7
CHAPTERS

A-to-Z Guide on How to Get into Flipping Houses and Start Your Own Business

Share With Friends:

For those wondering how to become a house flipper, we at Real Estate Bees asked a professional real estate investor — Greg Gaudet — to share expert insight and advice based on his personal experience.

Greg recorded an extensive video guide on starting a house flipping business. Watch it (or read the transcribed version) below to begin your career easier with his wise tips in mind.

1
CHAPTER

Introduction

Video Version

 

Text Version

In this guide, we are going to cover everything you need to know in order to begin flipping houses, including:

  • What do you need in order to start a house flipping business?
  • How do you find properties to flip?
  • How do you finance properties?
  • How do you sell properties?
  • Some of the legal and tax structure questions.

My name is Greg Gaudet. I am the founder, owner, and operator of Maui Home Buyers.

I am a full-time real estate investor flipping, wholesaling, and buying rental houses and condos here on the island of Maui, Hawaii.

This video is recorded exclusively for RealEstateBees.com.
Now, let’s talk about the steps to starting a house flipping business.

2
CHAPTER

What Do You Need to Start Flipping Houses?

Video Version

 

Text Version

So, let’s dive into it. Where to start when flipping a house?

The number one thing that you need in order to start a house flipping company is work ethic, drive, and determination. It’s not a tangible thing — it’s your attitude.

When I tell people that I’m a house flipper, probably nine out of 10 of them say “oh, that’s so cool, I wish I could flip houses”.

The reality is that pretty much anybody could do this, but it does take a lot of work. It’s a very competitive industry and everybody wants to do it.

It seems glamorous and so there’s a lot of competition, and it mostly just requires that determination to work until you make it happen.

Besides the attitude, you need a little bit of an education (which you’re going to get from this video).

You also need some of the basic things, like a WiFi connection. A smartphone is pretty much necessary, I would say. Some of these things are basic, that pretty much everybody has access to today, so I won’t worry too much about those.

 

How Much Money Do You Need to Start Flipping Houses?

So how much does it cost to start flipping houses? You don’t need a lot of money. You really don’t need any money to start flipping homes.

However, I would not recommend that you dive in and really try to start a house flipping business if you don’t have any extra cash in the bank.

You know, maybe as little as a couple thousand dollars, just something so that when you do get that first house under contract, if you need to make an earnest money deposit to secure the purchase, you might need to put a thousand dollars.

I mean, a lot of buyers will be putting tens and tens of thousands of dollars, especially in a market with a high price, like how we have here in Maui, where the average home is about $1.2 million.

But I’ve found that it’s really not necessary. In fact, it’s very rare, if ever, that we put down more than a thousand dollars as an initial earnest money deposit.

So I would say, definitely not less than a thousand. If you have a couple thousand in the bank, that is very helpful.

Not only for that earnest money, but you’re also going to have to do a little bit of investing into marketing and building your business too. So, just a little bit of cash.

It certainly helps if you have tens of thousands. When I started, I had about $30,000 that I had saved up over the years, and that certainly made starting my business significantly easier.

However, that’s not necessary. And I’ll explain more about that in this article and how you can start a business with almost no money.

Let’s say a thousand dollars to be at the minimum, just by finding partners and, again, working hard, and having that determination that we covered in number one.

So, those are the main things. Let’s move the question “I want to flip houses, where do I start?”. The first thing you need to understand is how to find motivated sellers and properties to flip.

3
CHAPTER

How to Find Properties to Flip

Video Version

 

Text Version

So, the biggest and probably most important question in this entire article that everyone is going to be wondering is how do you find a house to flip?

This is also the biggest and most challenging issue, and the challenge that I work on every single day.

It’s extremely challenging to find a property that you can buy at a good enough price that you have that cushion that you know you’re not going to lose money, and if you do a good job, you can make a profit.

 

Driving for Dollars Plus Direct Mail

So, the number one way, I would say, of all the ways is direct mail. I think if you talk to any house flipper, they pretty much all rely heavily on direct mail.

And what do I mean by direct mail? Basically, it is just sending out postcards or letters in the mail to different properties that have some type of indication that it could be a good property to flip.

And you’ll have to send quite a lot of these. You know, a lot of times a beginner will think that if they can just send out five or ten letters, someone will call, and they’ll get a great deal, and it’ll be their first flip.

Well, it’s not quite that easy unless you have an extremely high quality list of leads to mail.

Here is my personal house flipping business model. I don’t send out tens of thousands of letters. In fact, I barely even send out hundreds of letters.

I, maybe, send 100 to 200 letters a month, but they are highly focused on the most motivated sellers.

It’s a very targeted and focused approach so that I am not doing as much volume as I could do, but the time that I’m spending is much better invested.

So, which properties do you send these letters to? Well, you want to look for some kind of indication of motivation.

