Ralph R. Roberts - Flipping Houses For Dummies

Proactive approach: The agent shouldn’t wait for you to call but should contact you with any leads for properties in your target area. A tech-savvy agent can enter your contact information into an automated system that notifies you whenever a property meeting your criteria becomes available.

Eagerness to show houses: The agent should be willing to show you many houses before arriving at the right one.

Availability on short notice: If you see a For Sale sign in someone’s yard and want to see the house, you should be able to quickly contact your agent to set an appointment for viewing the house at a convenient time for you. The agent should have a cellphone number, a home number, and an email address; check for messages regularly; and respond promptly to text and voicemail messages. If your agent is traveling out of town, they should notify you of the dates and line up someone to field your calls.

Comfort with presenting low-ball offers: An agent who cringes at offering a price well below market value, is not the agent for you. The agent should be willing and able to pitch one or more lowball offers with a poker face.

Top-seller status: An ideal candidate is skilled at not only finding good deals but also marketing and selling properties for top dollar and in a reasonable amount of time. As you search the classifieds and notice For Sale signs and brochures in the neighborhood, note which companies and agents do a better job of marketing their properties.

Tech savvy: Real estate deals move at warp speed, and you want an agent who takes advantage of all available tech tools to find, buy, and sell properties. For example, your agent should have access to more powerful property-search tools than you can access on the web and set up automatic emails or texts to you when properties that match your search criteria become available. If an agent seems uncomfortable with technology, choose someone else.

Personal experience flipping properties: Personal experience isn’t a necessity, but it’s a big plus, because the person knows what flippers require to turn a profit and typically has a strong network of affordable contractors to perform repairs and renovations. Preferably, the person is no longer in the business of flipping properties and will alert you to all the best deals instead. Don’t use experience in flipping houses as your sole criteria for choosing one agent over another. You want a quality agent — experience in flipping is a bonus.

The best way to find an agent is by a referral from another homeowner (buyer or seller) — preferably, a friend, relative, or neighbor. When you have a list of 10 to 15 names, start calling around and interviewing your candidates to compare their experience, education, and certification, as described in the preceding list.

Many books on buying and selling houses recommend that you try to convince the agent to accept a lower percentage in commissions or a flat fee for helping you buy or sell a property, but this tactic can backfire. I suggest that you find the best agent and then pay the agent the going rate or a little more. Agents will work harder for clients who pay more, and no card-carrying capitalist can blame them.

Flipping properties for a profit is all about money — getting it, spending it, paying taxes on it, and using it for your next flip. To succeed, you need someone who’s good at managing the finances while you’re busy buying, rehabbing, and selling. Actually, you may need at least three people who are good with money — one or more to loan you money, a second to help you manage it and save on taxes, and a third to recommend the best way to invest it. The following sections describe the types of financial assistance you need.

Unless you’re independently wealthy, you need a source of cash to get started. You may be able to tap into your savings account, mortgage your home, and max out your credit card, but strong financial backing from investors can provide you with the capital you need to leverage your personal investment. The big question is this: Who can you ask for investment capital? Here’s a list to get you started:

Start with your friends and family and your attorney. They already know you, and charity begins at home.

Tell everyone you meet that you flip houses. An investor may hear about it and contact you but be careful — an investor may be looking for a newbie to snooker into a raw deal. Question any deal that requires you to take on an inordinate share of the risk.

Contact doctors, lawyers, dentists, and other highly paid professionals you know who may be looking to improve the return on their investments.

You have two options for financing your flips with other people’s money (OPM): Borrow the money (and typically pay interest on it), or partner with the person and split the profits. Either option will cost you money, but both options enable you to move forward on deals you would otherwise lose. When using OPM, invest it in line with your lender’s or partner’s expectations — no bait and switch!

To protect your own and your investor’s assets when you purchase a foreclosure property, be sure you’re getting a mortgage in the first position — not a second mortgage or a junior lien. The person who owns the first mortgage gets the property — anyone else who has a claim to the property gets the crumbs if anything. In Chapter 9, I explain how to do your homework so that you know exactly what you’re buying.

If you contact everyone you know and you’re still short on cash, consider approaching a hard-money lender. Hard money is typically a short-term, high-interest loan. In Chapter 4, I discuss various types of loans, including hard money, and I provide more information on securing the financing needed to flip properties.

Finding investors can initially be a frustrating chore, but your future success will draw investors to you who are willing to share the risk and eager to work with an experienced and knowledgeable flipper.

Most of the accounting that applies to house flipping consists of simple addition and subtraction. Add up the total cost of buying, renovating, and selling the house, and then subtract it from the amount you receive when you sell the house. If you come up with a positive number, you made money.

Unfortunately, reality is a little more complex, and having a professional accountant on call can help you avoid unnecessary expenses and legal woes. This person can take all your money and receipts out of your shoebox, sort them, and figure out whether you made any money. If you did make money, the accountant can calculate the amount of tax you owe. An experienced accountant also delivers the following services:

Saves you money on income tax while remaining in compliance with complex IRS tax laws. Section 179 of the IRS tax law is a good example: It states that if you qualify, you can expense as much as $25,000 of a vehicle if it weighs between 6,000 and 14,000 pounds. I did this in 2015 to take advantage of Section 179. I was able to write off and depreciate $25,000 of the total cost of the vehicle in the first year, giving me a large savings on taxes. These opportunities are out there for you to take advantage of if you are (or your accountant is) savvy enough to catch them. (See Chapter 23for more about tax issues.)