Flipping: Systems and Scalability

Rehabbing & House Flipping
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Flipping: Systems and Scalability

Brian Davis
Flipper / Wholesaler · Farmington, CT · Member since 2012 · 189 posts · 89 votes

Hey BP,

Over the past year, we have successfully completed 15 fix and flip rehabs but this year we are looking to greatly expand the business.  I am currently in the middle of trying to streamline the business and all its systems so that we can handle more volume.  Through some various research, I have found these couple of ideas that we plan to implement very shortly that we expect can help in our growth:

1. A “default house template”

a. Every rehab will be near identical in materials used unless specific circumstance changes it
b. SKU’s have been written and organized to hand to contractors and insert into contracts
c. Extremely clear directions on all standard aspects of a house

2. Hiring great General Contractors
a. Paying for these high end contractors will be the biggest jump for me but I believe will
pay for itself with managing multiple projects and not needing as much over site per job
as long as I have been very clear about what I want
b. Obviously this one is much easier said than done to find the right people but I do not believe it to be impossible. I would imagine it would be a “get what you pay for” type of thing.

I believe these two changes alone will make the biggest difference in our ability to grow because it will allow me to place more emphasis on finding deals and networking for partners/lenders.

I am hoping any bigger rehabbers can chime in with what they have done to bring their business to the next level. My goal this is to move from the 15 houses we did last year to doing 50-100 flips per year as we move forward.  I know this is possible since other people are doing it but I know we need some help logistically with our plan as it will be much easier with some good advice from those who have been there before. 

So to you guys and girls who have made the jump from 10 houses to 50 or more, what are some of the systems and methods you have used to increase your volume??  Any advice would be greatly appreciated. Thanks yall!

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Rick H.
Lender · Greater LA/Orange County area, CA · Member since 2012 · 3k+ posts · 3k+ votes
10y

@Brian Davis Good for you! 

On the topic of scalability, you are certainly discovering the weal links in the chain. 

Less than 5% of the posters in BP will ever be in your situation, so consider the feedback you get. 

You first challenge is Dealflow. In a normal economy (meaning no major dynamic swings up or down) the solution will require marketing knowledge, including multiple channel sources and segments. You may not become an expert however your ll need to ally yourself with others who are.

This might be achieved by developing referral sources systems that are evergreen. Mine has been the probate legal community in my state, however that couldn't start until I already had much expertise, as you are gaining. This segment requires total dedication and commitment, took many years to ramp up and can be time consuming, something you are probably in short supply of.

So, finding - not working - deals will be your limitation. In order to scale up, you'll probably find it easier to delegate to a team of experts and eliminate those tasks from your own list that do not generate the greatest results. Let them target direct response marketing to mortgage and tax defaults, probate, vacant house owners.

There are several other factors that those reading this may not have considered: you have your priorities well set, you are willing to sacrifice other frivolous activities and probably some family activities, and you take significant action. Something rare, indeed.

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  • Peter Bowring
    Real Estate Investor · Norwood, MA · Member since 2016 · 81 posts · 27 votes
    10y
    If the materials are always the same, shouldn't the cost to install always be the same/sq ft? Could you have a standard price you'll pay /sq ft for say installing tile floor and bid that to contractors so they know what the job pays and they accept your bid instead of them coming out and giving you a bid for the job. That would eliminate a lot of your time meeting contractors and their time preparing bids for you. As long as the price is fair that's a win win Id think and allow you to spend valuable time on other tasks.
    0Reply
  • Charlie DiLisio
    Investor · Lake Worth, FL · Member since 2014 · 378 posts · 184 votes
    10y

    As a tile contractor here in Florida I would just add that it is not standard unless the homes are identical.  Unless you are doing all the prep work such as removing carpets, existing tile, vinyl etc. it will be added to the price.  In Florida in many places the upper floors have to have cork or sound barriers installed as well.  Just a thought to consider.  The big box stores quote a square foot cost but then add on for prepartion, etc.  I agree all the paint colors and fixtures can save a lot of money over time.  The volume you are looking for it amazing and I wish you all the best in your new plan.  

    1Reply
  • Jeff B.
    Buy & Hold Owner · Redlands, CA · Member since 2015 · 5k+ posts · 2k+ votes
    10y

    Consider the management issue of your goal.

