6 Tips for Getting Started in "Flipping" Real Estate

By
Real Estate Agent

Like so many others, you watch shows like "Flip This House" and think,
"Wow, what a great way to make money...I should do that." 
You think you might want to "flip" properties, but you don't know where to start. 

For most people, it stops there, and they never invest in a single property.

Some people take that inspiration and become successful real estate investors.

Far too many, however set out to invest, but end up loosing money, or just barely breaking even.

What then should you do to increase your likelihood of landing in the "successful real estate investor" category?

Here are some things to do to help set yourself up for success:

  1. Know your limits:
    No single person can do it all. You can dramatically increase your chances of success by having a solid understanding of the limits of your own knowledge.  Knowing when to say "I don't know" is extremely important.  Evaluating your weak points will also help you build your team.  If you don't fully understand your local market conditions, for example, hire a REALTOR® who does.
  2. Build a team:
    As was said in #1, above, "No single person can do it all."  To improve your chances of success, you need to build a network of support - your "Team."   Just like a football team, there are many positions that need to be filled.  You need to consider filling the following positions:
    1. Accountant
    2. Attorney
    3. REALTOR® (note -- the agent you select may already have many of the other team members you need already identified and available to fulfill your needs.)
    4. Property Manager
    5. Home Inspector
    6. Appraiser
    7. Title Company
    8. Mortgage broker/banker
    9. Insurance Agent
    10. General Contractor
    11. Subcontractors (Plumbers, Electricians, Carpenters, Painters, etc.)
  3. Set your goals:
    By setting specific, measurable results as your goals you will help get yourself on the path to being a successful real estate investor.  Realistic, attainable milestones, rather than colossal hurdles are the key to forward progress.  Work with your REALTOR® to understand the opportunities in your target market, so that together you can set appropriate goals.
  4. Define your exit strategies:
    Part of your planning process has to account for your exit strategy, as well.  Knowing when to get out of a costly project is often just as important as deciding which potentially profitable project to take on.  Weigh the advice from your accountant and your REALTOR® when determining the best exit strategies for you.
  5. Limit your risk:
    You can limit your personal risk of financial loss by several means.  Maintaining the proper licensing and insurance, (and using only licensed and insured contractors) is one factor.  Limiting personal liability by structuring your project as a separate business entity is another.  When you build your team, use your accountant and attorney to advise you on these matters is essential.  Working with a REALTOR® that understands the application of these business entities in real estate transactions will help you smoothly overcome any obstacles that may come up in the process of a real estate transaction, as well.
  6. Follow a plan
    Planning is extremely important.  Not just planning the flow of a particular project, but also ensuring that your plan fits within any master plans that the local municipality may have.  This can help you avoid the need for costly zoning variances and special use permits.  It can also help identify areas where there may be outside development efforts that will effect your property values, for better or worse, in addition to identifying potential incentives for positioning your efforts in targeted opportunity zones that may allow you to take advantage of tax abatements, special rehab financing, etc.  REALTORS® that regularly work with investors will have access to the type of information you need to take these factors into consideration, so working in partnership with your REALTOR to build your plan will help set you in the right direction.

If you see a common thread in these steps, it is intentional.  Working with your REALTOR® every step of the way will help you in more ways than one.  In addition to helping you negotiate the best acquisition price, and helping you get the best price the market will bear for your finished product, by partnering with your REALTOR, and enabling them to best understand your goals, you will create a mutually beneficial relationship - they will be ever vigilant for opportunities for you to succeed in your long-term plan.   Perhaps the best advice was offered by one of the world's most respected investors:

"If you want to go fast, go alone.  If you want to go far, go together." 
-Warren Buffet 

 

 

 

 

 

 

 

 

Comments (11)

Steve Homer
The HBH Group (Keller Williams affiliate) - Round Rock, TX

Rich:  Excellent article as an overview to filling.  You earned a "re-blog" from me with this one!  Thanks!

Sep 16, 2008 03:52 AM
Rich Schiffer
Swarthmore, PA
Referral Agent, e-PRO

Steve -- Thanks.  I appreciate the "reblog."

Diane -- I agree.  Having a "team" of investors within your team can also be one way to limit your risk.  Example -- if 3 investors each contribute a portion of the money/labor/credit, etc that is needed for the project, and they share in the profits (or loss).  This is also an excellent way to network -- If you partner with someone to flip a house, in a way that benefits both of you, the partner will likely be more inclined to refer future opportunities your way. 

Sep 16, 2008 06:27 AM
Ann Hayden 636-399-7544
Berkshire Hathaway HomeServices Select Properties-St. Louis Missouri - Chesterfield, MO
SelectAnn.com

Rich,

Thank you for the information.  Do you suppose you could get it on after the infomercial??  So many people do NOT understand investing in real estate.

Ann

Sep 17, 2008 12:23 PM
Rich Schiffer
Swarthmore, PA
Referral Agent, e-PRO
Ann -- Sure thing. Would you like to contribute to the fund to pay for a 2-minute cable ad? I'll even let you be one of the spokespeople...I say this only partly in jest...This is just the sort of thing our NAR dues should help pay for.
Sep 17, 2008 03:50 PM
Robert Machado
HomePointe Property Management, CRMC - Sacramento, CA
CPM MPM - Property Manager and Property Management

Since I am a property manager I like #2, especially that you have Property Manager in there twice!

Sep 17, 2008 06:08 PM
Rich Schiffer
Swarthmore, PA
Referral Agent, e-PRO
Robert -- That's what I get for writing half an article at 2am and the rest two days later...but as important as a good property manager is, I did not intend to incldude it twice on the list. Thanks for reading with a eye to detail. That's one sign of a good property manager, for sure.
Sep 17, 2008 11:26 PM
Margaret Oscilia
Creative Concepts-Home Staging and Contracting, Salem Oregon - Salem, OR
Home Stager, Salem Oregon

We've personally been extremely successful at flipping real esate for many years, and cringe over most of the FLIP THIS HOUSE shows!  A really great real estate agent is a team member we find crucial to our success -- we've had great deals brought to our by these valuable resources!

Sep 18, 2008 12:52 AM
Rich Schiffer
Swarthmore, PA
Referral Agent, e-PRO

Margaret -- congratulations on your success in flipping.  As you point out, having someone on your team that can bring deals to you (sometimes before they hit the market!) can be extremely valuable.  It is nice to hear an experienced contractor echo that opinion.

Sep 18, 2008 01:30 AM
Ann Hayden 636-399-7544
Berkshire Hathaway HomeServices Select Properties-St. Louis Missouri - Chesterfield, MO
SelectAnn.com

Rich,

You could spearhead a petition to the NAR to start a campaign about this?????

Ann

Sep 18, 2008 01:24 PM
Greg Dallaire
Dallaire Realty - Green Bay, WI
Green Bay Homes

Rich,

Great post I did something very similiar to this.  I took a couple points that are really good.  Keep up the great work.

Sep 18, 2008 04:51 PM

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