I think the best textbook example would be to look at the house down the street that just sold on the MLS, the realtor listed it, and it’s fully renovated. A beautiful turnkey.

The owner just got a promotion at their job, and they have plenty of money in the bank. They are buying new cars and they are obviously not in a distressed or motivated home seller situation.

That is exactly the property that you do not want to market to and spend your time and money working to get in touch with.

You want to find the polar opposite of that property, which would be maybe still down the street, but a property where a number of indicators, which, number one, could be just the visible appearance of the property.

Overgrown grass, peeling paint, junk in the yard, visible repairs needed… If the roof is missing shingles or tiles…

There may also be legal or financial problems with a property: pre-foreclosure or tax lien. Read about how to find properties with tax liens and how to find distressed properties to flip or wholesale to learn more about it.

Any one of those indicators is a really good sign. If it looks like it is vacant, if there’s mail or newspapers piling up, all these different indicators tell you that there might be something going on there.

It’s possible that the owner is just tired of taking care of the property. Maybe they had tenants that they had to evict, and they just haven’t had the wherewithal to go through the process of finding new tenants or whatever the case may be.

That’s the number one indicator to look for.

The best ways to find and get these deals are driving for dollars and using a direct mail service for real estate investors. I’m a big fan of driving for dollars, which is a phrase that we in the real estate world use.

It refers to just going out in your car, driving around different neighborhoods, and looking for properties that have some of these indicators of distress, as we call it.

So, you could be driving around your neighborhood and, you know, new neighborhoods, obviously.

You don’t want to drive the same streets every time, because you want to look for new properties that you haven’t seen before.

This is just one of the best ways to find deals, and it’s tried and true. Almost every investor I know either does this, or has people — real estate bird dogs — that do it for them.

So, once you find those leads, again, if you have the time and you want to save money, you can sit there and write them all letters, and that’s tough.

I’ve done it myself. I’ve personally sat down and wrote letters to dozens of sellers.

I’ve also written one letter and left the name blank and the address blank, and then photocopied it 20 or 50 times.

Then, for all the properties that I was interested in or thought were distressed, I would just write in the name and the address.

It was a much quicker way for me to mail all those owners. However, I don’t recommend that.

Direct mail is very cheap and there are so many providers out there that can provide really, really high quality products for you at very reasonable pricing.

You don’t need to start off with a $3 per piece mailer. If you’re just getting started, a lot of investors have proven that the old postcard still works very well, and I’m sure you’ve received them yourself.

I get them all the time from realtors in the neighborhood saying “we’ve just sold the house down the street. We want to sell your house.”

We are doing the exact same thing. We are sending that postcard out and it’s saying “I want to buy your house.”

And, essentially, the message is:

“I’m a cash buyer. I saw your property. I’m interested in buying it. I would like to make you an all-cash offer. I will take it as is. I’ll close quickly.

I’ll take care of the tenants. Whatever your problem is, I will handle it. If you would like to sell, please give me a call so I can make you an offer.”

So, that’s generally the message, of course, depending on your market and what type of properties you’re going after.

You might want to tweak it, but that’s pretty much always the message. Get this free sample letter for motivated sellers or this pre foreclosure sample letter to distressed homeowners and use it as a template.

So, getting that message out, again, like I said, you want to find a direct mail company. There’s plenty of them out there, plenty of competition.

The pricing is reasonable. And again, the postcards can start as little as maybe 50 cents a piece, sometimes less.

And then the higher end pieces we’ll do. I personally do a mix of postcards. A lot of times, I’ll do a campaign where if I spot a property, first they’ll get a postcard.

Then a couple weeks later, they’ll get a letter. Then a couple weeks later they’ll get another postcard. And then, again, another letter, and that tends to catch their attention.

On the direct mail topic, you never want to just send one letter. You’ll get lucky every once in a while, and maybe send one letter and get a call back and a deal out of it, but that’s extremely rare.

You need to be consistent with these sellers. You’ve got to remember, they aren’t necessarily looking to sell the day that you happen to stumble across their house, right?

Whatever the situation is, as it’s evolving, at some point they get to a point where they start thinking “you know what, I’m done with this house. Maybe I want to just get rid of it and not deal with it.”

And that’s when you need your phone number and your letter to be in their face. So, that’s the reason why you need to consistently send them letters.

A lot of the direct mail companies will recommend that six months would be the minimum to send one letter every month.

But really, the best, the most proven successful timeframe would be to send a letter every month for about nine to ten months.

If you do that with all your leads, a lot more of them are going to end up calling you and selling to you, and you’ll get a lot more houses to flip.

So, on that topic now, there is one service that you absolutely cannot get by without in this world.

In terms of the driving for dollars and direct mail, there is one service that is absolutely critical to this part of the business.

It’s a driving for dollars app and a skip tracing tool for real estate investors that I use every single day called DealMachine. I’m a huge fan of it.

It’s such a critical part of my business, and almost every investor I know just completely depends on this service.

