This is a guest post by my good friend, Justin Williams.
In October of 2010 I decided I was going to start building a rental portfolio to help me create a passive income that would eventually be higher than my monthly expenses and thus allow me and my family to “Get out of the rat race” and become “Financially Free”
However after purchasing 12 rental properties in 4 months both my private money lenders and I were completely out of funds. What was I going to do now?
I could focus on raising more capital to try to purchase more rental properties, but I had bills to pay and time was against me. After all, these rental properties were only producing a few hundred dollars in monthly income! So as a temporary fix I decided to sell four of the properties which I had yet to lease.
Selling those 4 properties did a few things for me.
Besides giving me back my personal invested capital, it also allowed me to reuse my private investors capital, and I made enough income to take care of my monthly needs for at least a year! It also made me realize the incredible return on my investment (not to mention financial freedom) that could come from flipping houses.
I was hooked! Once I realized the possibilities of how quickly I could create wealth and financial freedom I just had to keep flipping houses!
So that is when a big question started forming in my mind.
You see, I had read books like the E-myth and the 4 Hour Work Week, and I understood the power of leveraging systems to streamline a business. But could you do it with house flipping? Could I create a business that works for me, instead of me working for the business? Could I create the passive income most people dreamed of, but do it by flipping houses?
Fast forward to today, and I’m happy to report that since asking myself this significant question we have flipped over 250 houses and I currently spend an average of about 5 to 10 hours a week on my house flipping business!
Of course, I don’t have time in this one post to share everything I did to create this “house flipping machine”, but I’d like to discuss 5 things that have been instrumental in allowing us to do such a high volume of deals without requiring every waking minute of my time.
By just applying one of these tips you can save yourself countless hours in your business and dramatically increase your volume and income. So, let’s get to it!
1) Let others do the leg work on acquisitions
Before getting into this first one I want to just mention that if you are a new house flipper you will want to look at and comp as many houses as you possibly can! Learning how to analyze deals and estimate repairs is crucial if you are going to be successful in this business! You can’t teach someone else to what you don’t know! So, for the sake of this post we’ll assume that you know that this is an essential skill to learn before you can teach others what to look for.
For the rest of you with more experience, over time you will need to let others help you do some of this leg work. This is necessary if you want to be successful in this business. I know too many investors who hop on the MLS every day looking at listing and firing out offers in hopes of getting a deal. Or maybe their agent is sending them listings on the MLS which they then comp out, analyze and submit offers on.
And yet these same investors wonder why they are buying so few properties and not able to focus more attention on their business! You have to get others to do this leg work for you! You should only be looking at deals when other people have done the initial acquisition research work for you.
In my business, any agent or wholesaler who brings us a deal has to have done at least one of two things:
1) The deal either has to be under contract
2) They have already calculated the ARV, estimated repairs and came up with the offer based on our criteria.
Sure, we’ll work with them at the start of our relationship until we feel confident that they know what we are looking for. But we pride ourselves on making sure our agents and wholesalers know exactly what sort of deal we are looking for and since they are supposed to know that particular area really well, presumably their ARV should always be just as good or better than ours.
This one tip allows us to save literally hundreds of hours, from sifting through properties, analyzing deals and making offers. Knowing that, in this business, most of your offers are not going to get accepted from the get-go, it’s a much better use of your time to focus on the properties once they are tied up and under contract.
Since we always have our inspection period to fall back on just in case someone did mess up along the way, we don’t have to worry too much. But fortunately this is rarely the case since we do a good job on being extremely clear about our criteria from the beginning.
This type of approach will allow you to focus your attention on making a lot more offers and avoid being inundated with the daily minutia that comes with doing all that work yourself.
This one tip will allow you to 10x your business growth. Amazingly, a lot of experienced investors fail to execute on this one! With the importance acquisitions play in house flipping, if you want to be successful in this business this is a really important point to emphasize!
2) Use a Rehab Price List
Most investors know you should streamline your rehab process by using the same materials on as many houses as possible, but very few use a price list!
When I started rehabbing properties on a larger scale I started to see many similarities on the bids we received. I noticed we were paying close to $1.00 per square foot (based on the total size of the house) for paint. Also, our laminate wood flooring was running right around $2.35 per square foot, including installation.
Eventually I saw other similarities for carpet, tile, exterior paint, counters, cabinets, fixtures and much more. However, it seemed that we were still spending a lot of time haggling bids with contractors. It didn’t make sense that if we were paying about the same amount on every rehab project that we should be spending so much time deciding what was going to be done and what it was going to cost. Clearly this wasn’t any good for us or the contractor!
So, we came up with a price list!
Now, for every standard house we rehab (about 85% of our deal flow) we use a price sheet that states clearly what our contractors will get paid per square foot (or size) for each item they do!
We never haggle or negotiate. Prices never creep up. The contractor doesn’t have to wonder if he’s going to get the job based on his bid. And we never have to get more than one bid.
This saves a ton of time and stress! Occasionally there are a few small items that might come up, but those are much easier to focus on when you have all the other items resolved ahead of time.
3) Put those agents to work!
These days I rarely look at any of the houses I buy, and even my assistant doesn’t look at a lot of them anymore. (And, no, I don’t have a project manager!)
Instead, I use my general contractors and agents as my project managers! I have come to the conclusion that the combination of a GC and agent are perfect as a project manager and much more efficient! Plus it saves me paying a project manager’s salary or giving up additional profits.
