Active Flipper?

Question

How many of you out there are full time flippers or at least active flipper flipping 5 or more per year for at least the last few years?

I'd love to be able to do this full time someday or at least be able to generate 50k per year from this in addition to my current employment income.

I've been a landlord for about 6 years now so I'm not necessarily new to the business. I've learned that the majority of the money I have made was made by buying below market value not by renting. So, it makes more sense to me to focus on finding below market deals, buying and reselling and moving onto the next one as opposed to just buying more units and holding and renting. On the deals I have done, I've calculated that it would have taken me anywhere from 2-10 years of cash flow to equal the amount of money I made just by buying below market value and then reselling in a relatively short period of time.. I'm armed with about 300k in cash which I  would use to make quick cash offers until I found that motivated seller that can afford to sell at my price. I know my market and feel that I have skills needed to take a stab at this on a larger scale. I plan on focusing solely on multifamily rental property as I feel that is what I know best.

Here are my questions to you successful full time and active flippers...

1. How many properties do you buy/sell per year?
2. Where do you find the majority of your deals? Direct mail? Foreclosures? Referrals? MLS etc....?
3. Do you finance your purchases or pay cash?
4. What is your average pretax profit per deal?
5. How volatile do you think your income is? How likely is it that something would change in the market that would prevent you from being able to earn a consistent income at this? If so what?
6. From purchase to sale, what is your average hold time?
7. How many offers do you make before getting an accepted offer?
8. How many hours per month to you devote to this?

Sorry for all the questions but would appreciate hearing from you active flippers out there!!!

J Scott · Answer

It sounds like you already have experience in the industry, which is a HUGE advantage over many flippers and wannabe flippers.

Here are a few pieces of advice:

- Always be conservative.  A couple weeks ago (Oct 22) on my blog, I posted a detailed "Final Analysis" post about our House #14 project.  If you read that post, you'll see that I made bad financial assumptions every step of the way (purchase, rehab, holding, selling) and should have lost a lot of money on this deal; but I was still able to turn a small profit -- the reason being that I am extremely conservative in every single assumption/estimate I make.

- Surround yourself with a great team.  Obviously you need great contractors, but also a great CPA, a great attorney, a great agent (or two or three) and lots of trusted colleagues that you can use as advisers when you need them.

- Always have an "abundance mentality" as opposed to a "scarcity mentality."  Remember, there is enough money out there for everyone to have a lot of it, so spend your time working on being successful and not working on forcing others to be unsuccessful.  In other words, make friends with your competitors, share "secrets", help one another, and you'll find that it IS possible for everyone to succeed wildly.

- When it comes to contractors, don't give second chances on big stuff.  If a contractor is going to make a serious mistake once (or try to screw you over once), he'll do it again.  And don't play the, "I need to get this done, so I'll let him finish this project and THEN fire him."  If a contractor is a risk to a project succeeding, then he is a risk to your business; get rid of him.

- I'm a big proponent of doing things the "right way."  Always have contracts, always make sure your contractors are insured, pull permits when necessary, etc.  It may cost you a little more now (and be a bit more of a PITA now), but it will make life easier in the future.  Personally, I sleep a lot better when I don't worry about being audited or sued.

- And, of course, my biggest piece of advice is to trust the numbers.  Don't leave things to chance, don't make decisions based on chance or gut feelings (though if your gut is warning you, investigate further), and if the numbers don't pencil out in your favor at the beginning of a project, things will only get worse down the road.

I have nothing against multi-family properties, but haven't flipped any as of yet (I've wholesaled a couple duplexes).  The 2-4 unit properties tend to be difficult to sell in my area for much of a premium and the larger apartments just aren't selling at reasonable prices these days.

Once the commercial market tanks a bit more, I'll probably start buying and selling apartments, but I don't think the market is there just yet...

I started 2 years ago and have been flipping full-time since I started.

I didn't have direct MLS access, and this was the biggest reason why we decided for my wife to get her license.  In retrospect, that's still the best reason, but the extra control and the extra money we make are two other HUGE reasons why we wouldn't have it any other way.

J Scott · Answer

About 10 per year currently...

All but one of my deals have been REO properties found right on the MLS.  The other one was a probate deal that fell into my lap (my closing attorney found it for me).

About 50/50 cash vs finance.

For larger rehabs that I expect to hold for more than 3 months (i.e., the projects that will take more than 6 weeks to rehab), I will generally finance to keep cash freed up.  For the smaller rehabs that I intend to resell within 3 months I'll pay cash.

For the rehabs, it's $28,411.  For the wholesales and very minor rehabs, it's $6,436.

About 80% of my deals are rehabs that are resold to owner occupants; about 20% are wholesale deals or very minor rehabs that are resold to investors.

We definitely go through period of lots of activity and then periods where we can't find any great deals.  There have been times when we've gone 3-4 months without buying anything new, and times when we've bought 4 properties in a month.

I don't believe there is anything major going on externally that is causing that, other than just random luck whether the types of properties we buy are being released by the banks that month or not.

The one exception was this summer, after the tax credit expired -- I believe this was a major external event that affected the market for several months.

All that said, we're okay with slow periods where we aren't doing much...if we were desperate for the income at all times, we could certainly find deals by expanding our purchase criteria or expanding the areas where we purchase.  We just haven't felt like doing that...

128 days for the rehabs.  This doesn't take into account that our DOM has decreased a good bit as we've gotten better at this business and has also decreased a good bit since my wife got her real estate license and does all our marketing.

If you take those things into account (and remove those other properties that don't qualify), it's about 112 days per rehab.
 
The number is actually lower if you only count the properties we've purchased since FHA loosened up their 90-day resale criteria.

Just over 1 out of every 7 offers we make get accepted.

