expenses in every project to ensure an accurate projection of profitability on the project. So that’s something you’ll want to account for. When I didn’t have private lenders for my projects, I would bring capital to the table myself, which in turn limited how many projects I could do because I did have a significant amount of capital tied up in every project until it was closed.
You don’t have to commit right now to what your big picture looks like. Focus on the now. I want your takeaway to be that the way you get started doesn’t have to be your process forever. The experience and confidence you’ll get from a successful project is the most important thing.
The last funding option I talk about often is a home equity loan or line of credit. A Home Equity Line of Credit (HELOC) loan is an option for people who want to fix and flip and already own their own home. For this to work, there would also need to be at least 20% equity in the house that is owned.
Keep in mind that you might have one option available to you one day that isn’t available to you the next day. You have to be able to pivot and figure out ways to continue to move forward with your business. Continue to learn and capitalize on your knowledge and the opportunity because if you don’t prepare for those things, you’ll end up in a situation where if you’ve only got one way to do it, you might be completely shut down or very limited and restricted for a certain amount of time.
Question #2: Do I do the work Myself on the Projects?
I am often asked if I do the work myself, and if not, how I manage who does. When I was first starting, I was hiring a general contractor who would oversee all the subcontractors.
The licensed general contractor would vet and hire (electricians, plumbers, HVAC companies, etc.). They were pretty much in charge of everything. Then they had to be responsible for all of the subcontractors that they had. They would get paid, and then they would pay the subcontractors.
Having this hands-off approach was easy, but I soon realized a significant downside. As I became more knowledgeable, I realized that the general contractors might find a plumber who would do the work for $3,000, but the contractor would charge me $5,000. Therefore, the contractor was making an extra $2,000 because he used that plumber.
I figured out that there were subcontractors that I could get bids on and assign to the general contractor. Now, I am hands-on with hiring and building the team but delegate a lot to the project manager/general contractor. I also use people licensed for their trades underneath whom he navigates scheduling and tasks.
My process has evolved. Now, I would never advise handing everything over to a general contractor walking away and showing up six weeks later and expecting to see a fully finished flip project. If you’re not involved, things may not be done the way you want them done or there may be communication challenges or people might not actually be doing the work that you think they’re doing.
Remember, there’s such thing as taking on too much. Not everything should be DIY. It’s crucial to hire experts, especially when you’re first getting started. Vet and hire a team who can execute and meet your standards, schedule, and budget.
So, know when it’s appropriate to delegate, but don’t step away too much. I always advise people to be involved in their projects to ensure quality and adherence to their expectations, and that’s also how you learn.
Question #3: Do I have a Background in Design?
My background is in corporate communication, not even close to design, but what I love about this question is how my response to it has developed over the years. I used to feel kind of sheepish when I would answer this question because the answer was no, and I didn’t have any formal training.
I like to use this question as a reminder to myself of how far I have come, and a teaching moment to the newbies. Just because you have different expertise or no prior knowledge of flipping, doesn’t mean you can’t flip houses. Frankly, if you stick to the same thing all your life, you’re limiting yourself!
If I thought that all I could do was numbers stuff, I would be missing out on so much of the opportunity. Design is an essential part of the flipping process that I have grown to enjoy, and I have been able to bring my creativity to my projects with my design. Instead of formal training, I base design choices on the things that I see, the things that I like, and the things that I know that buyers are looking for.
You don’t need a background in design to be able to choose materials that go into a house you’re renovating for sale. You don’t need to have a design background to stage a home. You don’t need to have a construction background to know that kitchens and bathrooms are important to buyers.
You don’t need to have a construction background to know if those shingles are curling on that roof, they likely need to be replaced. You don’t need a construction background to look at a house and go, “This house in this neighborhood would sell for $300,000 more if it had two more bedrooms and two more bathrooms. And that basement is potentially unfinished right now, and we could finish.”
There’s just things you don’t need to have knowledge of or… You’ve got to have an awareness, but you don’t need to know. So just because you don’t have the experience, doesn’t mean you’re not equipped to succeed.
These were the three most common questions that I get asked about my business and why people tend to be a little surprised with my responses. I always come back to the same advice: Take the leap and get the first flip done. I didn’t have super high expectations or hinge too much on the success of my flip, and I went for it. Now it’s your turn!
Listen to this podcast episode for more detailed answers to these three questions and personal stories about my experiences!
If you have questions that you would like to ask and potentially have featured on an upcoming podcast episode, make sure that you’re sending those my way, either on social media, on Instagram, or at thresholdhomesmn.com. Or you can email me at email@example.com.
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