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. Enjoy!
First, have you joined our private FlippingJunkie facebook group? Come network with us!
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.
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 one 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.
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’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.
-Danny Johnson
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Comments (35)
Hello Danny,
My suggestion for your next blog article is to discuss the type of rehabs involving “value add remodeling.” These are the type of aggressive remodel projects taking place in the urban parts of cities, which sort of look like this:
1. Buy property for $175,000
2. Scrape and haul off.
3. Build brand new duplex.
4. Sell each side for $625,000.
5. Target gross profit = 30%.
These types of projects are clearly not for first time house flippers, but whether doing a scrape, pop-top, or a “green” remodel, they represent a way to find new opportunities in a marketplace where there are tons of flippers out there, but do not have the resources to do more aggressive projects.
Have a good day!
Hey, Bryan.
Great idea. I do not do these types of rehabs but could possible interview someone that does. Thanks for the suggestion.
Danny
Good thoughts on risk. I agree and will add my own short experience: I remember starting out my first business after college and not knowing that there were other sources of money in the universe, I went to a traditional big bank to ask for a loan. I remember the banker literally laughed at me and said “you have no money, no experience, and you just graduated college with a bunch of student loans and credit card debt – you ought to be filing for bankruptcy not taking risks like this. no bank would ever take a chance on you” at the time, I was crushed but before that day passed, my frustration turned to determination. I knew he was wrong and I was going to find a way to make it happen. I did make it happen and had 18 years of very successful business and made a lot of money taking risk after calculated risk. I was also VERY happy with my life.
I have a friend I grew up with that is risk averse and always talks himself out of everything. He has always wanted his own business and the freedoms that come with it, but was never willing to take the chance. He is still working in a job he hates and craves time with his family.
next topic….how about blogging on staging homes – -where to get the furniture or what is good to pay for professional staging? other thoughts or ideas? I’ve got two flips going right now and need to start getting my staging going in the next couple weeks. woohoo! freedom by flipping….in action
Thanks for sharing your story, John.
That is great inspiration for anybody that get’s told ‘NO!”. I love hearing about people turning adversity into a benefit.
Your idea for a post covering staging is an excellent one and something I will have my wife post about soon (she does the staging and is the master at it 🙂 ).
Two flips! That’s awesome! I’d love to hear the details if you ever want to email me about them.
Danny
My idea for the next blog or a blog would be getting started. I’m up and running but not seeing much traffic. I’ve posted ads passed out cards and so on. how do I get more exposure. cold calls are good but most people are with a real estate agent. how can I get a foot hold?
Gary,
That’s for the idea. I will certainly consider it as it is something so many people struggle with.
Idea for nest topic: Stay ahead
There seems to be a million wholesalers out there. I drove down one street the other day and saw at least three different we buy houses signs in a half mile stretch. It seems everyone is out there putting out signs, mailing letters. etc. I personally put out bandit signs, drive for dollars, blanket neighborhoods with flyers, and use AdWords Express for my web marketing. I am spending about 1000.00 per month in marketing. I have gotten Zero calls in the last 3 months. It seems to be getting harder to find deals out there. At least for me it is. I live in Houston so I know there are tons of opportunities out there.
I would like to read an article about how to get ahead of the competition in a competitive market. What other successful wholesalers are doing to find continuous source of leads in a competitive market. I am sure there are others out there going through a drought that would appreciate the insight. I was planning on change my marketing strategy in the near future if this drought continues. It seems web marketing is the best way to find a consistent source of leads. I am thinking about stopping all other forms of marketing and investing heavily in Google Adwords and SEO. What are your thoughts on this?
Hey, Ron.
Great idea. Yet another post I need to do soon.
Thanks.
On January 10th, the Dodd-Frank Qualified Mortgage provision kicks in. The big banks have been dumping thousands of mortgage employees in anticipation. Mortgages, other than FHA and VA, will become much harder to qualify for. In fact, mortgage originators, who don’t strictly qualify their applicants, can face some serious ramifications if buyers later default. It’s a great set of laws for those entities that buy mortgages, but a real problem for home buyers, home sellers and loan originators.
The provision all but kills owner-financing. Balloons are history, and buyers have recourse against owner-financers. Unless Congress agrees to give the law a stay of execution, like it is presently trying to do with the new Federal Flood Insurance laws, house buying and selling could all but grind to a halt.
Consequently, a post on how to handle the Dodd-Frank Qualified Mortgage provision would be very timely.
