From flipping 1 to flipping 7...scaling lessons and questions!

[Gus Muller]

Greetings members. Ever hear, "Be careful what you wish for, because you just might get it"?

I've been flipping houses since 2010, usually 1 or 2 at a time. I decided to build a trustworthy branded business as we've always provided quality finished products, contributing to the neighborhoods we serve.

We are now buying all of our houses off market and direct from sellers through various forms of (expensive) advertising (Google AdWords, radio spots) and are starting to get direct referrals from previous happy home sellers.

Now that we are currently managing 7 rehabs we've faced a ton of challenges. Most of the pieces are in place for staffing (myself, my wife and transaction coordinator, office assistant, 2 project managers, 2 licensed Realtors, and handymen/subcontractors). 

Leads were coming in really fast, so I put everything under contract that I thought was profitable and decided it was worth the risk. I wanted the data and I wanted to push the business and our team to the limits. I grossly underestimated the amount of liquid cash this was going to take, and the big challenge is finishing the houses, finding a buyer, and then waiting on inspections/appraisals/loan funding. Total turnaround time on most of our rehabs is 3-6 weeks start to finish. The hard part though is that we don't get paid until it sells to the end buyer, so the total process is usually 3-4 months.

We are going to start pre-listing the cleaner rehabs to try and line up a buyer during the remodeling, as our market is very hot still and competitive. Planning on allowing buyers to make some of the choices for flooring and finishes. This should in theory speed the process up.

For funding, we currently have a $1.5MM facility line of credit and our bank will fund 75% of the purchase price with only a drive by evaluation (no appraisal or interior entry). This line can be increased up to $40MM over time. We use cash and private money to fund the 25% down, rehab costs, and holding costs. So far this is working and we are looking into other funding options. We've considered funding the remaining 25% down with private money to loosen up our cash flow restraints, but that is spendy.

I am having a hard time juggling the numbers around. We are buying so many properties that even though we "profit" when they sell, that profit just goes immediately back out to purchases, rehab, holding costs, advertising, growth, etc. If we just stopped right now, we would see the results, but this is just not possible and we have no intentions of slowing down. Hoping the market holds, but if we run into issues, we can always keep what is on the books and rent as most of our purchases meet or exceed the 1% rule. We just prefer to sell and cash out versus rent.

If anyone else out there has had a similar experience, let me know how it went, what to watch out for, and possibly how you were able to push forward with the crazy numbers game.