If you’ve been able to avoid major repairs on your rentals, pour yourself a big ole’ bowl of Lucky Charms, and count your blessings. The odds of having little to no repairs to do on your properties, especially the older ones, are as good as me getting a date with the Queen of England. But don’t get too cocky and comfortable. Sooner or later, a water heater’s gonna go or you’ll need to do some major plumbing or replace a roof. What about a property repair fund for scheduled and unscheduled maintenance?
The question is – are you prepared?
Property repairs are inevitable, no question about it. So if you haven’t started a reserve fund, you deserve a slap up side the head and that “I’m so disappointed in you” look that your parents used to give you when you used your little sister’s beloved Cabbage Patch Doll, Maggie Genevra, for target practice like Sid from Toy Story. I’m always shocked, however, to learn how many landlords are unprepared for major repairs. I’m always shocked to find that most landlords are living on every penny of the cash flow from their rentals. They’re milking those cash cows for every drop. They think “it won’t happen to me” or “I’ll have plenty of time to save up”. But if you’re going to be a successful property owner, you have to expect the worst, and be prepared to pay up when problems arise.
If you don’t have one, you’ve got to start a dedicated repair fund, and the sooner the better. It should be set up when you secure your first rental. Put a portion of the monthly rent (I would recommend 10% – 15%) into the fund, and watch it grow. See where the wind blows you. If you’re swamped with repairs, beef up the percentage. Just remember why the money is there, and keep your hands off of it. You’ll be tempted to spend it on other things when times are good and you’re not being haunted by repairs. But don’t do it. Save, save, save. Trust me, there will come a time when you need that money.
So what about a line of credit? Sigh…..many people rely on it to get them through times of major repair, but many credit lines have been cancelled. Once you start relying on the devil’s plastic, the interest rates start piling up, and before you know it, you’re in debt up to your ears, on your way to a financial meltdown, and you’re looking at years before you’re able to dig your way out of credit card hell.
What About a Capital Expense Budget?
Capital Expense Budget is the fancy way of saying “oh crap fund”. A capital expense budget is a one-time amount that you should set aside each time you acquire a property to cover major expenses later on. Each time you acquire a new property, ask yourself where the weak points are. What things will need repair in 3-5 years. Are there quick and easy repairs that you can do immediately to increase the property’s value and up the rental fee? Check out the roof, the deck, appliances, flooring, and paint, and do not underestimate the power of landscaping and curb appeal. It goes without saying that a home’s outside the the first thing potential renters will see. The outside will leave the first impression, so if you hesitate to invest in attractive landscaping – don’t. Hopefully, you have a decent contractor in your corner, so ask him or her to help you check these things out before you make an offer.
You’re smart. So do the smart thing. Be proactive, and prepare for unexpected expenses. Otherwise, you’ll find yourself panicked, desperate, and running around like a chicken without a head trying to find cash in the darndest places. Worse yet, you’ll be banging on the doors of everyone you know, asking for money like some strungout fool….well, just see the picture. And that, my friends, is not a fun place to be. So do your due diligence. Save your dough, and this will save your butt when times get tough.
Strengths. Everyone’s got them. Problem is, most people don’t know what their strengths are. If you’re unsure of what makes you happy? If you don’t know what really juices you, you’ve got to find out. You can do it today by taking a DISC PIAV Profile Assessment.
So how do you determine what your strengths are, and how can you apply them to your house flipping business? Maybe your strengths don’t even suit you for this business….ever thought of that? Once you’re able to recognize what truly juices you, you’ll be able to use that to your advantage. You’ll be better able to brand your biz, and you will know when to ask for help, because you’ll know where you fall short. And yes, even the most knowledgeable and seasoned flipper will be callin’ S.O.S. at some point. It’s inevitable, even for the best of us.
Do I See a Pattern Here?
When you’re trying to figure out what you’re good at and what you suck at, look back on past successes. What went right? What went wrong? What did you consistently do during those times when you experienced success? Knowing what that key ingredient is may help you pinpoint a strong point. Here’s what I’m talkin’ about…I’ve been flipping houses for more 8 years, and I can say with certainty that I’ve always stayed true to my word when working with buyers, sellers, investors, and everyone in between. If I say it, I mean it. I’m a man of my word, a man with integrity. There in lies one of my greatest strengths.
Be faithful in small things because it is in them that your strength lies. – Mother Teresa
Another personal strength is my creativity. Its at my core. I love to create. So you can understand why I must get juiced when i walk into a super-crappy house. All I see is “possibility” and a big super-highway of creativity. Conversely, I’m not a detail guy. When it comes to my rehabs, I see all the details in the finish, but I don’t like having to deal with all the details leading up to the finish trim stage. Its bores the crap out of me to deal with plumbing, HVAC, electric. I also hare dealing with accounting, and book keeping. That’s why I farm all that out to other people who get juiced by that kind of stuff.
You Betta Ask Somebody!
Sometimes it’s difficult to know what you’re good at, to see your own strong points. So, why not ask the people who are close to you? However, with that said, I would strongly advise not asking your mother or your father. The answer could go one of two ways – either you’re the perfect child who shines brighter than the ice around 50 Cent’s neck or you’re like freakin’ Eeyore from Winnie the Pooh – a sorry, sad, and pathetic (but huggable) “Debbie Downer” who just can’t seem to get it right (work that crap out in therapy). Perhaps it would be in your best interest to ask someone with a more neutral, objective view of who you are and what you do. Why not talk to the people who work with you? Ask them what you do well, what they respect most about you, why they choose to work with you. For some, this may be an awkward question, but the key is presenting it the right way. Don’t just call a former buyer, for example, and say “hey, what do you like about me?” The person on the other end will think you’re either hitting on them (and we know that won’t end well) or you have major self-esteem issues. Explain that you’re making efforts to better your service, and improve your business. Tell them you want to know what it is about you and your communciation, organization, or overall business processes that worked for them. You’ll be surprised at how many people will welcome to opportunity to give you feedback. This may be another effective way to identify your formula for success.
