How Do I Get Into Flipping?
Right off the bat, to answer the question, you do it by completely losing your
mind and deciding that you are willing to destroy your budget, your
investments, your work life, your personal life, your love life, your health, your
loved ones, your pets, your hair, your skin, your entire way of life! Throw them
all away, you are now a “flipping guyâ€â€¦.. or gal. It is a completely insane
choice to do.
“But Michael, I watch HGTV all the time. I see all the flipping shows. I can do
this. It looks like fun, and I can make a million dollars!†Yup, I’ve heard that
before…. in my own head! Granted, I had a head start with growing up in doing
renovations. However, many don’t, and after watching TV, it just looks like
some sweat equity and you are off to the races. Well….. yes and no, mostly no.
First off, MONEY!! I’ve heard it a million times, “Never use your own money,
get homes with no money down, etc etc etc!’ Um, no, not true. You need
money, LOTS OF IT! No one is just going to listen to you walk up and say “Hey,
I’ve never flipped a house before. Please give me $100,000 or $300,000, most
up front, with no guaranty of you getting it back, so I can see if I can avoid being
part of the 70% of people who fail on their first property and drop out!†Can
you see where I’m headed?
The first property you will buy, you most likely need all cash for it. If you are
lucky enough for a Hard Money lender (forget the banks) to give you money as
a rookie, first off they will want a HUGE deposit, maybe even 50% down. Then,
after that, you need money for the deposits for the contractors, usually 25% to
50% to begin work. Then of course, when they each finish their work, they
want to be paid. Cash is king, and you will need it!
Me, I did what I had to do. I cashed out my existing two IRA’s, I sold what
stocks I had (I had been successfully day trading, I had some good trades that
netted me a lot), I sold stuff I didn’t need, and I amassed my grand fortune. I
had about $140,000. Wow, I’m rolling in cash, I’m Scrooge McDuck, I’m Elon
Musk, I can do anything……. Yup, that euphoria disappears fast.
The General Contractor I’m using, he and I were talking one day, and he said I
have been following the exact path that many successful flippers had
followed. The path of
1) Buy something cheap, all cash, find your contractors, fix it up best as
you can, usually without permits, sell it, make 10% or better in this
market, and feel like you can do anything after that.
2) Buy 2-3 properties, go big, do things with permits, get totally
overwhelmed, have your budget bounce off the bottom of your bank
account, fight your way like hell through it all, and if you survive…
3) Cool off, do 1-2 properties, stay cash heavy, and see if you stay
successful.
So, I have crawled out from the 70% failure rate. However, I’m not out of the
woods yet. If starting out on my condo, I had a knowledge level of probably 5th
or 6th Grade Level of Flipping. Let me tell you, I have graduated Flipping High
School and am now definitely in Flipping College. I have learned so much, and
I learn more every single day!
Yup, this is exactly how I got started. I’m still in Step 2 right now, so I’m still in a
bit of Hell. On one property, it took TEN MONTHS AND $45,000 in carry costs
and fees just to get the permits and start work. More on that in another article.
I sold one property, have another on the market, and the third is under way.
So, let’s see how I continue.