“I need deals! I can’t find enough deals!”
My husband is frustrated. Last year we flipped a house with an investment partner. Things went relatively well and we made a tidy profit. Now he wants to do like, 200 more. Which is awesome, except getting a property at a low enough price point where you can turn a profit after renovation is no easy task.
Here is what we discovered in the past few years flipping houses:
- Most homes require $40,000 to $60,000 in renovations and upgrades. This is true whether you’re in a neighborhood where the houses sell for $200,000 or $50,000. That means success if you flip a house in a neighborhood where, when it is finished and beautiful, someone will buy it for $100,000 or $200,000. It’s probably not worth it to try to flip a house in a neighborhood where finished homes sell for less than $100,000 unless you get the house for an extremely low price and it doesn’t need a lot of work. Most of what we are finding around here needs a lot of work!
- A lot of sellers are clueless as to what their home is worth. They see the houses around them selling for $150,000 so they think theirs should sell for $150,000. Only it needs a new roof, the windows are single-pane and have ropes in them, the rooms are tiny, there’s only one bathroom and it’s upstairs and tiled in Pepto Bismal pink from the 1970s. And let’s not even talk about the kitchen! Sure this house will sell for $150,000 when we're finished with it. When it has a modern kitchen, a half-bath downstairs and the green shag-carpet has been replaced with engineered hardwood. But we need to be done with renovations at 70% of value (After Repair Value, or ARV) in order to make our profit, ie: make it worth our while. So that means the total amount of money we can spend on this house – the purchase price, transaction and holding costs, and the cost of renovation – cannot exceed a maximum of $105,000. Assuming the renovation will be $40,000, and the closing costs on either side of the deal plus the cost to hold the property with taxes, insurance and utilities is $10,000, we cannot pay the seller any more than $55,000 for this property. If that's a number the seller can live with, he will get his money quickly – we have closed in as little as two weeks. If not, we simply move on.
So what it comes down to is a numbers game – we have to look at a lot of deals in a month just to get two good ones in the pipeline. Our goal: two deals ready to buy, two purchased and in the process of renovation, two on the market, two pending sale. Per month! It's a tall order, so we need to put a lot of properties into our funnel every month.
It's tough to do when you're a self-employed small business couple working every aspect of your business yourselves, plus family responsibilities and obligations to another job. And that's why my husband is frustrated.
Steve has some people he's worked with before who give him leads on properties. If they turn out to be good leads, we pay those people a finders' fee. What those people do for us is called "bird dogging," and it's a great way to be a real estate entrepreneur without actually spending any money.
My friend Brian, who I work with at my B job, lives in Scranton. On his way home from work he noticed a couple of For Sale By Owner signs on some houses. He sent me the phone numbers via Facebook Messenger. If we end up buying those properties, we'll cut Brian a check for $500 for each viable lead. Brian goes to Scranton every day. I get up there maybe once a month. You can see why his tiny effort is so valuable to us! Brian doesn't have to call the phone numbers. He doesn't have to knock on the door or attempt to negotiate price with the seller. He just gives us the contact info and we do all that.
There are bird dogs who like to be a little more hands on, and they earn higher fees. These more advanced bird dogs have a little more experience as real estate entrepreneurs. They build relationships with the sellers. They may even spend money on marketing and put up bandit signs of their own soliciting calls from people who want to sell their home quickly. In some cases they negotiate the deal themselves, then go looking for an investor like us to sell it to, for a much higher fee. These bird dogs can get $1,000, $3,000, $5,000 or more per deal. I know because Steve has been the bird dog on a few deals like this. When people talk about “wholesaling” in real estate, this is what they mean. You're basically matching independent sellers with independent investors.
We need bird dogs! There are properties out there waiting to be flipped and we have a guy who wants to buy them all! And that's just one guy – we work with many other buyers, people with “lazy money” looking for a better return on their investment than they could get from a bank.
What we need are eyes scouring the region, all the little towns and neighborhoods we can't physically get to ourselves every day. We'd like to recruit an army of them. And that's why Steve is talking about a training event in April. How would you like to get into the exciting world of real estate investing without using a dime of your own money? The only investment will be your time. And if you find deals for us you will be paid handsomely for that time!
Bird dogging is a great way for a novice investor to start, because there is no risk. The only thing you have to lose is the couple hours you spend looking around. Once you start getting paid you'll find yourself that much more willing to spend that time! Bird dogs learn techniques on the job and earn money that could finance their own house-flipping venture, should they want to. Some do, but some are content remaining bird dogs. Flipping houses involves financial risk. Bird dogging really does not.
If you're reading this blog and think you might want to bird dog some deals for us and get paid, please contact Steve at (570) 798-7051. You can call or text. Or e-mail [email protected].
It could be a simple as your Aunt Jane needing to sell her old house now that your uncle has passed on and she's moving into assisted living. If you give us her number and the deal happens, you get a quick $500. If that's all you want to do and you're done, that's fine. We're not insisting on a long-term commitment. You work as little or as much as you want at this. If, however, you do want to do this a lot and you want to get into real estate investing and make it your full-time job so you can quit the crappy one you're stuck at now, then maybe we should be friends! Come hang out at the Investors Network NEPA meetings the second Wednesday of the month at Perkins in Pittston, 7pm. The next one is on April 12th. We should have more information on our Bird Dog Training by then.
In the meantime, I'm going to start researching the properties up for tax sale – another resource for flips. More about that in a future blog post!