Basically, it’s an app with a phone and a map so that when you’re driving for dollars, when you see a house that looks run down, you click on it in the map.

It can also be viewed as one of the best CRM for real estate wholesalers or investors.

And if you need, the app allows you to do real estate skip tracing. This term means a procedure to find the information about the property and the owner’s contact details. With the app, it takes a couple of clicks.

But you just add the property and then the other aspect of the direct mail side is already worked into there too.

So, you just press “start mail” and then you automatically get whatever schedule of mailing you determine.

Like I said, I alternate between postcard and letter every month. And that is the number one way that I use in our business for finding deals.

I believe there are other tools for real estate investors that do the same thing. Actually, I have tried a couple of them in the past, but I think it’s one of those things that across the board there’s no competition.

So, my experience has been that the DealMachine app is the best one for that and it’s the single critical service that I need for my business, that there’s not another competitor that does it similarly.

Now, in terms of direct mail companies, there are plenty of those. I do have my favorites there also. I like working with open letters, but, you know, it really doesn’t matter. They’re all great.

Well, I don’t know if they’re all great, but all the ones that I have worked with have been great and there’s not much of a differentiator there.

It is a personal preference, and maybe pricing might matter to you. But the difference between the driving for dollars app DealMachine and the actual direct mail companies is that you may also want to market to homeowners whose properties you didn’t see when driving for dollars.

So, what properties are you going to market to that you didn’t just stumble across? Where are you going to find out about these properties?

There’s a few different ways you can do that. One is going online and just buying motivated seller leads.

There are different websites out there that you can use. It doesn’t matter who you go to so you probably just want to see who has got the best pricing. If so, first of all, consider the REB Leads program for real estate investors.

But you want to find a list of the indicators of what typically makes somebody more likely to want to sell fast, for cash, and as is.

Think of all of the different reasons why somebody would want to sell to a flipper and not just call a real estate agent, to list it publicly on the MLS.

So, what are those indicators? A common one is age. Look at older owners, particularly absentee owners.

We call absentee owners anybody that doesn’t live in the property. They might live in the house next door, but they don’t live in that house.

Because if it’s their house and they don’t live in it, then they likely don’t need it, right?

Everybody needs shelter, and so if you are an owner-occupant, meaning you live in the home, you do need a house.

You can’t just sell the house the next day and it doesn’t matter, right? A lot of times, owner occupants do call us and we do buy their houses to flip, but it’s not as often.

And they still need to find another place to go to live.

And when you have an absentee owner, basically we’re talking about properties that most of the time are a rental property.

Sometimes it was, you know, they lived there and they moved out, and they just hadn’t sold it or it could be a number of different situations.

It could have been, their family was living there and they passed away. There’s a number of different reasons why you may have an absentee owner.

I would say, just the majority of them though are going to be rental properties. So, that’s probably the number one indicator.

You want to look for properties that the owner does not live in.

Personally, one of my biggest factors or indicators is that I always make sure the properties I’m looking at have not sold in the last about three years, for the most part.

If somebody just bought a house in the last year or two, it’s very, very rare that there’s a reason they would be a motivated or distressed seller, unless something really drastic changed in their life.

I did just get a new flip under contract yesterday, and this is probably the newest one I’ve ever dealt with.

This guy bought the house five years ago so I’m pretty surprised. Most of the time, when somebody calls me to flip their house, they have owned it for some time.

But in this case, he’s going through a divorce and he wants to move to a different island, and the house was dated and kind of not in the best condition when he got it.

He has been traveling a lot and hasn’t been there, and it’s gotten worse. He also wants to sell within 30 days. and that’s why he called me, and it worked out perfectly.

So, that’s also actually a case where he’s an owner-occupant, so that does show you that it can happen. It’s just much less common.

So, back to building your list. Again, the biggest indicator I personally look for is age. So, somebody that’s older that maybe is getting tired of being a landlord and is definitely an absentee owner.

A lot of these online lead generation services for real estate investors provide information such as the owner’s mortgage.

You can find out if they are delinquent on their mortgage and how much equity they have in their mortgage.

Again, the last sales date — you want to make sure they didn’t buy it recently, and you want to make sure that they have equity.

Typically, if I’m looking to build a list. I’m going to look for owners 60 years old and over, that are absentee owners that have owned the property for more than three years.

And who have more than at least 20% to 30% equity in the property, because if the property is worth a million dollars and they owe the bank $990,000, there’s no way for me to make a deal out of it.

There has to be some equity in there for us to be able to negotiate and come up with a win-win.

So, once you create that list, you can take that to one of those online direct mail companies that we talked about before.

Again, not much of a difference between all of them, but the style of the letter, the price, and things like that would help you decide which one you personally would like to work with.

So, we have covered direct mail. We have covered driving for dollars. We have covered building lists online.