    Take a simple flip and GROSSLY assume 

    • you can close on the purchase(that's ignoring the find, offer, title stuff and even taking AS-IS)
    • use some prior knowledge and templates for parts & labor
    • get out in 45 days (again ignoring the selling details)

    that's 365/45 and you max out at 8.1 per year.

    With a goal of 50/year, you would need to clone yourself 6.1 times - - that's 6 people whom you could give signature authority to work under your name.

    Is this reasonable?  Please tell us what you know that obviously escapes at least me.

    0Reply
  • Brian Davis
    OP
    Flipper / Wholesaler · Farmington, CT · Member since 2012 · 189 posts · 89 votes
    10y

     I do 15 basically by myself with a broken system and I act as the GC.  Acquisitions and rehab, staging, and being a father to 2 boys. I am the real estate agent/broker on both sides. If I used GC's for all my projects, I could do 25 and I am certain, just depends on the right people fixing the homes. Other investors currently have businesses that do over 100 rehabs a year. This means I can do it. Because they are no smarter than me. That I am also certain.  

    We flew to the moon. We fly planes. We are connecting right here through a screen almost immediately and you live 3000 miles away. I flip a switch and there is light. I have the knowledge of the world at my fingertips. 

    Reasonable yes. Doable, yes.  The only question is whether or not I am going to do it.  I am just trying to figure out the easiest, quickest and most logical way to get there as I plan to do it. Not saying that I will. I have had lots of plans for many things in the past but I have changed direction because that's what we do sometimes and I have the freedom to change my mind at any point given new information.  

    I figured someone would post a comment like this and I am not trying to be flippant or arrogant, but reasonable feels like a polite way of telling me to be "realistic".  If people were "realistic", we would not be having this conversation right now.   I could see shooting for 1000 in 3 years when I am doing only 10, but we are looking at something very reasonable IMO. 5-10x. 

    I believe it is accomplished through great people. I believe anything worth a damn in this world is accomplished through great people working together, solving problems. That's why this website is so powerful.

    So i just wanted to throw that in really quick because I have come to resent it when people have told me to be "realistic" in the past. If I listened to everyone that told me to be "realistic", I would be sitting in a cubicle right now and my kids would be picking their nose in a daycare.  Instead, I am going for a beautiful adventure with my family as i type this last word.

    Sorry if that comes off the wrong way, but looking for solutions, not reasons why we cannot.   Those are easy to come up with. And we only need one reason we cannot like Jim Rohn says.  We don't need 5.  Just 1.   (the quote escapes me but whatever)

    4Reply
  • Jeff B.
    Buy & Hold Owner · Redlands, CA · Member since 2015 · 5k+ posts · 2k+ votes
    10y

    No apologies necessary for your approach.  To me, you do need as you say "good people" - - and a lot of them for these quantities.

    Hoping your dreams come true.

    0Reply
  • Luc Boiron
    Specialist · Toronto, Ontario · Member since 2016 · 564 posts · 425 votes
    10y

    @Brian Davis I agree with you that this is entirely possible.

    Right now, what is stopping you from being able to do more?

    For me, finding deals is the most difficulty. When I find deals, I can find money to do them, but finding good enough deals seems to be a big factor. I'm planning ahead for when I plan to to scale, and am testing deal sourcing strategies now to ensure I will be able to feed the pipeline.

    So look at what is stopping you from doing more, and look at systems to solve that. Being the GC on all your own deals is definitely time consuming. Hiring this out will free up a lot of time, but will also cause a lot of problems if you don't find good ones. You'll definitely see your margins shrink as well, as you will need to pay the GC and can't keep as close a handle on costs. However, you might be able to make this up either through volume, or be spending more time sourcing good deals and actually finding deals with more meat on the bone.

    Good luck!

    P.S.: I'm very impressed with you being able to be involved with every part of 15 rehabs a year and still be a good father to your 2 boys. Keep it up.

    0Reply
  • Heath Thomas Jr
    Lender · Baltimore MD · Member since 2015 · 202 posts · 67 votes
    10y
    Originally posted by @Brian Davis:

     I do 15 basically by myself with a broken system and I act as the GC.  Acquisitions and rehab, staging, and being a father to 2 boys. I am the real estate agent/broker on both sides. If I used GC's for all my projects, I could do 25 and I am certain, just depends on the right people fixing the homes. Other investors currently have businesses that do over 100 rehabs a year. This means I can do it. Because they are no smarter than me. That I am also certain.  

