All Forum Posts by: Juan Diaz

Let's say you are a new real estate investor who is interested in flipping houses. You may start wondering, "Can I flip houses without a real estate license?" If you are one of these, you are not alone. This has been a common topic in the real estate industry.

The truth is, it is not mandatory to have a contractor's license in flipping houses but most investors find it very useful. The decision still depends on you whether you want to grab its advantages or not.

To get your real estate license, a real estate education authorized by your state must be completed. Different states exercise their own regulations concerning what permits and licenses are necessary to flip homes and that the investors should research and know what type of permits and building requirements are enforced in the area. This is one of the reasons why obtaining a license is useful to investors.

(featuring my project at Eastman Ave)

Advantages of a Real Estate License

By having a real estate license, you will be granted direct access to the MLS which simply means you'll get more and bigger savings when buying properties for your real estate investment. For example, you can easily save $3,000 when purchasing a $100,000 property.

Not just getting the savings but you can also list your properties on the MLS for free. Thanks to the real estate license! MLS is so powerful that it is accountable for around 80% of SOLD properties and dominates other marketing platforms for house flipping.

Another good part of getting a license while flipping houses is that agents can legally pay you referral fees.

What does this mean? This means that you can coordinate with another licensed agent, let him do the work, and you'll get back the real estate commission. This will add more to your cash and of course, profit.

I have a Real Estate License, what can I do with it?

If you made a decision to get a real estate license, congratulations! It will expand more of your professional possibilities and boost business opportunities in your real estate venture.

Here are some of them:

Broker – A real estate broker is a licensed individual who manages his own team of real estate agents.

Sales Agent – Obtaining a real estate license gives you the right to assist homebuyers and sellers in buying and selling a property.

Leasing Agent – You can also serve as a leasing agent or a property manager who handles residential and commercial properties.

What are the Top Benefits of Getting a Real Estate License?

• Additional Revenue Stream

Extra income! In addition to making money through property investments, being a real estate agent will add more to your cash flow. Having a professional license will definitely help you in the long run and supplement the earnings you make in flipping houses. What's great is that the commission you get can be used to fund your next flip.

• Easy Access to Deals

Not all deals are on the MLS and posted on website's listings. The truth is there are plenty of deals that you have never known existed! This is more than just having access on the MLS. With a real estate license, you can connect with every outlet and build a network. This means that if there are any deals, you will be the first to know rather than waiting for the updates of a realtor. Therefore, you can save more time in finding your next flips.

• Increase your Network

Your real estate license adds to your reputation and credibility. This opens new doors to various networking events and increases the "word of mouth" which will make people know more about you. Successful investors network with like-minded people and as they connect with others, they find new deals and grow their business.

• Education

Getting your license means you have to meet certain requirements and educational criteria. Through this, you will learn a lot and add more to your knowledge and experience. This will fuel up your real estate investing career.

• Commissions

Since you can function as a realtor, you can save money for every transaction. The average commission that an agent receives is around 2.5%. Assuming a $200,000 purchase, you will have to pay $5,000 to the realtor. Again, thanks to the license. You can save that amount of money!

House Flipping Basics for Beginners

House flipping is not for the faint-hearted. It requires a ton of motivation and dedication to generate a successful outcome. If you are a new investor, the common question you may have in mind is how much does it take to flip a house to make a good profit?

The first thing is you need to have a budget. But, before you create your budget, you need to know the key factors that affect it.

Rehab and Renovations

Aside from the cost of the house, you will also have to spend for the cost of the rehabbing and renovating the house which also includes expenses for materials and contractors. Most of the investors who are new to house flipping prefer to start their venture with single-family property than multi-family properties. The main reason is to cut down the cost of renovation or rehab. Flipping a single-family property is probably less expensive than fixing a multi-family property.

However, the indicating factor of the renovation cost is the state of the home. A home that needs work on the foundation, new walls and a new roof will be more expensive than a home that needs only a bit of TLC or fresh new paint.

Let's break down home renovations in three categories:

Cosmetic:

Cosmetic repair is a type of repair in which the house only needs a bit of TLC like new paint or a new appliance. This can give you a higher return on investment than doing other types of repairs. As a new investor, it's a rule that you should take everything on a step-by-step process. You will eventually learn everything as you go. Do not jump to extensive renovation without experiencing cosmetic repair first.

