Hello, my name is Dennis, I am a business owner like you with over 44 years of business experience helping business owners around the world, including 7-figure businesses, small businesses, and startup businesses that now make millions of dollars per year.
But the question is why do I do this? Personally, I had an incredibly special person do something for me in the past to help me in my life. It is hard to understand this amount of sacrifice, but I learned from that sacrifice of this special person that living is not taking but when you give to others is when you really achieve true purpose and happiness. That is why I do this. I want to be of service to you so you can achieve the dreams, success, and happiness that you long for in your business. Servicing others is true wealth and the path to happiness. When you are successful, I am successful. So, with that let in mind, I tell you about my recent struggles.
But do you want to know something interesting? Just a few years ago my wife and I were homeless and living in a van and sleeping in the office. This is true! After 30 years my business was failing, and I was laying off 100’s of employees. I was losing $250,000 per month and was going down in flaming colors. The only cash I had remaining was the credit line on my credit card, and after I maxed them out, I had nothing but the van and luckily a wife who still had faith in me. Creditors were calling; I was being sued and hauled into court to stand before the judge subject to debtor exams. I had judgments filed against me, and creditors coming to the office and seizing assets. I tried everything but nothing worked. I just kept losing money, more money, and more money --- till the money was all gone. I lost my business, cars, airplane, and even the home I was living in. I remember coming home Monday after work and my wife mentioned that the neighbors across the street are in foreclosure. I said that this was sad, but the real sad part is that we are in foreclosure and the home is going up for auction on Friday. She looked at me and I was waiting for her to just pack up and walk out. But she did not. She said let us go to Home Depot and buy boxes. We had a huge yard sale for the week and what we wanted to keep we moved into a 10x30 storage unit. Saturday morning, we moved into the van and became homeless. Some nights we slept in the van and sometimes we slept on a blow-up air mattress in the office.
Everything gone! No matter how hard I tried, even though I worked 14 hours per day, nothing was working. I was so stressed that I ground down my teeth and cracked every tooth. I had to find another way of making money and flipping homes looked like a good way to do this. However, after failing, I did not think I could do it, but I heard a voice that said, “what you think, and feel is not reality; flipping homes is not brain surgery; it really is easy; you can do it.” How hard can it be! You just need to get educated and find out how other people are making money flipping homes. So, I figured it out. I wrote this basic guide to help you.
Your Guide to Flipping Homes - 8 Things You Must Do To Be A Successful Home Flipper
1. Calculate your profit before you purchase the home.
The old saying is “you make your profit when you purchase the home not when you sell it”. This means calculating a profit and loss on the project before you purchase. Determine the profit before you purchase – work backward. Do not do a project unless there is clear profit potential.
Calculate your profit/Loss. Sales price fewer costs is your profit.
- Purchase Price
- Back taxes and other liens
- HOA Fees (and HOA transfer fees)
- Bid or Real Estate Fees
- Title closing costs
- Contractor or do it yourself
- Appliances + much more
- Cost of your capital to hold
- Payments on hard money loan
- Real Estate Commissions
- Title closing costs
- Marketing plans
- Other non-related expenses
2. Have a good team of Contractors/others to do the work.
- Real Estate Agent (hopefully it will be you)
- Hard Money Lenders (give me a call)
- Insurance agents
3. Get educated.
Do not start buying homes without knowing the process. The best way to get started is to get your Real Estate License. Yes, it is work, but it will give you the knowledge you need to understand how homes are transferred and the laws associated with Real Estate. Also, you will have access to the Multiple Listing Service, which is invaluable for your research. Plus, you can avoid the partial cost of the seller commission when you are the listing agent. Every successful flipper I’ve ever meet had their Real Estate license. So, go GET IT!
4. Be patient.
There used to be a lot of homes being sold on the courtroom steps, sometimes 1,000 homes per day. Today there are not a lot of homes to purchase. You need to look at other ways of purchasing and finding deals. It is going to take time to find, fix and sell. You can do it, but it is going to take time. In the Real Estate Investment world, timing is everything.
5. Have Money.
Do not believe those people on the radio that say, “you can buy homes for no cash down”. It is not true. You are going to have to have cash, skin in the game to purchase the home. Private Hard Money will require a down payment of 20-30% of the purchase price. And it is not going to be cheap when you start. Rates vary from 9-18%. Do not forget to calculate the cost of Hard Money in your profit/loss in item 1 above. Some Hard Money Lenders market their loans as having the potential to fund investment at 100% LTC (Loan-To-Cost), meaning a borrower will not have to put a dime into the project. Although there are some scenarios where this is true, it is rare. There are some lenders that will participate in the deal. These lenders will fund the deal and share in the profit when the deal is completed. However, all lenders put a great deal of their decision on working with you on your response to #3 above and still require 10% of your money in the deal.
6. Do not buy something you cannot fix or ever sell.
There are a lot of deals out there and they are deals for a reason. Some are in a situation, so bad, no matter how much money and work you put into the home, you will never sell it. For example, a home built on top of a landfill, or next to a dump, or sewage treatment facility, or the final approach to a major airport. You are not going to be able to fix these problems.
7. Buy your project through your LLC.
There is a lot of tax and liability reasons to do this. Plus, private lenders prefer to lend to LLCs.
8. It is going to be work.
Do not believe what you see on those flipping shows. You will have to work at it, and it will take time. You need to visit the property and make sure the work is progressing correctly. After the home is completed and, on the market, you will need to walk the property daily.
“Land Mines” that caused me to fail on flips over the years:
- I did not verify the back taxes. On one Flip, I found that there were $20,000 in back property taxes, bummer
- Underestimated the total time to fix up the property. Planed on 30 days but it to took 180 days. Ouch!