I’ve already asked a good friend to start work on a guest post cover this topic. Thanks for the suggestion.
Great article Danny. It is a good reminder to us (me) out there that have only done a few deals and the first one may have been more emotion in the deals than profit. Thanks for all your posts, i can never get enough from your tips and results.
How about writing more on what trends are coming up in the next few years, like “green” flipping (using renewable materials or less intrusive paints, solar heating, etc,) and marketing to the first time home buyer interested in having conserved future energy costs and using more direct heat/cooling options than before? I’d think the “green flipper” would be on an uphill trend for the next few years if they have a good market to support them. It could have a great impact on local housing standards if enough people ask for more energy savings and long term sustainability in their houses.
Hey, Josh.
Great idea. Thanks.
Hi Danny!
I am in my mid 50s and am starting to think about retiring. I’ll always be doing something but would like to set my own hours. My “plan” is to have enough rental properties and cash flow to be able to choose to “retire”. As I’m acquiring these properties, my wife and I would also like to flip a property from time to time.
A post about the business model to get to financial freedom would be awesome.
Thanks for all you do!
Great idea!
Thanks, Brian.
Hey Danny,
Great article!
Have you done any recent wholesale deals?? I’ve searched the blog and only finding deals from a yr or 2 back.
Thanks for sharing!
Tara
Hi, Tara.
That’s a great question. We haven’t stopped doing deals. I’ve just decided to not post about them for different reasons.
Here’s what we are doing right now:
Yesterday, I completed a more than $22,000 profit wholesale deal with a student.
1 rehabbed house is currently under contract to be sold
2 rehabs are being completed this week and will be staged and put on the market early next week.
1 rehab just got started (so 3 active rehabs right now)
So we are pretty busy. 🙂
You’ve got me thinking though…maybe I should post about some of our recent deals… I’ll consider it.
Awesome!
$22k wholesale, was that in San Antonio? Would you say you are getting a majority(if not all) of your leads from the website?
Hello, Tara.
Yes that was in San Antonio and yes I get most of my leads from my website now (mainly because it requires less of my time).
…….and what marketing source did your student use to find that deal?
I think he got that from a local circular.
Hi Danny, I thought I’d post a question on your site this time..
I almost did the pilots license thing – flew the cesna and then life got in the way. Always wanted to do it, but I think it’s cheaper(safer?) to live vicariously thru others now 🙂
I love that you’re a former coder – I’m gonna guess backend (coming from another backend coder. I can do front end, but you don’t really want me to :)) I wrote my own crm for a previous biz and was contemplating my own for REI, but I’m gonna check out yours, since writing my own would be a comfortable (BUT NOT productive) use of my time. I’m working full time and tried rei 2 years ago, but worked with someone that made a mess of things, so moved on and studied from the sides for a while. I’m literally about to start again on my own.
1 – do you feel having your name in your website (danny buys…) helps with sellers or has no effect over a generic website url – maybe it depends on the particular seller? I’ve seen a lot of sites out there now like it.
2 – do you still do mailings (absentee, probate, driving) – if so, postcard or letters? – found anything changing? – you’ve said before postcards were working better and cheaper. Do you still use click2mail or the yellow letter service?
3 – with all the competition, what do you think gives you the advantage: your website ranking, your personality/rapport building, your experience, your sticking with it longer?
4 – I thought about the idea of people wanting full-priced offers and wasting time not being qualified enough when they call. Have you thought of adding a disclaimer to your site (or letter) that indicates ‘if you’re just looking to sell at top of market, I may not be the best person, but if you need to sell fast or can’t sell the traditional way – I can help you’ – or do you think that would scare people off? Maybe just checkboxes on your form ([] Need to sell fast, [] needs too many repairs, [] other?? – just a programmer’s mind trying to solve/systematize everything 😉
I didn’t try to make the above questions like an interrogation, but after reading it back, it feels a little that way – sorry. 🙂 Try not to be under a bright spot light when answering…
ps- how many hours a week do you average??
k-
Hello, Kevin.
Always cool to talk to someone with a software development background. Let me answer your questions:
1 – do you feel having your name in your website (danny buys…) helps with sellers or has no effect over a generic website url – maybe it depends on the particular seller? I’ve seen a lot of sites out there now like it.’
Yes. I absolutely feel having my name a personal touch helps with sellers. This is one of the things that separates me from my competition (maybe not so much anymore because so many people are now doing it also :().