    We flew to the moon. We fly planes. We are connecting right here through a screen almost immediately and you live 3000 miles away. I flip a switch and there is light. I have the knowledge of the world at my fingertips. 

    Reasonable yes. Doable, yes.  The only question is whether or not I am going to do it.  I am just trying to figure out the easiest, quickest and most logical way to get there as I plan to do it. Not saying that I will. I have had lots of plans for many things in the past but I have changed direction because that's what we do sometimes and I have the freedom to change my mind at any point given new information.  

    I figured someone would post a comment like this and I am not trying to be flippant or arrogant, but reasonable feels like a polite way of telling me to be "realistic".  If people were "realistic", we would not be having this conversation right now.   I could see shooting for 1000 in 3 years when I am doing only 10, but we are looking at something very reasonable IMO. 5-10x. 

    I believe it is accomplished through great people. I believe anything worth a damn in this world is accomplished through great people working together, solving problems. That's why this website is so powerful.

    So i just wanted to throw that in really quick because I have come to resent it when people have told me to be "realistic" in the past. If I listened to everyone that told me to be "realistic", I would be sitting in a cubicle right now and my kids would be picking their nose in a daycare.  Instead, I am going for a beautiful adventure with my family as i type this last word.

    Sorry if that comes off the wrong way, but looking for solutions, not reasons why we cannot.   Those are easy to come up with. And we only need one reason we cannot like Jim Rohn says.  We don't need 5.  Just 1.   (the quote escapes me but whatever)

     Amazing Response! I wish you the best of luck. I too have very lofty goals. But my partner and I know for certain they are not impossible!!!

    0Reply
  • Manolo D.
    Contractor · Los Angeles, CA · Member since 2015 · 4k+ posts · 1k+ votes
    10y
    Brian Davis Have you ever considered not "acting" as GC but actually being one? For 100 flips, you need office staff anyways, why not add a construction crew where you don't have to wait for subs to show up? Normal rehabs with 3-4 guys are 3-4 weeks, takes you 3-4 crews to get to 50. You will eliminate all the headaches and drama, your cost will go up, but it's always like that, you'll up your volume then you'll up your overhead (specially project superintendent, the REAL qualified/retired, project manager not recommended). It will be break even if not save you money, but no headaches.
    2Reply
  • Brian Davis
    OP
    Flipper / Wholesaler · Farmington, CT · Member since 2012 · 189 posts · 89 votes
    10y

    @Luc Boiron Thanks for the reply. It seems the only way to fill the pipeline with enough deals is to maximize every possibilty to its fullest extent. So the plan would be as follows:

    Exhaust the MLS. Analyze as many properties as possible and make as many offers as possible. Track my offers, follow up on my offers, make offers on everything we look at consistently. Be more vigilant in making sure we are on top of the MLS and get out to see properties and work with a sense of urgency.

    Letters and Postcards: Absentee owners, Inheritance List, Probate, Pre-foreclosure, etc. With increased volume, revenue increases and we can hire a true salesperson to take calls and go on appointments.  This would be a full time position in and of itself.

    Networking: Birddogs, students that I can mentor, wholesalers, REO agents, agents in general, etc.

    Bandit signs - have our sales guy take these calls as well. 

    Then there are probably 10 more ways we would think of as we go along but these are top of mind. I do not think there is a shortage of deals. I think we just need to get more creative, work harder, and be more thoughtful and we can get whatever we need.  Same goes with raising private funds and finding good contractors. Like I said, from what I can gather, if I can get enough good quality people working towards the same vision, anything can be accomplished. And its not like I am trying to save all the starving children..lol...just trying to flip some houses in larger quantities.  :)

    0Reply
  • Luc Boiron
    Specialist · Toronto, Ontario · Member since 2016 · 564 posts · 425 votes
    10y

    @Brian Davis I agree it can be done. We just need to solve the bottlenecks one at a time.

    1Reply
  • Rick H.
    Lender · Greater LA/Orange County area, CA · Member since 2012 · 3k+ posts · 3k+ votes
    10y

    @Brian Davis Good for you! 

    On the topic of scalability, you are certainly discovering the weal links in the chain. 

    Less than 5% of the posters in BP will ever be in your situation, so consider the feedback you get. 

    You first challenge is Dealflow. In a normal economy (meaning no major dynamic swings up or down) the solution will require marketing knowledge, including multiple channel sources and segments. You may not become an expert however your ll need to ally yourself with others who are.