- Bought a home in the middle of nowhere called Sun City Festival. Nice home but the closest market was ONLY 25 miles away. Took 8 months to sell. Broke even on this deal, no profit.
- Trusted a contractor to do the job correctly, but he did not, and he kept the money and stole the appliances.
- Bought a condo and paid too much. Failed on step 1. When I went to sell it, I realized I was going to lose 10K. Solution? Turned it into a rental for 2 years and then sold the condo.
- How do I find a good contractor? I am asked this question all the time. I usually ask for a referral from a friend or another trade person that I trust. But the number one rule you need to live by is: “Don’t hire anyone that has nothing to lose if they screw you”. What does this mean? Do not hire someone that is living out of their car or has no assets. In the trade business, the joke is that plumbers, tile layers, painters have a tendency of being drunks. That is why they started working for themselves, they could not keep a job because of their drinking problem. Really, I have hired tile layers that were so drunk and, on my job, they placed the tile upside down. Personally, I know an excellent tile layer that has been sober for 3 years(yahoo), and he does excellent work. Every time I hire him, I ask him bluntly ‘are you drinking again’ and so far, he says no. It took me too long and a lot of money to realize that there are a lot of people who say they can do the job but are only planning to screw you. Craigslist is full of these dudes. Follow these rules:
- Do not pay for any labor in advance. Not following this rule cost, me a lot of money.
- Ask for references and call them, hopefully, it is not their mother.
- Do not hire relatives (they will screw you the most).
- For appliances purchase them yourself and have the company install them.
- If they say they are licensed, check to see if they are.
But mostly I hire the largest home improvement company in the world for carpet, tile, appliances, and counters. They have a lot to lose if they screw me. They are relentless in checking out the workers and making sure that it is done correctly. So, who are they? Home Depot. Really, use them, they can get it done and sometimes have huge sales on appliances, carpets, and counters. Does it cost me more? At this point it probably does, but I do not care. They get the job done, on time and it's correct. Plus, they give you a warranty on the work.
Get insurance on your property ASAP. But here is one problem with the standard Homeowner’s Policy. That is, there is an exclusion on coverage. If the home is vacant for more than 30 days no more coverage. You can get a rider that will cover the home for longer. Ask you,r agent. I learned the hard way when one of my flips was broken into and tools, doors, and appliances were stolen. I thought hot doggie, I have insurance. I called the insurance company, and they were genuinely nice to point me to the language in the policy that says no coverage after 30 days of vacancy (you are screwed, dude). Very costly lesson.
You are going to have to assume that your flip is going to get broken into and items were stolen. So, plan for it. Plan to walk the property every day. Even if no one is working. Need to keep a close eye on the home. I have come to flips to find the following: Someone living in the home, the door unlocked, appliances stolen, $1,000 front door gone, neighbor swimming in the pool, A/C gone, pool equipment gone. It is tough out there.
If it is a bad area, I usually wait on appliances until the new owner moves in. I usually put a picture on the counter of what is coming and say it is back order and should be in soon.
So, what do you do first when you own the property?
- Utilities need to be turned on. Water, Electric, Trash, Gas. Be prepared to pay deposits for these services. Deposit requirements are going to be based on you. If you are an existing customer, they will check your payment history and, in some cases, pull your credit. The trick I use is that on the local utility companies such as APS, Southwest Gas is that I keep a credit on my personal account. I usually prepay for 6 months on my personal account so when they go and look, they all smile. For city services, water/sewer/trash they do not care and seem to always ask for a deposit. If you do pay a deposit, you must remember to get the deposit back. Sometimes it's automatically returned, but not always.
- Get the locks and keys figured out. The flip usually will not come with keys. Put a lock on the gate and garage door, this is particularly important! I usually carry a lock pick and bolt cutters in my trunk.
- Security sign. Over the years I have collected those small security signs from ADT and Honeywell that say “this house is protected by so and so”. I bang the security sing in the ground ASAP. I once put security cameras in the home only come back and find that the cameras were gone.
- Meet the neighbors. I usually knock on the doors of the neighbors around the house and introduce myself. This is good to do. I hand them my business card and ask them to call me if they see any problems. (Or call the police.) One time I knocked on the door and the person who answered was the past owner. Oh No. Turns out he was a nice guy and was able to tell me details about the house.
- Put lights inside on timers. Make it look like someone is living there.
- Focus on landscaping and lot cleanup. Why? Grass and plants grow at their own pace and it is important that everything is green and lush when you sell. So, plat the grass and shrubs now, do not wait till you ready to sell. I am lucky, I have developed a relationship with Javier, my landscaper. I just call him and tell him to fix it and he does. He has worked for me for 20 years and I probably have paid for his kid’s college tuition. But he is worth it. (FYI, He has been sobered for 10 years.)
- Schedule the appliances. They sometimes are weeks out till they are available. Purchase them now and have them scheduled when you think you are going to need them, which is usually at the end.
- Paint. Painting is a mess, and the paint gets everywhere. So, paint before you put in flooring, counters, cabinets. Tell your painter not to worry about the floors they are being replaced. They will love you for this.
So, where do you start? I suggest that you start with #3 Get Educated. However, do not go and pay for those weekend training seminars that cost 1,000s of dollars. Start at your local Real Estate School and get your State License.
Level 4 Funding LLC
Private Hard Money Lender
23335 N 18th Drive Suite 120,
Phoenix AZ 85027,
NMLS 1018071 AZMB 0923961
About the author: Dennis has been working in the Real Estate industry in some capacity for the last 45 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in Real Estate investing led him to specialize in alternative funding for Real Estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 43 years. They have 2 beautiful daughters and 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.