 

Real Estate Wholesalers and How to Find Them

So, the other way to get deals is from real estate wholesalers. Now, where I live here in Maui, there are not really any wholesalers.

Our business is the only active and consistent wholesaler that I am aware of. And I really, really wish that there were other people doing wholesales here in Maui because, as a flipper as well, it would make my job a lot easier.

Finding the deal is the hardest part. I’ve heard about how easy it was back during the recession. Every house listed on the market was just dying to sell and you could offer them whatever you wanted and they would take it, but it’s just not like that today.

So, finding the deals is the hardest part and having a wholesaler to find the deal for you is just a dream come true.

A wholesaler basically means another investor. A lot of times, like in my case, I am a flipper and a wholesaler, and I also buy rental properties.

So, I kind of do dabble in a little bit of all these aspects of the business, but there’s plenty of guys out there that only do real estate wholesaling.

And there’s plenty of girls out there that only flip houses and they have their focus and that’s what they do.

So, what is a wholesaler? A wholesaler is somebody that goes out and does this work of finding the deal.

So, all those things we have been talking about so far — doing direct mail, driving for dollars, find those sellers and talk to them, negotiating the deal, plus get it under contract

This means they have the legal right to buy that property, and the seller cannot sell it to anybody else.

They have a purchase and sale agreement or a purchase contract signed with that seller, and so they have the exclusive right to buy that property.

Then they go out to all the flippers and other investors and say “hey, I have this great deal and I’m willing to sell it to you”. And then, basically, they are selling the contract for that house.

So, a great example: I just closed a wholesale for a house where I got the house under contract for $800,000.

It needed a lot of work, about $400,000 in repair. But in that condition, it was worth about $1 million to $1.1 million.

So, I was able to wholesale that contract. I sold it for $30,000 to another investor who paid $830,000 total for that property.

This was possible because I did all the work of finding that seller. Again, I had sent him direct mail and I called him.

You know, I sent him letters over time, and after a few months, he called me and was ready to sell.

We talked for months. It was a long process. It wasn’t just a couple days and boom, we are done.

At the time when I got the deal under contract, I had other deals going on and I didn’t have the bandwidth to take on this house to flip it.

Instead, I just decided “let’s just make a quick profit on it, pass it on to another investor”, which is why we ended up deciding to wholesale it.

Again, what I did in that role was I acted as a wholesaler. I found the deal and I brought it to another investor that was able to buy it at a discount even after paying me the fee for doing the work of finding the deal.

He bought it at a discount. It works for everybody. It works for the seller too, because now the seller didn’t have to worry about the repairs.

The buyer is going to handle all of those repairs. I was actually just there yesterday and they have got quite a lot of work going on.

It’s going to be about six months worth of work, because, like I said, it’s a really big renovation and it’s a really big, really nice property.

But once he’s done, it’s going to be worth about $1.7 to $1.9 million. And it’s going to be a great deal for everybody all around.

I love wholesalers. I wish we had them, most markets do. Again, my market is very small.

We have a population of 150,000 people here, and we are an island, so there’s not just another town next door where other people are wholesaling and they are doing deals in Maui.

So, chances are that there is somebody that is doing wholesaling in your market. If I were you, finding wholesale properties would be the first step on my list.

I would go find those wholesalers and tell them you want to be on their buyer’s list. Being added to their buyer’s list would mean that basically you’ll give them your email address and your phone number.

You’ll probably give them an idea of what you are looking for. If you are starting off, you’ll probably be looking for lower priced properties.

This would be easier because of fewer barriers to entry and smaller rehabs, just so you can kind of ease into the process.

So, how do you find the wholesalers?

 

HouseCashin Investment Property Marketplace

HouseCashin investment property marketplace is a good place to quickly find wholesale property deals in your area.

It’s basically a search engine for home flippers who need to connect either with wholesalers (for free) or with motivated sellers directly (requires paid subscription).

The platform features off-market property deals that you can browse by choosing your location and other criteria.

In the filters, you can select:

  • property type (single family, duplex, triplex, mobile…)
  • a motivated seller’s situation (homes requiring rehab, short sales, foreclosures etc)
  • rehab estimate
  • ARV
  • potential profit
  • asking price

and other indicators to fine-tune your search.

 

Real Estate Bees Directory

You can find them by going on websites like RealEstateBees.com that has a directory of real estate wholesalers where real estate professionals are listing their businesses and their services.

Just like you can find Maui Home Buyers on there, you can find any other real estate wholesaler in your market that can help you find deals.

And then you reach out to that person. You let them know: “I want to be added to your buyer’s list”.

Once you are added to their buyer’s list, anytime they get a deal under contract that they want to sell, they are going to email you that deal.

They are typically going to send you the address, pictures of the house, what the price is, what the assignment fee is, and what they estimate the rehab to be.

And then they should also have comparable sales.

