I want to rehab/flip - how to start?

Question

Experience: I own (2) units-  but they were turn-key, and are stable rentals.

Strengths: Very liquid. For a deal, I'm ready to go.  Have done well in my previous business life (not house related). Also, full of time - I'm 46, and sold my company a year ago.

Weakness: Can't fix a lightbulb, I'd be dependent on a General Contractor.  Also, I have no clue ....how to start.

Geography:  Prefer suburbs.  Philly, Raleigh, Atlanta.

Ny newbie vision.....

1.)Pick my geography, find a realtor specializing in investors/flippers.  I'd like someone who can tell me..... "look, XYZ development in XYZ, NC - is  coming up or in demand. If you buy this, put around $75k into it......current market says you'll sell it for XYZ"

2,)Find a General Contractor - who understands what an investor wants, and have a relationship. That means - he tends to my project in a timely manner - and while I don't want to be fleeced, I'm fine with him making a good profit, and making sure he's paid correctly and on time.

I'd like the realtor to identify the unit.....and then have my GC go in and give me a rough estimate......and then be it cash or finance - do the deal and start.   I know I can't do the manual work myself, but I'd like to be visible on site - partially to get used to the flow, hear the kibitzing about buying materials, observing things about home repair - -and the work team sees that I'm visible, and watching.

I just don't know how to start. Or WHO to contact. I don't have HGTV visions of quitting my job and becoming Jeff Bezos. I don't go to free dinner seminars on get rich quick. I've owned medium sized companies, been rather profitable, and feel I'm in a position - with a little luck to stay retired forever. I'd like to start with ONE flip, and learn lessons bad and good - and then see if I can do, 1-3 per year. Goal is not just to 'chase the dollar' which I like doing.....but also, yeah, to make some money. Any suggestions, any at all would be appreciated. Thanks

Chris London · Answer

@Mel Park locals will tell you that Holly Springs followed by Fuquay Varina is the next Cary/Apex. They are relatively newer areas with newer construction so you are limited on your ability to find flips (although there are some). IMO one of the best places to find potential flips is going to be Central Durham. Here are a few examples of each:

Central Durham: 1005 N Hyde Park. $159K, 820 sqft brick bungalow w. electrical and other repair issues. 36 DOM.

Central Durham: 403 Red Oak Ave. $170K, 1005 sqft.

Holly Springs: 225 W. Hickory Ave. $174K.Seller looking to sell as package deal w/ 221 W. Hickory Ave. $164K. Both are right next to downtown and Womble Park.

Fuquay Varina: 6832 NC 55. $230K, 1.37 acres. The seller is asking for a quick close so at 20 DOM I'd make an offer that works. You are on the highway which is not great in any city.

Rich O'Neill · Answer

@Mel Park depending on what you made in the sale, you might want to look into investing in syndications. You can make some nice profits depending on how the deal is structured, and you don't have to do any of the work. If you take some sort of active role in the syndication (finding the deal, raising a chunk of money outside of your investment, etc) you can add onto that. Might be worth looking into.

To directly answer the question, like everyone said before, this is an active business. The good news is that you have experience starting businesses, and that's what it takes. The beauty of this business is that you can grow as big as you want, or stay as small as you want. It really can be a lifestyle business.

Part 1, unless you are CRYSTAL clear on your criteria, it will be hard to find a realtor that does what you are looking for. Even with that criteria, you will need to quickly show you can perform, and or pay them for their time. You also may want to look into wholesalers and get on their buyers lists. You will need to be active there reviewing the deals they send you, but with a clear criteria, this shouldn't be terribly difficult.

Part 2, this is the most difficult to find. In the current environment, most contractors are busier than they can handle, and are either going with retail projects like kitchen renovations, or to the people they have worked with for years. In either case, they don't want to hear from someone that is going to send them all over the place for estimates to "do a bunch of deals together you do a good job." Chances are they have heard that line before, and don't trust it.

"The Book on Long Distance Real Estate Investing" by David Greene is a great place to start with this business. Even if you want to be on site, it sounds like you are building it to be hands off, which is what the book is essentially all about.

Ben Nelson · Answer

@Mel Park Syndication at the simplest level is just multiple people coming together to do something larger that they couldn't do on their own. Most large apartment, commercial buildings, etc. are owned by syndications. @Rich O'Neill did a pretty good job explaining the basics of how it's set up. You have one to several general partners, who are the active partners in the business. Limited partners are usually the money in the deal. With a syndication you're investing in the real estate market, as well as the specific property/properties, but you're also very much investing in the GP team since their efforts have a big impact on the success of the investment.

You do not have to be an accredited investor to invest in a syndication, however it depends on the structure of the offering. Many syndicators only put out offerings to accredited investors, for a number of reasons, but there are certainly opportunities for non-accredited investors as well.

Hope that helps!

