Finding flip deals is tough. You face plenty of competition (just look around the room at your next REIA Meetup; everyone there wants to get your deal first!). People bid up prices to the point where no one can make any money. And there are plenty of people who are full of baloney, who will tell you anything to get a wholesaling fee or sales commission.
So the flipping pond is full of alligators, what’s a flipper to do?
We have made over 175 loans in the past several years, so we talk to successful flippers all the time. I thought to add my insights to help potential borrowers find the next hot deal.
First, understand that you will need to see 20 homes, to make 5 offers, to get one deal. Or something close to that. Don’t give up after you lose a bunch of deals. If you made the offer that you feel is fair and will enable you to make money, and someone else bids more? GREAT! You successfully avoided overpaying. Move on to the next offer.
Second, recognize that there is not just one way of finding deals. You will need to pursue several strategies to find a good flow of deals. The multiple listings, Craigslist, wholesalers, realtors, scouts, probate, short sales, foreclosures, bandit signs, networking, talking to community bankers, all can produce dividends. You can’t pursue them all, but you can pursue a few. Find out what you are comfortable with and try 2-3.
A few more words to the wise.
When on your way to look at a property, have a contract ready. Try to get a signature right away. Remember all those people at the REIA meetings, just itching to get your deal? They are right down the street. Be ready to make an offer and close on the spot.
Have money. It is hard to get deals without it. It can be done, but takes knowledge and experience. Better to have the cash. You will need 20-30% of the purchase price in cash to close a loan. If you have money, hold onto it tightly. You will need it. Las Vegas is for after you have made big bucks on your deal. Seminars are great, but the real education comes in doing an actual deal.
Expect Bad news. There is rarely good news in the renovation business. You need cash to pay for the unexpected additional expenses. You need to be able to call BS on your contractor. When you get the quote, question the time and materials required to do that work. You likely can haggle the cost down by 25-50%. Change orders are the highest margin product your contractor has.
Use Hard Money. OK, I admit this is self serving. I am shameless! But really the most expensive money that you will use in investing is your own. Why, since you pay no interest on it? Because once all your money is tied up a flip, the best deal you have ever seen will be presented to you. One with $100K in profit. This is Murphy’s Law. But you won’t be able to do it. Your cash is tied up. Use leverage to enable you to take advantage of the deals your marketing has unearthed.
Best of Luck, and when you find that deal, give me a call! We lend in 45 States.
Contact me at 703 646-1380 for more information.