 

Real Estate Investor Meetups

So, again, you can find those wholesalers on realestatebees.com, but you can also find them by meeting them in person and going to your local real estate meetups.

Almost every city, probably almost every town out there has a group of real estate investors that have meet-ups.

I organize them in our market here in Maui for investors to get together. I do them on zoom. I do them in person at Starbucks.

Sometimes, we do them at a brewery or a restaurant, and it’s a fun time. It’s a great learning experience.

And overall, it’s just a really great way to network with other investors and find those wholesalers, because it’s pretty hard to know who’s wholesaling in your market if you don’t go to where the wholesalers are.

The wholesalers want to find you also, because the reason the wholesaler is at the meet-up is because they want to find the cash buyer, as we call the flippers.

So, don’t be bashful about approaching them. They are just as anxious to meet you as you are to meet them. Go up and get on their buyer’s list.

 

Real Estate Auctions

Next up, and the last main source I’m going to talk about, is finding deals to flip on auctions.

I’m going to give a little bit of maybe a hesitance for somebody starting off, because there’s a lot that you need to understand before you go out and buy a property at an auction.

A lot of the auctions are no contingency, no outs. Like, once you make a bid, you are buying that house or you are at least losing a deposit.

In my market, at the live, in-person auction at the courthouse, you need to have 10% of your max bid at risk in order just to place the bid.

So, if anything changes, if you find out it needs foundation work, or there’s another bigger problem than anticipated, then you can lose that money

And on an $800,000 house, that’s $80,000. You could be losing just because you are new and you don’t know everything that you need to check, like your title report.

Checking title is one of the most critical things you need to do when you’re bidding on an auction property.

Now, generally speaking, the online auctions are a little lower risk than the in-person courthouse sheriff sale type of auctions.

The online auctions are almost always going to be properties that have gone through foreclosure and are now bank owned or also referred to as REO.

REO stands for “real estate owned”. And, essentially, REO just means that this home is owned by the bank.

That term has just caught on as being the go-to phrase for a property that could be referred to as a “foreclosure” because it did go through foreclosure.

Part of the foreclosure process is to have a public auction where anybody can come and bid on the property.

Typically, at least here on the Maui market, the bank will set their opening bid. It’s typically going to be somewhere around their total payoff, their total debt owed on that mortgage.

So, if the borrower owes $500,000 on a mortgage and the bank is foreclosing, a lot of times the bank is going to go to the auction and enter an initial bid, a starting bid.

It’s somewhere around what their total amount owed is. Once they finish that process of the foreclosure, that property goes back to the bank, they take ownership if nobody else buys it.

Then they have a couple of different options of how they sell that property, but a really common and popular one is that they then auction the property on an online auction.

These are a lot easier and more beginner friendly. They do tend to have a little bit more competition, so you need to watch a few more of them in order to actually get one that’s a good deal.

There’s a lot lower barrier to entry because you don’t have to have hundreds of thousands of dollars in cash.

Most of the auction websites will require a couple thousand dollars hold on your real estate investor credit card in order to make a bid.

However, I still recommend being very careful with the online auctions, make sure that you have watched a lot of these auctions, first off.

When you can, when they allow you to see the property, go and see it, inspect it, get a really good feel.

I don’t recommend seeing your first online auction, thinking it’s a pretty good price and just jumping on it and throwing all your money in it.

That usually ends badly. I know a lot of guys that have done that before, and almost every time it ended badly. There have been so many.

I have a lot of friends where their very first time at the auction, some property came up at a crazy low price, and they didn’t understand why nobody was bidding on it.

So, they bid on it, they win it, they have to put their life savings into closing the property, and then they find out there’s some major title problem.

It’s not worth anything, or, you know, there’s some major problem that you never would have foreseen if you didn’t have the experience of just watching these auctions happen.

So, again, not to discourage you, there’s certainly potential there, and especially in the bigger markets.

You know, the bigger your city is, the more volume you’re going to have. The more properties you’re going to have going through online auctions every day.

There are a few of these different sites out there that are very easy to find. So, check them all out, watch a few of the auctions, and get a feel for how they work.

Those are the main ways that we use to find properties. Let’s move on to the next topic.

4
CHAPTER

How to Start Flipping Houses with No Money?

Video Version

 

Text Version

Below are three ways to start flipping houses with no or almost no money. Two of them will require a down payment from you, and for the third one, you may not even need to put your own cash down.

 

1. Hard Money Lenders

What Are Hard Money Loans and How Do They Work?

Next, we are going to talk about how to get money to start flipping houses. The number one way that flippers finance their properties is through hard money lenders.

Who are hard money lenders? A hard money lender is what we call an asset based lender.

In a lot of ways, they are very similar to your bank that’s going to give you the traditional mortgage to finance the purchase of your home that you would live in.

However, that bank and that type of traditional financing option rarely works for a flip because the bank wants the home to be in livable condition.

If you’re buying a house to flip it, there’s something wrong with it. That’s going to cause it to not qualify for traditional financing.