Account Closed · Answer

So since you've owned and ran medium sized companies before, you must be aware of what it took to build them to the point where you had the teams in place you are asking for in the way you want to conduct your flips. You also must be aware of the competence or experience level neccessary to be able to weed out the bad hires, avoid people who would just suck your business dry, and attract and retain the quality people who will make real contributions to your enterprise.  Same thing here. As far as competition, it's going to be everywhere. In just about any market across the country there are going to be established development companies who's "24/7" business does this full time, and they are amazing at getting to the local inventory. They can also work on smaller margins than any 1-off flipper can ever hope to, if he wants to turn a profit. You'll have to be prepared to wear a lot more of those hats than you want to delegate, especially in the beginning. All a moot point anyway unless you can actually source a viable deal, meaning, you acquire your "raw" materials cheap enough that your finished product can turn a profit. That's going to exclude just about any property from a Realtor/wholesaler, especially if you are new, because most of them will just shamelessly try to sell you any crap, telling you what a "great" deal it is. If those avenues worked, the bigger development companies would scoop them all up, rather than having to source their own deals the hard way.Doable? sure, with a "starting a new business" commitment level to have a chance.

Rich O'Neill · Answer

@Mel Park syndications take a lot of different shapes and forms, but in general, they consist of limited partners and general partners. The GP’s generally have some active role in the deal as either a fund raiser, deal finder, or operations manager (or some combination of the 3). The LP’s are generally the money in the deal, with no active role or decision making authority. Depending on the structure of the deal, a certain percentage of the equity is allocated to each group. Generally, you want the GP’s to also be LP’s, meaning they have invested some of their own money in the deal. Sometimes the GP’s are called the Sponsor of the deal.

The idea behind the whole thing is that the GP’s organize the logistics of the deal and provide a passive return to the LP’s.

Most of these funds are limited to accredited investors, which means you have a certain level of net worth and sustained income production. I believe it’s $1m in net worth and $300k/year for the last 2 years, but please verify these numbers.

Your business background should help you sniff out the bs and look for well structured deals.

Mel Park · Answer

@Rich O'Neill

@Ben Nelson

Gentleman, thank you both for the replies. I read them both twice and have been digesting it for a day or so and *all* of your points are well taken.

Rich, yes - I am good being in an active business. My previous life - since age 16 was 70 hour weeks. Mind you it wasn't construction or manual work, but still - -6 days a week, late nights, fast food at my desk, and since age 24 - it was my net worth invested - - and I know how it I to make huge money one month, and to lose huge money another month.   In those days, I felt - -  I knew what I didn't know. I tried to hire people to compensate for it while I learned what I could and usually it worked.  At times, my profits were a bit 'under' the benchmark - but heck it was still a profit.      I realize - many experienced people will say the following is pitiful, OR too much....but I can only speak to my goals:

*To buy and sell (2) homes per year....and net about $40,000 after all costs, transactional fees, holding costs, etc.    Working capital: I'm ok with devoting $450k cash to it, give or take.

Thanks for the book suggestion I'm ordering it now.

In the meantime - I know I can Google it - but I prefer hearing it from real people - syndication - what is it? How does one identify a good one versus bad?

Ben Nelson · Answer

@Mel Park I agree with @Rich O'Neill - being an investor in a syndication is a great way to start, to learn the business and make some great profits. Just make sure you vet the team very well. It does all start with what you want out of investing though - if your goal is just to make your money work for you and make some profit, being involved in some good syndications could be a great fit. If you want to be more hands-on and build another business, you might get bored. Then again, you may learn from being a passive investor, and then decide to build your own syndication business.

One other quick note on rehabbing - if you don’t know anything about construction, be very careful about your team and make sure you hire the right people. It’s super easy to get taken advantage of especially if you don’t know enough to at least have an intelligent conversation with them about the work that needs to be done. Another possibility is bringing on a partner that can help fill in your weak areas with their strengths. The right partner can save a lot of time, money and headache from mistakes.

Mel Park · Answer

@Brandon McLean I appreciate all your comments.  By staying retired..... I meant that for 20 years -  I've had 90% of my net worth invested in small businesses,  I've never had less than 40 full time employees, perhaps 1500 customers per month - tons of profit - but tons of risk and competition - - - and after monetizing that, I don't want to go back to risky cut-throat 24/7, where millions are invested and risked.      I am totally fine putting in all the time on a flip - but *1* unit, with say - $200k invested - with me, a lawyer, a realtor, a GC and some vendors - is more appealing to me than my old business life.

On General Contractor - yes, I am worried about being taken for a ride.  Do you feel it's realistic for me to find a GC, and establish a relationship that says "look, make your profit, that's business. If you fleece me, you win.  But if you are straight up, you get job after job" - - do they care?

Vis a vis Raleigh/Wake - - are there areas that haven't boomed yet, but you feel eventually - will?   As in ..... any ideas what's the next Cary or next Apex etc?    Also, are there areas more conducive to finding a rehab and making it profitable? thanks

Brandon McLean · Answer

With all due respect and due to a lot of what you said, I may suggest buying more rentals closer to the turn-key side of things.  Flipping is not "staying retired" at all, and if you can't "fix a lightbulb," chances are you'll have a hard time knowing when contractors are up-selling you to the moon and back.  Usually but not always, the best flippers have extensive construction backgrounds, or at least very well connected to someone who does.  Good luck, and if you have any specific questions about the Raleigh market please send them along and I'll do my best to help you!

Alex Uman · Answer

Hey @Mel Park I do plenty of business in the Philly area and can help connect you with some contractors and properties. Happy to discuss the strengths of different neighborhoods and surrounding suburbs.

I want to rehab/flip - how to start?

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