My Takes On The Book On Flipping Houses #1

Introduction

In this blog post I will break down the book "The Book On Flipping Houses" by J. Scott. This is the second book about real estate I'm reading. Naturally I will start my introduction with the books introduction. J. Scott starts the book with the statement that it's not enough to have motivation and enthusiasm when it comes to investing in real estate, you also need to be educated on the subject. In this book he tries to take away some of the fear a lot of new investors have, by taking the reader on a step by step journey of a flip project. Each chapter talks about a step in a 20 step process while listing the different options one has in each step and the pros and cons of each option. In the introduction he lists all 20 steps and that was enough to get me excited, so lets get started.

Chapter One

In this chapter a few key questions regarding house flipping are broken down. The main one that concerned me and that gave me the biggest reassurance was: "Is it a good time to flip houses?". This a question I'm constantly asking myself especially now that we are mid covid-19 crisis. What he says regarding this question is that it's never a good time to be selling and buying real estate simultaneously. It might be easy to find good deals but it will be hard to get a high offer when selling or it might be hard to find a cheap property but once you put it on the market there will be multiple offers. The things he says you need to focus on are, buying the right house at the right price, fixing it in a way that will appeal to the largest group of end buyers and then market and sell it better than the competition.Those are things you should be able to do in any market.

Another question that caught my interest was "How much can you make flipping houses?". He gives some numbers that show that you can make a good amount in this business but that was not really what interested me cause I already new that. What concerned me more was when he gets to talking about taxes, I am really afraid that taxes will eat up most of my profit. In order to try and minimize that I will need to do some heavy research so that I will make the best moves and get the most out of my hard work. He recommends the book "Tax Strategies for the Savvy Real Estate Investor", I might try to read it but I feel like most options in the book will be relevant exclusively to US citizens. The option that will probably give me the most results will be to hire a good tax advisor that has experience with overseas real estate investors.

The last thing that resonated with me was the fact that you need to be controlling the deals. This is some thing that has always been in the back of my head, but the book helped solidify it. I completely agree that in order to have a good stable business you need to have a mindset that if something goes wrong its your fault as the head of the business. If you start blaming people you will not be able to move forward and perfect your empire. Every mistake made, every set back, you need to be thinking what did I do that caused this? or what could I have done to prevent this from happening? This is especially important to me as a part time flipper and as an overseas investor. If I will not make all the needed preparations, arrangements and do my due diligence correctly, there is no way I will be successful in this field. In this book those are exactly the topics that will be discussed so again I am very eager to read through.

Chapter Two

This chapter focuses on different ways to finance a deal, seeing as how I discussed this issue in detail in my post about the book "How To Get Started In Real Estate" I will not go too much in depth in this chapter. One very important thing that is said at the beginning of this chapter is that although it is possible to make a deal with out any of your own money it will be easier to get loans and finance if you put some skin in the game and have 15%-20% of the deal in cash. I am planning to have that sort of money when I get started so doesn't frighten me, it even gives me a little hope that I will be able to get financed. I am hoping to find deals that will cost including the rehab about 80K$ which means I will need about 15K saved up.

 Private lenders- I have already said that this will probably be the first route I will try in order to finance my deals. This will be difficult mainly because I still don't have experience in real estate and it will be hard to convince people that I am worthy of their money. In order to try and over come this obstacle I will make a solid, thorough business plan that will show the knowledge I have gathered and that I am serious in what I do. Moreover I will try to make it as easy as possible for the lender. If there is a loan or an action he will need to do in order to liquefy his money, I will be the one to do the research and find the ways for him to put as little effort as possible into the deal.

Hard money lenders- I have talked about this already in past posts but this will be the option I will fall to if I am unable to convince a privet lender. I will need to find a good deal so that the high payment for the loan will be worthwhile. 