2 – do you still do mailings (absentee, probate, driving) – if so, postcard or letters? – found anything changing? – you’ve said before postcards were working better and cheaper. Do you still use click2mail or the yellow letter service?
I’ve not done much in the way of mailings for a while. It just got to be too time consuming and I was generating enough leads from my other marketing (yellow pages, website, etc.)
3 – with all the competition, what do you think gives you the advantage: your website ranking, your personality/rapport building, your experience, your sticking with it longer?
Everything you mentioned gives me an advantage. When it comes to meeting and talking with sellers though, being real and being who I am makes the biggest difference. People feel comfortable around me.
4 – I thought about the idea of people wanting full-priced offers and wasting time not being qualified enough when they call. Have you thought of adding a disclaimer to your site (or letter) that indicates ‘if you’re just looking to sell at top of market, I may not be the best person, but if you need to sell fast or can’t sell the traditional way – I can help you’ – or do you think that would scare people off?
The problem with this logic is that I don’t want sellers trying to figure out whether I would want their house for their price. I want to figure that out. It literally only takes a couple minutes to figure out whether there is potential so I don’t worry about it.
Hey Danny
We have our first rehab on the market and would definitely like to hear how you guys stage? If you use a staging company, do it yourselves, and is staging standard for you?
Con (tall guy that ran into you a few weeks ago in Lowe’s)
Hey, Con.
Cool to meet you the other day.
Sorry for the delayed response. We stage ourselves and we do it for all of our fix and flips. My wife handles it and does a masterful job. She wrote a post a while back about it. You can read it here: http://www.flippingjunkie.com/2011/staging-a-house-flip-lesson-learned
She plans on writing a new post with more ideas on how to better and more economically stage.
Hey Danny,
Great article!
You mentioned your website DannyBuysHouses.com is generating most of your leads for your business. Do you think someone new to the business could get the same results with a website, or was that yrs and yrs of work designing and tweaking the site?
Also, do you teach your students in the Freedom by Flipping course about building a lead generating website as effective as yours?
Thanks
Hey Peter.
I definitely think someone new to the business can build the same thing. How long it takes and the amount of work it will take will vary depending on your area and the competition though. I really haven’t changed the site that much over the years. It’s more search engine optimization work than changing up the site.
In my Freedom By Flipping course, I do show some tips to do what I’ve done and also tips on how to make your website more effective so that even if you don’t have as many people coming to it, it should result in more people contacting you and wanting to sell to you.
Thanks for the article Danny. I have to admit that I’m not following the checklist sometimes when I head out. I’m sure I’ve lost a couple deals due to what started as a bad temperament growing into an adversarial conversation with the home seller.
I think I might actually write down a little checklist to get my head straight before walking into a new house. Thanks for the suggestions.
Sean,
Glad to spur some thought into how to do things better. I always try to at least pause for a minute before going in to meet a seller so that I can clear my mind and focus on what is most important. Everything we do in marketing and analysis all lead up to this most important moment.
Hey Danny,
Now that you have been in the business for many years, do you now pay cash for your deals or do you still prefer to use financing? I’ve heard or read somewhere that flippers that have been in the business for many years still use financing to limit their risk(s).
Happy New Year, Ralph.
We still use private lenders. It’s a great way to use leverage and keep our reserves up for rainy days. It’s also great to keep our lenders happy. They wouldn’t like it very much if we stopped borrowing money from them. 🙂
Hey Danny,
Thanks for the response. I was wondering if you could give us an estimate or example of how much one would pay in fees/finance charges in a typical flip versus paying cash.
That depends on a lot of factors.
For good private lenders, people can typically pay about 1 point and 10% interest. With those numbers and borrowing $65,000 and having the property for 6 months, you are looking at paying about: $3,900.
Good analogies. Here’s a couple more:
Sometimes, its better not to try to find another way home… Just sit out the weather (actually what i’m doing right this minute – waiting for a snow front to pass through)
1) Getting weathered in is like having to rent a house that you were going to flip.
2) The (purchase) closing is like take off – once you leave the ground (close on the house) you are fully committed to “getting the job done”
Wishing you CAVU!
Hey Bob!
Glad to see you on the blog again.
Great analogies. I really like the idea of fully committing once you close on the house. There are many times when we as investors stress about whether a decision was correct or not. It always helps to realize that whether it was or not is beside the point at this point (after already closing on it). No sense in worrying. The only thing to do is focus on doing your best to correctly rehab and quickly sell the house.
Very informative. Thanks!