Or there’s also an issue that causes the seller to sell fast, and you don’t have time to get a loan from the bank because doing that can take up to 30 days, sometimes 45 or even more.

Hard money lenders have much higher interest rates and you’re going to pay more points for these loans, but because you’re going to be making a profit on the deal, that’s okay.

You’re happy to pay the higher interest rate because if you’re making, let’s say, $50,000 flipping a house, why do you care if you have to pay $3,000 in points and interest, for example, right?

So the hard money lenders are the best option out there. They typically do have to appraise the home, but aside from that, they are not really looking at your credit.

The main thing that they want to see from you is experience. Hard money lenders will lend to somebody that’s doing their first flip. You’re just going to pay a higher interest rate.

Learn more about how to qualify for a hard money loan as a newbie investor.

So, for us, because we have plenty of experience and we have a really good relationship with our hard money lender, we generally will pay around 8% interest for our hard money loans.

8%, sometimes 9% and somewhere between one and a half to two points. Meaning if the total loan amount is a million dollars, two points is going to be $20,000. So, 2% of that loan amount.

Learn more about the rates from the article How Much Do Hard Money Lenders Charge?.

And that’s how the hard money lender makes their money. It’s on the points, not so much on the interest.

So, for somebody that’s new, if it’s your very first deal, they are probably, usually somewhere between 12% and 15% interest.

Maybe three to four points is probably about the going rate for somebody’s first or second deal. Now, if that’s too high and that kills the deal and your numbers don’t work, then there is another option.

 

How to Get Better Hard Money Loan Rates as a Newbie Investor

You can go out and find an experienced investor like myself. I do this all the time with other investors where they don’t have the experience necessary to get a good interest rate.

So they come to me and say “Will you sign, by using your experience and basically join me on this deal?

You don’t have to do anything. All you have to do is put your name on it so the lender sees that we have an experienced investor on the team, and they’ll give us those better terms.”

So, you can do that and go out and find an investor in your area.

Or probably they don’t even have to be in your area, but just another investor that’s willing to put their name down on the deal, usually in exchange for a percent of the profits.

It’s a great deal for the investor. I love it when new investors come to me with that, because as long as the numbers check out, I’m going to look at the deal and make sure that I’m not putting my name on a deal that’s not going to work.

But, you know, I can get paid just for letting them borrow my experience.

It’s usually a great deal for the new investor because they can save on those points and interest and lower their upfront risk by giving up some of the profit in the end.

Other things you need to know about the hard money lenders, like I said, they are more based on the asset so they are going to look at the value of the property.

And they are also going to look at the after repair value (ARV), meaning, once you’ve done your renovations, what’s this property going to be worth.

Earlier, we talked about a property I wholesold recently that I got under contract for $800,000.

The hard money lender of the flipper, the buyer that I sold it to, had their appraiser come out, and I believe they appraised the “as is” condition for about $1.2 million or 1.15.

They were going to be putting $350,000 in total renovations. And the final after repair value that the appraiser projected to be was about $1.7 million.

So, yeah, the lender is going to look at all those things, make sure that value is there, and that makes it a lot easier for you.

It also makes it a lot faster because they don’t have to do credit reports, check your W2 income, your bank statements and all these things.

They just look at the property and make sure the value is there. They will check your credit most of the time, but it’s not super critical. They are not really worried about it.

You might get a little bit higher rate if you have really bad credit, but they are not as picky as the traditional lenders.

 

2. Traditional Mortgage

The other way to finance your deals is if you have a seller that doesn’t need to close quickly, and the house is in pretty good condition, you could get traditional financing if you can qualify and have the down payment.

 

3. Find an Investor Partner Who Has Cash

And, finally, the other really popular option for funding flips is to find a partner. This is another time when going to these real estate meet-ups comes in really handy

You can meet people. In fact, I’ve done this myself where in my early days investing, I met a partner at a real estate meet-up.

She was a lady that had cash. She wanted to invest, but she was a CPA. She had a busy career and didn’t have time to go looking for deals.

She wanted to partner with somebody that was starting an investing business, like myself. I found a deal, we partnered, and we still actually own that property today, and I love it.

That example I gave was for buying a rental, but I’ve also done the same thing with flips.

When I was first starting off, I found an active investor, a very experienced investor that had a lot of cash, wanted to invest, but also had different aspects of his business.

He was building a commercial real estate business that he was focused on. So, he didn’t have time to go out and find the houses to flip.

But he still wanted to flip houses and wanted to be involved in that. So, he found me at a meet-up and he asked me if I would work with him and do some flips with him.

So I did, and he brought the funds. We actually did use hard money in that case, but he brought the down payment.

So, that was a combination of using a hard money lender and a partner to finance my flips. I worked with him for about a year.

For our average deal, we needed around anywhere from $50 to $250,000 in cash for our portion of the down payment plus the rehab.