Seller finance- This last option is discussed many times in the podcasts at BP. It's a good strategy to have up your sleeve but I'm not sure how common it is offered. What it basically means is that the owner of the house is acting as your lender. He lets you delay the full payment of the house for a steady small payment each month while you are rehabbing. The rest of the amount, with some interest, will be paid after the house is sold. This option is a bit problematic because you need to come up with the money for the rehab yourself.

He ends this chapter on a note I completely agree with, if you find a good deal, the money will come. This is why I am planing on putting most of my efforts towards that part of the real estate world.

Chapter Three

Chapter three revolves around choosing a real estate agent. There were a few key conditions that I was not aware of. The first thing that I learned is that you shouldn't get one agent that will be in charge of both the properties you want to buy and the ones you will sell. Each one of these points of view is very different and in order to accomplish each task a different set of tools is needed. Like in a lot of fields in life if you try to be good at all aspects you will end up not being very good at any of them. Same goes for being a real estate agent. As an investor you will want to have a good buyers agent to find and purchase properties and a good sellers agent when trying to sell them.

The second point is connected to this one, and it is that you should look for agents that are used to working with investors. Buying and selling houses for residential purposes is very different than for investment reasons. You will want an agent that has worked with investors before and it might be also very beneficial if he himself had some experience in real estate investing. The last very useful information that is given in this chapter are 10 questions you should ask an agent before hiring him. I will not list the questions but they are making sure that the agent has the required experience and the time and ability to help you reach your investment goals.

Chapter Four

This was one of the chapters I was most excited to read. I am now on my way to try and decide what market I want to invest in, so I listened to this part with great care. The first crucial thing that is said is regarding the size of a "farm area" (that's the market you will invest in) you should choose. He recommends 1-2 reasonably sized zip codes that are spread over no more the 5-10 square miles, which should typically include around 25,000 people, about 5,000 households. The first place that you should be searching in is your own residential area. Unfortunately this is not really possible for me. Never the less, the size he recommends and the next principals he encourages to check, will surely help me make a better choice. 

After this he lists the six principals that should help evaluate whether an area might be profitably for rehabs:

1. Ratio between distressed houses and retail houses prices. This will show you that there is enough gap between these two prices in order for you, as the investor, to make a profit. As you would with any comparison it is very important to use similar featured houses in good proximity to each other.
2. Making sure that most houses that are listed for sale are actually sold before being foreclosed, being taken of the market, etc.
3. The amount of houses for sale in stoke. If there are a lot of houses for sale and the average sales per month is low, this might pose a problem when you will try to sell your house, because this is a buyers market. He states that typically it will be easier for newbie flippers to start of in a sellers market. This type of market narrows down a bit the uncertainty and stress around the selling process.
4. How many other flippers are there in that area? This question can not stand on its own seeing as how the market might be too saturated with investors or simply a rising market yet to be discovered. But it can give you some indication that it is possible and people are succeeding.
5. Long market trends. These trends might not necessarily effect one deal, seeing as how a flip is quite short term. If you are looking to stay in this market for a few years it will effect you down the road. Moreover it might open you up to other more long term investments that can be useful for you. The trends basically consider the future of the market regarding the supply and demand that will naturally effect the prices.
6. The last thing that should be checked is the neighborhoods visually. This will be the hardest one for me because I will not be able to go to my market physically. I am hoping to be able to overcome this barrier using other investors, a good real estate agent that will be able to give me insight about the market, google maps (though they are not very up to date), MLS and other listing sites and perhaps paying a person that is knowledgeable enough in real estate to map the streets for me and gather the information I cannot.

To sum up this chapter I will end on a very important advice that was given. It is better to start in a small farm area and to expand when you feel the opportunities are scarce, than to start too big and not get good deals because you are not familiar enough with the market.

Closing Words

There are a lot more chapter to go over but I will end this post here. Looking forward to reading the rest of the book and finding out the steps that are needed to be made.

I'll be sure to continue sharing, stay tuned...