6 Hours of my time for $30k Profit?? Systems for your next flip

[Tarl Yarber]

Hey Bigger Pockets! Once again, I have not posted for some time and I felt that this property we just sold would be a great example of how systems can make your business run smoother as a real estate investor.  Whether you wholesale, landlord, fix and flip, develop, it does not matter, if you do not have systems in your business then you will struggle needlessly at some point.

Over the years, I have made an incredible amount of mistakes in this business, and I have learned more from those mistakes than any success I have had.  Any time I or my team made a mistake, I would always ask "How do we not do this again?" or "How do we make this easier for us?" or "How do we do this faster/cheaper/stress free/etc?" Do you find your self repeating the same things over and over? Are you always running around looking for finishes? Do you leverage other people? Are you always winging it?

A few months back, we purchased a very ugly, trashed, old, home in a not so great neighborhood in Renton WA, an area just outside of Seattle and Tacoma.  From start to finish I had approximately 6 hours of my own time into this property and Profited a little over $30,000.

Before Pictures:

AND MY FAVORITE PICTURE FOR THIS PROPERTY:

Yep! That is a wood burning stove where a furnace should be.  They had removed the furnace that was there and placed this wood burning stove under the main ducts in the basement, so when they had a fire going, the heat would transfer through the ducts and into the house hopefully.  I have never seen this in any other house I have done before, awesome.

Property Specs:

Year built: 1930

2 bed / 1 Bath

950 sqft feet main floor with 950 sqft basement that had only 6'4" ceiling height and was not worth the work it would take to raise the ceiling (dig down and lift up, something I would do if it were in a core area of Seattle)

The Deal:

Knowing your market is always an important part of doing this business, however, you do not need to always be the expert on that market.  One key to my success in this business, is finding local experts in a market and trusting their expert advice. 

On that note, the play on this property was to not make it the best house in the neighborhood of Renton (seattle). This would cost far too much for this home due to many of its issues, and fully updating all systems would be far too costly. Instead, listening to expert advice, we decided to make it the "nicest cheap house" in the neighborhood, making it a clean home that qualifies for FHA financing, and with it being one of the cheapest houses, any buyer dreaming of a starter home will have the opportunity they have been looking for.

Purchase: $154,773

Rehab: $37k ($9500 was just for trash out and landscape clean up..sooo much buried in that yard)

Re-sale: $250k

Holding Costs: $7,568

Closing/excise tax/commissions/etc: $20,325

Total Profit: $30,334

Finishes:

Something we started doing over a year ago is putting together "finish packets" for our contractors.  We essentially have TWO finish types: brown and grey.  This house got a brown package.  Although we adjust slightly on items depending on the quality of the house, 90% of the time every house we have falls into a brown or grey packet.  Here are two screen shots from a page in our brown and grey packets

Notice that we have the sku#, pricing, location etc in these packets.  We also have pages for how tile is to be laid out, paint colors, flooring, door types, hardware, you name it.  

Can you see the benefit you will have if you just get your rehab items in order? Picking out finishes every time you do a house can be draining.  The buyer does not know you did the same faucet in the last 10 houses.  And if you have a challenge with this, go be an artist and express your inner self on canvas or a sculpture and stop spending so much money and time on these items.  Find what works and work it until it does not work any more.

Every contractor on our jobsite gets one of these packets, they then have to sign it as well.  How has this help us? Less calls, less mistakes, less confusion, less costs, thats how.  Our packets even tell the contractor grout colors for the tile.  If a contractor puts the wrong grout in the house, and you do not have in writing what color it should be, then you better hope you have a nice contractor.  However, if its in writing, and they signed it, guess who gets to remove all that wrong grout?  Not you, and youre not paying for it either.  Think this has happened to me?

Checking in on contractors and Pictures:

We take hundreds of photos of our houses each week, PER HOUSE, and store them on drop box in specific property folders (google drive and other programs work just fine too).  Do I take the photos? Only if I go to the house.  In this case, I have team members, realtors, and other wholesalers drive the house for me, take pics, and upload them into drop box.  I can then review from home and call the contractor if needed and if I see anything out of place.

I intend on writing a BP blog for this one topic alone, there is so much that can be gained by utilizing drop box and LOTS of Pictures.

You will surprise your self with how many people would be more than willing to drive your project for you for free and take pics.  So many newer investors want to learn rehab for instance.  BP is full of them.  If you reach out and network, you can have people driving your houses every day. Not only are you getting pics, you are helping teach other investors.  Everyone wins in my eyes.  In our case, we have team members locally, however in Portland (3.5 hrs from me) I use local wholesalers and investors to drive properties for me instead.

How did I do this house with so little time?

1. I know my criteria and had experts locally who helped create the strategy - nicest cheap house

2. We have a system for our rehab. Finishes are the same for all brown houses. Our packets are put together for the GC, the GC bids off the packets, scopes are made from them, we understand the pricing because we collected all the data.  Less confusion, less mistakes, better execution, save time

3. Other people QC the property and upload lots of photos to drop box.  I dont mean 15 far away pics.  I mean almost 100 per visit, every angle.  Nothing missed.  Not only does this help with accountability, and time, it also helps us look back on where items were during rehab (ie. an outlet gets covered by drywall and we cant find it...look back at pics)

4. The listing agent has an interest in getting the house done too. Put them to work as well

5. Leverage people, and help them learn while doing so

My 6 hours include: evaluating the property and initial walk, helping create the scope, negotiating with the contractors (already sourced, if you are new or need contractors, this part can take a lot longer), checking pics, going to the property briefly about 3 times, paper work and accounting.

It would take a great many posts to break down every part of our system, maybe one day I will do that.  As always, reach out to me any time

After Pics

Remember to always keep it simple.  There is no need to over complicate this complicated business any more than needed.  Stick to what you are good at as well, you do not have to do everything your self.  If you dont know your market, find someone who does.  If you suck at finishes, copy other investors or find someone who knows finishes and can help you pick out stuff that works. Then save those pics and skus and create your packet (or just send all the pics in one large email like I use to do years ago...).   The bottom line, is keep learning and keep simplifying.  Your life will thank you.

[Shelli Neal]

Your contact info is hidden but I would very much like to hear more on your systems philosophy. I have only done 5 or 6 flips and always wing it... needless to say I am not doing very well... I could really use a mentor or at least someone to just have a convo with on this subject. I have tried some reia meetings but people are either newbies or way over my head, I need an experienced person to get advice from, so no luck yet. They are hard to find. Thanks.