So he would cover all of that, and since I was a newer investor at that time, we would use his experience, so we got better terms, and then we split the profits 50/50.

Today, I still don’t use my own money when I do flips. Now I have a different partner and it’s actually a better situation for me now because my partner now pays cash.

He actually has saved up the money so he has got the cash and we use that to invest, and we don’t have to rely on a hard money lender.

And this is in my opinion, probably the best way. I mean, everybody has got to determine what’s right for them.

You can make more money by doing it on your own and using a hard money lender, because then you are just paying the points and interest.

And if you’re getting really good deals, then you are not splitting the profit with a partner. You are keeping all the profits. You would definitely make more money this way.

But, you know, for me, I’m risk averse. I don’t need to squeeze every penny of profit out of every deal.

I would much rather have a partner to do it together. There’s somebody to help. If something needs to be done at the house and I’m busy, he can help out and go down there.

There are a lot of advantages to having a partner. The downside, obviously, is at the end of the day, when we get that big payoff, we have to split those profits 50/50.

So, I make a lot less money from my flips, but I also have to jump through a lot fewer hoops. I can make stronger offers when I’m competing for a deal because I don’t have to pay those points and interest.

So, my partner’s going to write the check for cash and we can also close quicker. Hard money lenders are fast to close, but they usually do still need about two to three weeks.

Whereas me and my partner, because we are literally taking cash out of our bank, the cash is sitting in the bank ready to go, we could close tomorrow if the title company can close that fast.

So, that’s the best possible strategy for me, my goals, my risk tolerance, and my situation. You need to determine what’s the right one for you based on all those factors. And that’s how you fund a flip.

5
CHAPTER

How to Sell Rehabbed Homes

Video Version

 

Text Version

Let’s move on to the next topic which is “how to sell your flip”. This is probably the easiest topic.

When it comes time to sell the flip, you want to know how to find a good realtor, somebody that’s going to do a good job of selling the house for you.

Now, what you don’t want to do is call your friend John, who you went to high school with, who you know just happens to have his real estate license.

That’s the number one worst possible option because there are a lot of people with their real estate license out there, and the majority of them are not real estate professionals.

Most people that have their license do maybe one or two sales a year for family and friends, but they have another full time job. That is not the person that you want selling your flip.

A lot of times they might do an excellent job so I don’t want to generalize too much. But for the most part, what I personally look for when I want a realtor to list my flip, to sell it for the highest possible amount, I want the most experienced, and what I call the top producer realtor.

This is going to be the realtor that does a lot of volume, meaning maybe 20 million a year. This depends on the market and the pricing of the houses in that market.

Because there might be a market where doing 5 million a year is like you’re in the top 10 realtors.

If prices are low here on Maui, you have to be at least 20 million a year. I mean, if you’re doing 20 million a year, that’s less than 20 houses a year.

That’s a lot, but it’s not a whole lot of volume at today’s prices. Again, as prices go up, that yearly volume amount needs to go up also.

How do you find those realtors? Well, you can go online. There are a lot of different ways to find them.

You can just ask a realtor “How much volume did you do last year? What are your stats? Are you in the top 100 in the state? What are your credentials?”

You can go to different websites like realestatebees.com where you can search for realtors, see what their credentials and experience are, and you can just ask them.

You can Google searching for realtors in your area. So, I could search for top producing realtors in Maui.

A popular thing we have here in Hawaii is a publication that announces the top 100 realtors each year — the realtors that do the most dollar volume.

I’ll go to there and see which realtors are in my market, my local area. I like using those top producing realtors because they have done this so many times that there’s a reason why they do so much sales.

The other advantage to working with one of them is that they do so many sales that they are probably 5% of all realtors that do 80 to 90% of the sales.

Those realtors work with each other every single day so they know they already have those conversations and relationships in place.

When the buyer comes in to see your house and make an offer, chances are they are going to be represented by one of those top 5% realtors.

You want your realtor to already have a relationship with their realtor, because it’s just going to make the process so much better.

They are already going to know, like “Alright, what do we have to do? Talk to me, let’s make this happen. What does your seller need? What does your buyer need?”

I’m a big believer in that. Again, that’s a pretty easy part of the deal. And that’s how you sell your flip.

6
CHAPTER

What Is the Best Business Structure for Flipping Houses?

Video Version

 

Text Version

The next final topic we are going to talk about here are legal and tax structures for building your home flipping business.

Now, I need to preface this by saying that I am not a lawyer, I am not a CPA, so none of this is legal or tax advice.

Please talk to your lawyer and your CPA. That’s basically the whole point of this whole topic.

You need to talk to a lawyer, you need to talk to a CPA. Every situation is different, every single business is different.

I can give you a very, very general and common structure, which is very, very simple. It is just having an LLC.

There are more ways you can structure your business. You can get into doing S-corps and different things, but that’s more beneficial when you’re talking about rental properties.

