Tell me if this has happened to you before: you are channel surfing and you land on HGTV. Pretty soon you’re glued to the various shows they have: Fixer Upper. Flip or Flop, Property Brothers, Love It or List It, Rehab Addict etc (seriously I could go on… there are so many shows w/ a fixer component), and you start thinking “hey, that looks pretty interesting. I can do that.” Well, this post is all about the unsexy stuff (sorry!)… how to find deals, what’s a good deal vs not a good deal, what are the costs associated with flipping houses. Quite frankly it doesn’t make very good TV and what little numbers HGTV do show is very incomplete or very wrong.
Our speaker Jeff Pollack once upon a time had a W-2 job like most folks. He was laid off and was determined not to go back. Jeff dabbled in turnkey property but started doing flips on his own in Texas. He went to meetups, formed connections and got referrals to build out his local team. After getting some deals under his belt he started back home in California.
To find the deals, Jeff sends out his own mailers. The message is different for different markets and audience. In Texas or other out of state areas the pitch of no drama easy close tends to resonate with sellers better. In California it tends to people with equity in the house looking to cash out. There are some good resources to pull the mailing list such as ListSource or PropertyRadar. For sending out the mailers you can utilize services like YellowLetters.com, Yellow Letters Complete, YellowLetter HQ. You’d prob end up spending $0.40 – 0.50/pc if you’re sending postcards and around a $1/pc for letters. If you can have hand addressed envelops they’ll perform better in getting the recipients to open the mailing piece. Jeff mentioned he’ll even put pic of the house from Google Street View on the envelop sometimes but that might upset some property owners.
Typically Jeff is looking for 10% of after repair value (ARV) but he’ll adjust up and down accordingly. If it’s a lower end house and 10% of ARV falls below $100k there might not be enough margins. Conversely, if it’s higher end say $2.5M ARV and it doesn’t quite meet the 10% criteria he probably won’t pass on it just because he would make $240k instead of $250k.
Nagendra from Conventus, a private lending company, shared from his perspective what they look for when underwriting the loans. The terms might be a little bit different depending on the subject property and borrower. If it’s a repeat customer with proven track record you might end up with higher LTV, lower interest rate, and/or shorter closing time. Typically they lend at about 65 – 70% ARV. For just cosmetic work they will consider increasing that. If you’re a repeat customer they can process the loan in as short as 5 days. First time customers will need a little bit more time for document verifications etc. For people with good track record it’s possible to waive the points portion of the loan as well.
In this business, you’ll need money, time, knowledge, and the deal. To get the deals, whether you’re using mailers or from agents or wholesalers you will need to be consistent and have a broad reach. In this shifting market particularly, best to stay away from the high end market because there is a smaller buyer pool and with increasing inventory they can afford to be more picky. Aim to get in and out in 6 month or even shorter. Don’t take on things that requires taking out walls or adding square footage those jobs will really slow you down.
If you find this post useful, please sure to subscribe! I post many interesting ongoing topics and summary notes like this from our Meetup.
