The Flipping Coach
House Flippers – What is a “deal” on a house?
As the real estate market gets stronger, people are finding it very difficult to find deals, but what exactly is a deal? A deal can be different things to different people.
For most new flippers they simply use formulas or math taught in these “free” seminars. They think if they can get a house for $150,000 in a neighborhood with houses worth $300,000, it is automatically a deal because it has a ton of equity. Not taking into consideration so many other factors like, the area, type of house, the size of house, the condition, neighbors, floor plan, finishes, their experience, their contacts, their reputation, etc.
If you have been around for over seventeen years like I have, and you have been through different real estate cycles, you know there are a lot more factors involved than just what you pay for a house. The devil is always in the details. In our example above, of the $300,000 neighborhood, if you go over budget, and now have $320,000 in the house, buyers aren’t going to pay more just because you went over your budget.
I have gotten the highest sales in the areas I invest in and it is because I understand buyers and have tested the market to know what they want and will pay. I don’t base my price on how much I put into the house. I don’t use a formula or a software program. Life is not black and white, there is gray in the middle.
If faced with a new issue on a home, I use real quotes from contractors and even have a miscellaneous category for when things do arise unexpectedly. Having done so many flips at this point, I have a good idea of what it will cost me, so it is easier now to estimate costs than when I was a newbie. I will pay more for houses that need less work due to the time, value of money. People don’t understand that. They only want the cheapest price out there for it to be a deal.
- The devil is always in the details.
- Life is not black and white, there is gray in the middle.
- There is a lot more to a deal than price
Whether it is a historic home or new one, “deals” are extremely hard to come by in a hot sellers market….unless you have a stellar reputation, great contacts, can move fast, and have good business practices. Newbies looking on the mls are going to be hard pressed to find such deals unless they go after homes 80-110 years old that need a ton of work and cost a fortune to renovate. So many of these homes have the original wiring, plumbing and some still don’t have central heat and air.
Most have functional obsolescence meaning….it’s weird. Besides the cost of restoration, newbies have no idea what buyers of historic homes want and this is a huge problem. The problem, well epidemic, is that they rip out most of the character, if not all of it, and wonder why lovers of historic homes aren’t interested in their rehab. The house sits there, in a popular neighborhood, and panic sets in.
The flipper who is already way over their budget, in debt, and now scared that their home hasn’t gotten an offer the first week it is on the market, begins to price drop. Once the price drop begins, buyers wonder how low the seller will go and therefore there is no sense of urgency to make an offer. They wait to see if will get to the price they want to pay. The houses we have studied that constantly price drop take longer to sell than if the person had priced it right to begin with and had reasonable expectations.
Renovated Craftsman Bungalow
“I am able to pay more because I get more for my houses.”
Clearly, if you are in an area of homes selling at $300,000 and the newbie puts his newly restored home on at $250,000 buyers will overlook some of the oddities of that rehab because they feel like they are getting a deal. But is it a deal if they go to sell one day and they can’t? Will they be able to compete with homes restored properly or will they have to undercut the market?
Again, deals are different for each person. Just because you can buy a house at fifty cents on the dollar doesn’t mean you should. Most of the time there are a million reasons why you were able to buy these houses that cheap.
Sometimes it is better to pay more for a home and have a smaller project, than to look for the cheapest house out there. People have to accept that you have to pay your dues. You may get lucky and do well on your first flip, but most of the time it is luck. The flipper goes into their next flip with an inflated confidence and the next flip takes them under.
There is a lot more to Flipping than you think. A deal to me, may not be a deal for you. The first step is to get training from someone in the industry that has done extensive flips. I looked for coaches that had survived multiple real estate cycles. I didn’t want a “Guru” that went under and once it is hot again they are back. Show me the person that not only survived, but thrived in a downturn and I will listen to that dude or dudette every day of the week!
Remember, there is a lot more to a deal than price. Don’t let anyone convince you that a house is a deal just because it is cheap. There is so much more to a deal than simply what you can buy it for. Happy Flipping!
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