Need advice for New Flipping Company

[Ryan Outon]

Hi, I am an RV salesman from the desert (phoenix). I am looking to start a real estate flipping company called Quick and Easy. My goal is to reach a target market in a 45 minute radious of my home. Most people know that the phoenix market is very interesting right now. There are many opportunities to flip homes in this area. I want to start and have only the basic information I have read on the web. I need to know what are some of the things I should watch out for when starting a company like this, And I would like to hear some stories on how others have gotten started. I am certain that I don't know as much as I need to in order for me to get this company rolling.

[James Vermillion]

Ryan, there is a lot of great information on BP about rehabbing and flipping. Make sure you check out the blogs and stay active here on the forums...you will learn a lot. Flipping houses is certainlty not quick and easy, so make sure you really understand the entire process before you get in over your head and make a major mistake.

To be a good flipper and consistantly make money you need to have several skills and avoid severa mistakes that are very common:

1) Overestimating ARV (after repair value) - it is human nature to be optimistic and look at the best case scenario, but you have to be realistic when analyzing the end sale price of a property. You need to know how to identify proper comparable properties and make the correct adjustments. Failing to estimate propertly can kill your profits, for example: if you estimate a house will sell for $120K and you plan on making $20K, you will be left with zero profit if the house is actually worth $100K.

2) Underestimating rehab costs: this is the one I see over and over again. The fact of the matter is it is very difficult for new rehabbers to understand how much money is going to be required to complete the rehabs. This is generally due to not knowing the true costs of materials, not accounting for all the work to be done, and surprise problems that were not expected. Make sure you understand all the costs associated and include a contingency in your estimates.

3) Underestimating time of rehab: again, inexpierence causes people to miss the mark when they estimate rehab costs. A one month estiated renovation turns into a 4 month renovation and the holding costs start adding up.

4) Not understanding holding costs: this is the part that some people totally forget. Holding a property is not free... you have to pay insurance, taxes, debt servicing (if financed), utilities, etc. These expenses add up very quickly and can eat into your margin very quickly.

These are just a couple things to think about as you look to get started. Also, make sure you have a plan for bookkeeping and all the business functions that will be important when it comes to calculating ROI and paying taxes. Good luck to you!