    This might be achieved by developing referral sources systems that are evergreen. Mine has been the probate legal community in my state, however that couldn't start until I already had much expertise, as you are gaining. This segment requires total dedication and commitment, took many years to ramp up and can be time consuming, something you are probably in short supply of.

    So, finding - not working - deals will be your limitation. In order to scale up, you'll probably find it easier to delegate to a team of experts and eliminate those tasks from your own list that do not generate the greatest results. Let them target direct response marketing to mortgage and tax defaults, probate, vacant house owners.

    There are several other factors that those reading this may not have considered: you have your priorities well set, you are willing to sacrifice other frivolous activities and probably some family activities, and you take significant action. Something rare, indeed.

    4Reply
  • Todd Plambeck
    Agent/Investor · Murphy, TX · Member since 2013 · 542 posts · 304 votes
    10y

    Regarding your default template, I would suggest considering a tiered template structure.  The $.49 per SF tile I can put in a $100,000 house won't cut it in a $200k house or the stone I need to put in a $300k house.  Same with fixtures, appliances, faucets, etc.  I'd also suggest you have alternate suppliers and SKU's for your items.  If your supplier is out of your preferred tile, last thing you need to be doing is scrambling to find an alternative that will go with your decor.

    0Reply
  • Manolo D.
    Contractor · Los Angeles, CA · Member since 2015 · 4k+ posts · 1k+ votes
    10y

    @Todd Plambeck That is a small problem to have, the more SKU you carry, the more inventory you need. The biggest problem is deals, next is contractors, materials will follow through no matter what, there is always "similar", and supply houses will stock for you once you talk to the manager, they too have a system for inventory levels and like me, get assured I won't run out on a couple of things.

    0Reply
  • Derrick S.
    South Central Alaska · Member since 2016 · 57 posts · 10 votes
    10y

    I'm huge on systems. I love building them and tweaking them, and plan to be in your position 24 months from now, if not next year. Here's where I see simple solutions to scale up:

    Great contractors - find them and make them love you. Give them parameters and preferences, grow in trust and make them as autonomous as possible. 

    Deal network - whatever kind of deals you want, there are people who will see them first. Pay them, make them love you too, and be their go-to investor. Either help them out-grow you, or grow with you. Now deals come to you. 

    Money network - report all successes in grand style to those who you may want to borrow from in the future. Build the reputation of Midas. 

    Awesome broker - You'll lose whatever % you negotiate, but they can free up massive amounts of time, do staging if you want, and sell faster than you can (potentially) with their network. Just give them good houses at fair prices, fire-and-forget. 

    All of this will cost you money, but I expect you will make much more in volume. If you have these elements then your business is now: weekly status reports from contractors + periodic inspections, daily review of deals from your network, and reporting success to networks. You go to a deal, check the numbers, and green-light it or don't. 

    Added to these I would take on an assistant that wants to learn the business, and get them to view properties and run numbers, run errands, and generally make life easier on you. Maybe even do signings to close so you're not running all over and waiting on those. Later they graduate to wholesaling to you? 

    I wrote all this as an exercise for myself, but I hope it's a high-view help to you. I plan to build my business up through relationships, because people are the key in every market. 

    1Reply
  • Dell Schlabach
    Investor · Canton-Akron, OH · Member since 2012 · 917 posts · 477 votes
    10y

    I too believe its possible to do a hundred flips, not easy but not impossible, we have our sights set for 48 a year by 2017, but i could think twice as big if i had the right partner. 

    With two or three really good people handeling the key components I believe it 

     would be doable. 

    Key components

    1. Finding the deals

    2. Finding the money and handeling the admin and system setup

    3. Developing and managing the rehab contractor team. 

    1. and 2. I have or could put in place to go to 100 without great difficulty, we would expand into three more counties and duplicate the current system that is generating so far this year just over one  house purchase a week.

    We have access to private money as well as a couple banks that will do rehab loans at reasonable interest rates.  At 100 rehabs you would need about 50? in the cycle at all times, if you wrap each house up in a six month cycle from buy contract to sell contract...currwntly we are at 22 weeks average. 150,000 per house avg x 50 houses, = 7,500,000. Doable. 

    3.  If you want to move  your family to Ohio, and you can handle the contractor rehab management side, I can put the people in place to handle the rest.  We should be able to 26 year one, 52 in year two and in  year three hit the 100 mark.

    Cuyahoga Valley is a nice area to raise a family :-)

    2Reply
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