These days, I probably spend about 30-40 hours per month on this business (not counting the time I spend on BiggerPockets :).

Steve Babiak · Answer

Although I tend to agree with doing that which you know best, you have to take into consideration the exit strategy.  For SFR, you can flip to owner occupants; for MF, you will  probably be selling to investors more so than to owner occupants.  That means you will have a more savvy buyer, who will be looking for discounts, and basing the buy decision on cash flow (unless you get some newbie or wannabe investor, that is).  This could squeeze your profits unless you are buying at huge discounts in the first place.

Will Barnard · Answer

Hello Andy,
Will Barnard here and I am a full time rehab flipper and have also picked up my wholesale game as well this year.
I am also a landlord out of state, but am in the process of liquidating those assets to use in the rehab game as I can make more money quicker (although the money is not as passive as the landlord biz).

1. How many properties do you buy/sell per year? - Approx. 20
2. Where do you find the majority of your deals? Direct mail? Foreclosures? Referrals? MLS etc....? Almost all my deals come direct from REO listing Brokers and asset manager contacts, although I did pick one up this year which was MLS, buyer dropped out and I had the info about it, so I was able to get my lower than previous offer all cash offer in and accepted before it was put back to active.
3. Do you finance your purchases or pay cash? - All cash 100% of the time although, not all the cash is mine, I use private lenders funds mixed in with mine so I may do 3-5 deals at once.
4. What is your average pretax profit per deal? I am averaging around $50k per deal on rehab flips.
5. How volatile do you think your income is? How likely is it that something would change in the market that would prevent you from being able to earn a consistent income at this? If so what? - I don't believe my income is volatile due to the contacts I have made and the systems I have in place. That said, if the market does change, I am prepared to change with it. That may mean I move back to spec building or move into commercial, or whatever the market tells me to do.
6. From purchase to sale, what is your average hold time? 100 days give or take a day. Often, I am in and out in 90 days and the longest has been 122 days.
7. How many offers do you make before getting an accepted offer? Very rarely do I make an offer that does not get accepted, but I do it differently than most, so it is not fair to compare. When I make an offer, I already know what the bank is looking for and if that figure is acceptable to me, my offer is submitted. Very rarely do I make MLS offers, when I have, I am approx 1-3 accepted.
8. How many hours per month to you devote to this? Lets see, how many hours are in a month? Other than eating and sleeping, and family time, I am working, although some of the work I do, I just don't consider it work because I love it so much. Looking at properties and evaluating budgets and exit prices is almost as fun as playing ball for me. The paperwork and other BS is what I hate and consider that work. All in all, I work at least 50 hours per week.

Mike V. · Answer

Hey Andy, 
I don't quite meet your criteria of full time and 5 per year but since you haven't gotten much response I thought I would weigh in.  I flipped 3 SFR last year and 2 this year as well as picked up several rentals along the way.

1. How many properties do you buy/sell per year?
 2-3

2. Where do you find the majority of your deals? Direct mail? Foreclosures? Referrals? MLS etc....?  
MLS except one that was from a wholesaler contact.

3. Do you finance your purchases or pay cash? 
Once with cash the others with bank loans

4. What is your average pretax profit per deal? 
21% of ARV selling range of 95K - 200K.

5. How volatile do you think your income is? How likely is it that something would change in the market that would prevent you from being able to earn a consistent income at this? If so what?   
This is a big concern of mine - what happens when the market picks back up and the REO/short sales/other distressed sellers dry up.

6. From purchase to sale, what is your average hold time? I don't know my average off hand but my rehabs have taken 1-2months, under contract 2wks-9wks, my best was 33 days from closing to closing and worst was almost 6 mo.

7. How many offers do you make before getting an accepted offer? 
A little under 1 in 8.

8. How many hours per month to you devote to this? 
60 hours a month.

Can't give much advice over what J Scott has already shared, but if I had 300K cash I would quit my day job today and start flipping.

Bryan Balk · Answer

1. How many properties do you buy/sell per year? 100

2. Where do you find the majority of your deals? Direct mail? Foreclosures? Referrals? MLS etc....? Mainly Sheriff Sales 50% wholesellers 10% Direct Bank contacts 20% MLS 20%
3. Do you finance your purchases or pay cash? Pay Cash mainly then apply a loan its easier then use that money to keep the train moving.  With $300,000 you could pay cash for 3 $100,000 homes get 70% LTV on them buy 2 $100,000 homes cash again and so on.
4. What is your average pretax profit per deal? $22,534 we mainly stay at first time homebuyer FHA level and try to move them out fast,  First time home buyers and FHA is still strong no house to sell and still easy to qualify
5. How volatile do you think your income is? 
Not volitale at all about 30% increase in income each year.

How likely is it that something would change in the market that would prevent you from being able to earn a consistent income at this? If so what?
Very why we want to get in and out fast.  Current worry is this BS Quantitative easing and rates increasing.
6. From purchase to sale, what is your average hold time? 90-120 days
7. How many offers do you make before getting an accepted offer? REO 1/20 or more maybe stopped doing direct mailers and negotiating with motivated sellers.  Found it more profitable to team up with local wholesalers and pay them to do the BS.
8. How many hours per month to you devote to this? We have 5 Full time Employees and a construction company of anywhere from 15-30 depending on how many jobs we have going on.

Andy More · Answer

J Scott, thanks for the detailed reply!

What advice would you have for someone like myself wanting to do this on a larger scale?

Do you flip multifamily? If not, why not?

How long have you been flipping full time?

Did you have direct access to the MLS somehow before your wife became a realtor? If not did you have to go througha Realtor to get sale data?

Would love to hear from other flippers out there as well!

Thanks

Account Closed · Answer

j, it always impresses me how you know your numbers so well...something i need to work on

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