Again, I’m not a tax professional, but there were two different options that were given to me.

One, I was told by a couple different lawyers I spoke to, that you don’t necessarily need an LLC because you can just get a really good umbrella policy, which we have.

And that will protect you just as much as the LLC, because if somebody’s going to sue you, they are going to sue you, regardless of whether you have an LLC.

Now, the advantage of starting an llc for house flipping is that it is much more professional. You are a business, that actually is what makes you a business.

I had flipped houses and invested for years before I started my first LLC. But my partners that I was working with did have LLCs so we always flipped houses under their LLCs.

And then I was essentially paid as a contractor to the LLC, even though I’m the one that did all the work.

So that’s one option. Really, you should, if you’re serious and you want to start this business, go out and start an LLC. It’s really easy.

I think probably the majority of people starting off will just go to an online service like LegalZoom or any of those pages where you can make your own LLC quick and cheap and easy.

The other option is hiring an attorney. And if you hire an attorney to start your LLC, I would expect that you would be paying somewhere between 500, to maybe 1500 on the high end dollars in order to have them form the LLC for you.

So, again, I think that’s something you can just do on your own. You don’t need to hire an attorney, in most cases, but you should talk to an attorney.

And you probably should have an attorney look over your LLC once you’ve prepared it yourself.

If you’re using hard money to finance your flips, you will need an LLC because the hard money lenders will not lend to you personally.

The property has to be purchased by an LLC and the loan will be given to the LLC.

So, that covers the legal structure. That’s also pretty much covering the tax structure. You do need to talk to your CPA about how you’re going to be taxed.

But, basically, I’m taxed as a self-employed business owner, and I choose how much I pay my salary and I take profits at the end of the year.

And, basically, all of that is very similar to any other small business that you would own and how that would operate.

So, again, it’s very critical that you talk to a real estate focused attorney, and that you also talk to a CPA.

I highly recommend a real estate CPA. Now, again, realestatebees.com is an excellent resource.

They have directories of all professions and professional services on their website and so I highly recommend searching through their directory and making the most out of that resource.

So that’s about all you need to know to start your fix and flip business.

7
CHAPTER

Frequently Asked Questions

What is the IRS business code for house flipping?

The common NAICS business code for real estate property flipping is 236118 — Residential Remodelers.

 

Do you need a business license to flip houses?

Theoretically, you can flip a house without setting up a business. However, if you want real estate flipping to be an ongoing business activity, without creating a business entity, you are missing on:

  1. tax benefits
  2. trustworthiness as a legal business
  3. limited personal liability in case of a lawsuit
  4. the option of taking a hard money or business loan to finance your flips
  5. the option to sell your business easily.

 

At what age can you start buying and flipping homes?

Throughout the United States, you can buy a house on your own once you turn 18. So at a younger age, you will need a partner who would purchase flip properties in their name.

 

What is the best way to start a career flipping houses?

To start flipping houses as a career, follow these steps:

  1. Educate yourself on the related subjects. Learn how to appraise a property and get renovation experience. Take house flipping courses or hire a real estate investing coach or mentor.
  2. Consult with a local attorney. Have them advise you on choosing the right type of business entity and how to pay taxes, depending on the particularities of your business and local laws.
  3. Secure ways to find motivated sellers leads for free or at a minimal price as you are only starting.
  4. Develop a plan to finance your projects.
  5. Register your business and start looking for your first home flipping deal.

Additionally, consider purchasing a franchise. For a franchisee fee, you will get a business that is set up for you almost completely, with all instructions, business processes, and expert support included.

Review this list of the best real estate investing franchises to choose from.

___

If you want to contribute your expert advice on a topic of your expertise, feel free to apply to our Expert Contributor Program.

___

About the Author

Greg Gaudet has had an extensive career in real estate, including being an appraiser, working in escrow, property management and restoration. During his career, he was diligent about saving, often between 30-50% of his income all along. All of his roles made him even more prepared when the time came to realize his dream of becoming an investor. His focus is buying off-market properties with problems that others were unable to solve, finding creative solutions that allow him to acquire these deals at steep discounts. Today, Greg owns 17 doors on the high-priced island of Maui with an average LTV around just 30%, and an average cash-on-cash return around 35%. These rentals produce a solid six-figure cash flow that pays his salary, while he works on doing flips and wholesales that create the capital he uses to continue acquiring rentals to increase cash flow.

Never Miss a Post
Recent Posts
How Long Does It Take to Get a Real Estate License in Arizona?
8 Best MLS IDX Plugins for Real Estate Websites
BatchSkipTracing Review
Categories
Popular Posts
How Hard Is It to Pass the New York Real Estate Exam for the First Time in 2022?
How Hard Is the California Real Estate Exam and How to Pass It the First Time?
How to Pass Oklahoma Real Estate Exam the First Time in 2022?
Our Partners