When it comes to real estate investing, setting yourself up to market speed for the first time isn’t easy, so it definitely helps to have guidance.
As a new house flipper, my biggest challenge was finding enough leads to keep my DealBook full. Nobody had ever taught me where to find opportunities, and I often found myself in between deals with nothing to do but scour the thin local foreclosure listings. Of course, because of how slim my pickings were, I was inclined to jump at anything that might have been remotely profitable, and I lost plenty of money rehabbing my poor prospects as a result.
But, I’m here to tell you that you don’t have to follow in my footsteps with your house-flipping business. I’ve compiled a handful of house flipping training do’s and don’ts that will better equip you when you’re making your first few deals. With time, you might even have a few thoughts of your own to contribute.
For now, let’s investigate a few of the most critical house flipping training do’s and don’ts by starting with a few things that you should be doing.
What To Do
There’s no comprehensive rulebook to house flipping training do’s and don’ts, but there are quite a few rules of thumb and good habits that you should get comfortable with.
In general, to become a successful house flipper, you’ll need to:
- Focus your efforts on the most lucrative markets
- Have multiple good sources for leads
- Understand housing valuation and put it to use
- Act quickly when you find a good opportunity
- Plan out your profit margins for each home based on your costs and your financing
- Be an effective coordinator for your contractors and support staff
- Be fluent in several real estates investing modalities
In my experience, the three most essential items from the above are finding leads, understanding valuation, and financial planning. I’m comfortable saying that one of the most effective house flipping training do’s is to get good at hunting down leads. Until you have more high-quality leads than you can reasonably vet and then turn into a deal, you can always invest more into widening the top of your funnel.
Likewise, investing time in planning and budgeting is just good business sense, and it’s crucial to build good habits early. Thankfully, with the help of a few spreadsheets and a little discipline, most real estate investors figure things out quite easily. I wish I could say the same about valuation.
In my view, housing valuation is an easy skill to learn briefly, but an enormously tricky skill to master. Before I got into real estate investing, valuation was a hobby. Little did I know that it’d be one of the core skills for flipping houses. I’d often be driving through a neighborhood with lots of houses for sale, making the occasional guess on home prices and then looking up the listings later to see how close I could get.
Of course, my guesses were based only on characteristics I could see from the road: the house’s exterior, the quality of the neighborhood, and the type of cars in the driveway. I’d often pick the price to within $50,000, but hits within $25,000 weren’t familiar for me—and that’s a massive financial gain to be potentially leaving on the table.
Now, I can pair my on-the-ground intuitions with property valuation software intended explicitly for making profitable flips. My estimates are now a lot closer to being on the money, especially when I’m pricing a home for sale.
What Not To Do
A discussion of house flipping training do’s, and don’ts wouldn’t be complete without a list of the don’ts.
From my perspective, there are a few habits that will serve you poorly when you’re flipping homes, including:
- Not crunching the numbers before moving forward with a deal
- Putting all of your eggs (capital) in one basket (house to renovate and flip)
- Making important business decisions based solely on your gut feeling, or ignoring your gut feeling entirely
- Taking too long to move on a transient opportunity
- Using external financing that’s plentiful but comes with poor terms
- Giving up when your profit margin is lower than expected
If you find yourself doing some of these don’ts when you’re just starting out, don’t worry too much, just try to improve by becoming more educated. Nobody’s perfect, and successful house flippers are those that have survived making enough of these mistakes to know how to avoid them in the future.
The most important no-no to avoid is going into deals without having calculated your target return of investment and tabulating a realistic set of expenditures that will be necessary for you to get there. Cost overruns during renovations aren’t foreseeable, but if you crunched the numbers beforehand, you’ll have a much better understanding of where a setback leaves you. You’ll also have the information you need to adjust your plans accordingly and salvage difficult situations.
When recently one of my contractors had trouble securing the lumber they needed at a reasonable price, I was able to save my margin by compromising on using a lower grade of wood than what we had planned. It wasn’t ideal, but things stayed on schedule and the selling price was ultimately not impacted by much.
The sibling problem is trusting your gut too much, especially when you’re a new investor. Intuition is something that you will cultivate over years of experience, and performing the “chore” of due diligence on properties is a big part of how to push your intuition to grow. The other side of the coin is that once you do have enough experience, your gut feeling can often tip you off to factors that you haven’t explicitly considered yet.
The final don’t is that you shouldn’t be using a hard money financing source just because someone is willing to lend you the money. One of the most consistent oddities in investing is that people are generally more willing to lend money to those who don’t need it than those who do. When you’re fresh in the real estate investing world, it might be tempting to work with a group that can finance several deals in your price range at once.
If you don’t shop around, you’ll never know if the terms of your financing are dramatically better or worse than the other options. So, be on the lookout for high-interest rates or other undesirable financing terms, and don’t feel like you have to borrow from a source that’ll leave your margin habitually thin.
How To Get Trained
If you want to avoid the pain of stumbling through the early part of your house-flipping career, it pays to get a strong education in the art. For many investors, becoming an independently owned and operated HomeVestors® franchisee is the fastest way to get trained by some of the best house flippers in the industry. With the help of HomeVestors® mentors, you’ll become a better investor than you could have otherwise.
It goes without saying that HomeVestors® is an authority on house flipping training do’s and don’ts. Plus, HomeVestors® is far more than a training program. Franchisees are privy to some of the most useful house-flipping tools out there, starting with its lead generation resources. Between the quality leads and education in vetting that HomeVestors® provides to its franchisees, your business will be off to the races in no time.
HomeVestors® franchisees get access to home valuation software that can help you to compare your intuition about a property’s worth to a consistent calculation supported by reams of data from the market. So, you’ll get more experience with valuation while working to grow your business at the same time, and that’ll jumpstart your career as a real estate investor.
If you’re considering starting a real estate investing business, request information about becoming a franchisee today.
Each franchise office is independently owned and operated.