DISC PIAV PROFILE ASSESSMENT
Finally, I’m a big fan of taking tests to see what type of people we are, and what really makes our engines rev. Wanna know what makes you tick? Wanna know what would really be a good fit for you in terms of the type of job you’re doing. You need to take a DISC / PIAV test I’ve heard so much good from people who have taken these two assessments – that I’m actually about to take one right now! Do it people. Find your happiness!
Remember, you’re going to have weaknesses. That’s a given. Having not-so-strong characteristics and skills doesn’t mean you’re your own weakest link. More importantly, remember that have weaknesses does NOT mean you won’t be as financially successful in the real estate biz. What will make you lose money and become less profitable is ignoring those weaknesses. Deal with them head on, be honest about the challenges you face, and know your strengths. Maybe you’re really organized, or you’re great at networking, or perhaps your enthusiasm is infectious and helps you close the deal every time. Whatever your strengths are, you need to recognize them, embrace them, and put them to good use with each and every house flipping venture you pursue. Know your weaknesses, and don’t be afraid to ask for help. Outsource to the experts when you fall short or better yet, get more training and education in the areas that need work. Follow these guidelines, and watch your house flipping business soar to new heights.
Here’s the good thing about being down and out. You learn. You learn to adapt, you learn to fight for survival, and if you’re smart, you learn how to talk to people into getting what you want. That’s called negotiation my friends. Being broke is no exception. That’s not to say when you’re broke you don’t wish you had a fist full of dollars to wipe your ass with, but when your piggybank no longer rattles and rolls when you shake it, try not to think of being broke as a bad thing altogether.
Au Contraire Mofrer: You Can Buy a Home Without Your Own Dinero & Without a Deposit.
Ok, so I don’t speak French or Spanish, but damn I sounded sexy, huh? If you don’t have enough money or any money for that matter for property investment, what’s the obvious next step? Drum roll………………….find a private money lender who will loan you the money for purchase and renovation costs – 100% of it if necessary. Will some lenders turn you down? Of course! So get a set of cajones and power through it. Be persistent, confident and always be humble, and sooner or later, you’ll get the loan.
Flip Tip: Be willing to give up some of the deal. I’m not gonna try to blow wind up your skirt, if you have no experience, its gonna be pretty hard to get private lenders to fork over hundreds of thousands of dollars for you to sink into some crappy house. Heck, I wouldn’t lend my mother that much money – if she had no experience. Unless of course she was willing to “sweeten the pot.” Always be willing to sweeten the pot.
NO MONEY DOWN
Let’s say for instance that you find a house for 100,000, and you are absolutely sure the rehab required is, $45,000 – and comps show the ARV is a solid $250,000. But you have no money. You come to a guy like me and say – will you lend me the money? I say, uh….sure it will cost you 15% interest and 50% of the deal. What do you say to that? Do you walk away in disgust, or do you jump at the offer and chance to work with an 8 year pro who has done hundreds of rehabs? I don’t know about you – but I’d jump at that offer. In fact, I did. I had no money – not one dim for my first rehab. My father-in-law to be put up all the scratch, and I did the work. In 90 days, we rehabbed the house and split a total net profit of $98,000.00. I didn’t spend a dime of my own money and I netted, $49,000.00.
I’ll ask you again. What would you do?
REAL ESTATE SUCCESS
Those who have mo’ money than they know what to do with (bastards) are experiencing real estate success right now. Good for them, right? But listen- you can too. Be persistent, work your plan, and tell everyone you know that you are trying to get in the game. Ya never know – that next person you tell just might be enchanted enough to be your Sugar Daddy!
WHOLESALING REAL ESTATE = FLIPPIN’
TIP: As a bird dog, you don’t actually put the house under contract. You simply refer the deal to an investor who will pay you for the referral.
Tip: Be sure to fill in your name where the contract says “buyer” and “and/or assigns”, so you can “assign” or flip your contract to the rehabber investor.
The homeowner will expect a deposit ($500 bucks should do it – but you can offer less.) to make the contract binding. You’re probably thinking I left at least one zero off the deposit amount, right? Well you’re wrong, smartass. The key is – tell the seller, don’t ask – when it comes to the deposit. Never forget that your offer has to work for you – and for your end buyer. If you make some insane offer with a crazy earnest money deposit, you may not find a buyer who wants to front that kind of scratch.
MAKE A SIGN
Wholesaling houses is a numbers and negotiation game, and dealing with the investor rehabber is no exception. It’s safe to assume that the distressed homeowner needs to get out quick. If you’ve done your homework, and you know what amount the homeowner needs to make the fast move, then you should know what to offer. What else do you know? You know what the home is worth, what the repairs will cost, and that the rehabber will pay 65% of the retail value. If the rehabber does what he or she (’cause I know you ladies are out there rehabbing too) is supposed to do, you should be looking at substantial profit, typically $5-10k, which does not suck.
Last year I paid $40,000 wholesale fees on two separate deals! $40-large! How could that one flip change your year?
HOW TO GET PAID