My agents don’t just make offers on houses, list them, and sell them for me, but they also help manage my house flipping projects!
Yes! You heard that right! My agents manage my projects!
First off, I only work with a few general contractors and use the same ones for almost every one of my projects, so they understand 100% what is expected of them. If they want my business then they need to know my expectations and that means his job is to deliver the job 100% to completion. Not 98% with some trash and cleaning that needs to still be done, but 100%! He coordinates his subs and crews, and takes care of everything. After all, why shouldn’t he?
Then, we also put 100% of the responsibility for making sure the house is perfect on the agent. Think of it this way: since the agent has to make sure the property is viewable before pictures are taken and he puts the house on the market, why not have them be a checks-and-balances system for the contractor’s work too? It is a natural extension of what they are already responsible for and this helps ensure the contractor finished their job completely and the house looks great.
Our agent also takes care of securing our properties as well as cash for keys or evictions (if needed) on those properties with tenants. And he even handles seller calls in his area.
That’s right! Our agent takes my direct mail calls!
You might wonder why he is willing to do all this. Well, just like my contractor, it is really almost like a partnership. Since he knows that we will buy pretty much any house he puts under contract its in his best interest to work with us since it allows him to grow his own business as well.
A couple years ago I even gave one agent some guidance on hiring an assistant in order to increase his productivity and focus on the highest and best use of his time. If I can help him improve his business it ultimately helps me in my business, and vice versa.
It is this kind of mutually beneficial relationship that you want to develop when creating your “house flipping machine”.
Now, are these all things you should discuss with an agent before you ever make an offer on a house? Probably not. But over time you can continue to work with your agent to implement systems that will help streamline your house flipping business.
4) Avoiding the “Paperwork Pile Up”
About two and a half years ago when we started doing a higher volume of deals, I found myself inundated with paperwork. I had to fill out and sign documents for all the deals we were doing. From printing forms or documents, filling them out, faxing them, sending them and whatever else I needed to do when another “urgent” request would come my way, I had to drop everything I was doing and lose my focus.
I knew there had to be another way. The CEO of a multi-billion dollar company sure isn’t printing out, filling out and signing every single document in their company. Can you imagine if Bill Gates had to sign every document that came through the doors of Microsoft? He’d never get anything done!
At first I tried asking several colleagues for solutions, but I didn’t get the feedback I was looking for. Sure, you have the typical E-signatures, and there are other programs which can help you do more online, but not everyone likes these kinds of signatures and it was still a distraction for me to deal with them. After all, I was trying to create a business that could operate without me being there!
Finally I spoke to an attorney and for $500 he created a legal document which allowed me to give authority to anyone I wanted to fill out and sign paperwork on behalf of the company. it also allowed me to give full authority to anyone I choose to negotiate on behalf of the company.
This basically put an end to phone calls from buyers or agents wanting to speak to the business owner or principal. Since I gave certain people the authority to negotiate as if they were the principal business owner this was a huge weight off my shoulders.
This single document has literally saved me hundreds of hours over the past few years! And even more importantly it has allowed me to get rid of dozens of moving parts and distractions, which in turns lets me focus more fully on growing my business.
Note: This particular tip may not be for everyone, and some may consider it risky to allow others to sign and have the authority to make certain decisions on behalf of their company. For me I LOVE it and it makes perfect sense, but this tip and anything else in this post is just for informational purposes on how I run my business and shouldn’t not be considered legal or professional advice 🙂
5) Hire out or outsource the busy work
While this might seem obvious at first, I still see a lot of house flippers, and just business owners in general, trying to take on the day to day busy work.
I will tell you right now that I have known, interacted with, and learned from hundreds of entrepreneurs through the years, and one thing I’ve come to realize is that it is impossible to really streamline and grow a business if you have your hands in every part of the machine.
If you are going to be a business owner your focus needs to be on the bigger picture, and on looking for opportunities to grow and innovate your business!
Not sure how to make the leap? Start with the small, easy or low-paying tasks — the types of things that are easy to train someone else on. Then grow from there.
In fact, I forbid you to ever stuff an envelope, lick a stamp, turn on utilities, get insurance or do data entry again!
Other huge time sucks that I see on a regular basis? Going to the bank to send wires, uploading and inputting information on the MLS to list properties, posting craigslist ads, putting signs and lock boxes up at houses, taking calls from agents to show houses, meeting with locksmiths to change locks and, well, the list just goes on and on!
If you are doing direct mail consider outsourcing it. The amount of time you will save will be more than worth the cost, and your ability to scale your business will no longer be dependent on how quickly you can stuff or lick an envelope!
If you are getting bogged down by some of these menial tasks, consider hiring an assistant. Start with someone part-time and give them the easy stuff first. Can you imagine what you could do with an extra 10 to 20 hours a week to focus on growing your business!?
Flipping houses can be a lot of fun and really help you achieve your financial dreams, but it can be a bit overwhelming if you are trying to do everything yourself!
In this article I have shared some tips we use in my business to not only achieve incredible profits house flipping affords, but also the passive nature of income that is often sought through rental income.
Applying just one of these tips could save you hundreds of hours each year in increased productivity, and help you create that coveted “5 hour house flipping work week”! 😉
Do you have any streamlining or optimization tips that you use in your own house flipping business that I didn’t cover in this post? I’d love to hear about them! You can share them by posting them in the comments area below and I’ll be sure to check them out!