For those of you that don’t already know about my story of why I started this house flipping blog, it involves my taking flying lessons and becoming a private pilot. With flying, as with everything else, I am always learning. We will never know everything about everything. There is always something to be learned, and to me, that is one of the great things about life. If we were able to learn all we wanted to know about something, things would get boring very quickly. There’s nothing left to strive for.
As I continually learn things about flying and how to stay safe and be more efficient and hone my skills, I’ve constantly thought about parallels between flying and house flipping. Heck, the parallels can really be made between flying and most things in our lives.
You see there is some serious risk involved in flying if you aren’t careful. If you make a huge mistake, you know what the penalty could be.
This level of seriousness should be taken with more areas of our lives. I think because the penalty for making mistakes in other things is not as severe, we tend to take some of them too lightly.
Obviously, you’ve decided to read this because you want to know what the 3 commandments of flying are and how they apply to flipping so I will just cut to the chase. I just wanted to show that these can really be used in more areas of our lives than just business and flipping houses.
Flying Commandment 1
Never go anywhere in an airplane, unless you are prepared (and willing) to come home by some other means of transportation.
With flying you could fly somewhere and have the weather change, which might make it a bad idea to try and fly back. You need to be prepared to have that happen and have a plan for what to do. More importantly you have to be willing to go with your contingency plan instead of taking on more risk.
How does this relate to flipping houses?
The way I see it is you must get a good enough to deal to allow you to overcome problems. If you pay more than you should (on a typical house flip that means paying more than 70% of resale value, less repairs – an example being a house that will be worth $100,000 and needing $10,000 in repairs, you shouldn’t pay more than $60,000), you run the risk of losing money if something unexpected happens. Click here to see how to analyze a house flip deal.
What if you failed to notice an expensive problem with the house? What if the values drop in the area before you can sell it? What if your contractor rips you off?
So many things can go wrong, but if you buy right, you should be fine. Instead of losing money, you will likely just make less than you’d hoped.
Plan ahead and buy the house at the right price. Be as prepared as you can for the unexpected so that you are able to continue flipping for another day.
Flying Commandment 2
Before every flight, take inventory of yourself, your equipment, and the weather.
Before I take off in my airplane, I do a thorough pre-flight inspection. I follow a checklist and look over the entire airplane for loose or missing nuts and screws, cracks, or anything else out of the norm. I also check to make sure there is plenty of fuel by looking inside the tanks (small airplane gas gauges are notorious for being unreliable). There is also a check to make sure there is no water or other debris in the fuel. All of this is taken very seriously because I don’t want to find out about a problem while in the air. While flying you can’t just pull over if there is a problem. If there is a problem, I’d rather find out about it before taking off.
The plane isn’t the only thing that is looked over. I have to take a serious look at myself. Am I feeling 100%? Am I stressed or not feeling well? That’s very important not because it might affect my ability to take off, fly and land (which it might), but because if I encounter a problem in flight, will I be in a good enough condition to be able to handle it?
How does this relate to flipping houses?
Due Diligence – It’s due diligence, pure and simple. Don’t just take other people’s word for whether a deal is a good deal or not, especially if they stand to gain from you buying it. Even if it is just a Realtor that will make a commission and you think they know what they are talking about. They aren’t the ones the taking on the risk, so don’t rely on them for a decision on whether to buy.
All a good deal analysis of a house flip depends on is the numbers.
If you take a look yourself at the comparable sales and determine that the houses have in fact been sold recently (not just ‘for sale’), are similar to the subject property in quality, age, size, etc., are near the subject property (preferably in the same neighborhood and not ‘across the tracks’, and determine the value yourself, you should be good to go.
Other things you need to check before you go buyin’ is the days on market for the comparable sales (comps). Make sure the houses are selling within a reasonable amount of time (less than 90 days preferably). If they are taking longer, you will need to adjust your numbers (offer less than 70%) to account for it.
Your due diligence should also include making sure there is not an issue with the neighbors. If the neighbors don’t maintain their property and have trash everywhere (broken down cars in the front yard…), it might affect your ability to sell your flip house.
Flying Commandment 3
Never need to get anywhere so badly that you’re willing to pay the ultimate price.
This one is the most important of the three. Pilots call this ‘get-home-itis’. It’s a condition where the pilot feels pressure from himself or passengers to continue on, even if the weather has deteriorated and the flight has become dangerous. People usually have obligations and expectations they are trying to meet. When this happens, simple logic seems to fly out the window….and tragedy can become the result.
It’s not worth it.
How does this relate to flipping houses?
Have you ever noticed yourself throwing logic out the window because you are close to getting a deal? The bank is willing to take $75,000 and you are considering taking it even though your ‘numbers’ tell you not to pay more than $65,000. What do you do?
It’s especially important to watch out for this when you are just getting started flipping houses. There tends to be more emotion involved to do the deal or ‘help the homeowner out because they really need to sell’. Be careful. You could feel like you are helping somebody only to find out that you’ve created a very serious problem for yourself.
You might really want to do that deal the wholesaler is pitching to you and it could cause you to avoid your due diligence and take their word on the deal analysis.
You might need the profit for the deal to feed your family and decide to do it even though there simply isn’t any profit in it. Yeah, that’s logic going out the window. Maybe getting a steady job isn’t such a bad thing to do first and then you can attempt to flip houses part-time.
Do yourself a favor and take the pressure off yourself first.
There is a lot to be learned from flipping houses and flying to relate to each other.
I absolutely love flying and I absolutely love flipping houses.
Both carry a certain degree of risk, but what in life worth doing doesn’t? We can safely enjoy them and even make a good living doing them, but we must always be willing to do what is necessary to stay safe and stay profitable.
I hope this discussion has drilled the point home that making sure you remember it is up to you to make the final decision to buy a house to flip. The risk is on you. You owe it to yourself and your family to do your proper due diligence and not let emotions or expectations or obligations get in the way of taking the time to do them properly.
I’ve decided to make my wholesaling training available again. You can find out more about it on the Flipping Houses Resources Page.
I’m not sure what I want to write about for the next post. This is your chance to tell me what you want the next post to be about. You must ask in the comments below. Please do not email me the topic as I want to keep all of them in one place so I can go back to them as I decide what to write for each post coming up.
Thank you for your ideas and I’ll do my best to cover all them.