The goal is to make money by spending the least money possible. You will not get this on our first try. Successful investors honed their skills through trial and error. Put in your creativity and make the significant repairs whether it is for a paint job, upgrading the interior, or replacing an old cabinet. When buying appliances, don't forget to add the cost of delivery and installation cost.

Moderate:

For homes that need kitchen and bathroom remodel or exterior paint, you will need guidance and knowledge of a licensed contractor. This means that labor cost will be higher than a cosmetic repair. Homes in this kind of condition typically have a lower purchase price but you should bring into consideration the renovation costs and the time needed to complete it. The timeframe is very important when flipping a property so you should be careful in your buying decision.

Expensive:

Homes that have serious issues like a need for a bathroom or kitchen remodel, foundation, roof, or a new room will require guidance and knowledge of a licensed contractor. Though the purchase price is low and tempting, you need to evaluate everything including the time, commitment, and money that the property will be needing.

It is not easy to do extensive repair work so if you are inexperienced, there is likely a chance that you can fail or lose more of your investment. The longer it takes you to flip the property, the more money you will spend on carrying costs which includes property taxes, financing, and utilities. You will improve in time. As you continue to learn, the time between purchase and sale will be shorter and so are the costs. When you gain more experience and acquire the tips and tricks, it will help you save more time and money. For all new investors, don't place yourselves in a tight situation where flipping the property takes forever to complete.

Insurance and utilities

Not just the house and renovation costs, there's also legal costs, insurance, and taxes that go with it. If you are investing in fix and flip, you will definitely need to buy property insurance. This varies depending on location so it's better to check the average cost in your area. Your contractors and workers will need electricity, lights, and water to do their jobs. Obviously, you need these utilities running as soon as possible to prevent possible delays. A good idea is to communicate with the previous owner of the house about the average monthly utility bills and work on that budget.

Marketing Expenses

After you have completely remodeled the property, you need to advertise it. If you think that it is a simple and easy task, it's totally different. You may have done placing "For Sale" as well as bandit signs and have rolled in social media to promote your property, but your home will not be solved quickly if you have no other marketing strategies. Consider working with realtors. They have the knowledge of working with buyers and sellers and do a lot of help in getting your property in the market. They basically live and breathe real estate and can find qualified buying in a short timeframe. With this, you have to pay for their services but it will guarantee the experience and time to advertise and sell your property efficiently.

Doing the math

Fix-and-flip investing is not just about figuring out and understanding the cost of repairs but also knowing how to work your budget effectively. You have two choices on how you will pay the property. One is you'll pay in cash and the other is you borrow money from a hard money lender.

Once you get your finances ready, the next thing to crunch is the after-repair value (ARV). The higher the ARV, the better the chance of flipping the house for a good profit. It will also help you create a realistic budget for the project. The ARV is the final projected value of how much your home is worth after all the rehabs and magic are done.

To determine the ARV, check out the competition by looking at the comparable homes nearby which are similar in size, features, or upgrades. Also, look how much the properties are selling in the last three months – this will help you put the correct price tag of your completed property.

The rule of the thumb in determining the ARV is to have at least 70% of the assumed sales price.

Here's a quick formula:

Best bid price = (ARV x 70%) – cost of repairs

For example, if you find a property that has an ARV of $200,000 and you're going to spend $35,000 for the repairs, the highest price you should pay for the property is $105,000. Overbidding on the property will cut your profit potential considering that there are also marketing and other costs in flipping the property.

Return on Investment (ROI)

Is there really a profit in flipping houses? It depends on how you do it. If done effectively, it's an absolute yes. Not all investors succeed. Though fix-and-flip investing creates excitement, it requires a ton of focus, purpose, and sound real estate strategy. Above all, the main objective is the return on investment. If the money you get does not match your efforts, it's time to take a pause and have a further study on how you can correctly make it.

House flipping is a step-by-step process. From estimating how much you're willing to spend up to executing the renovation work, knowledge and attention to details are highly crucial.

Thanks Fred, I appreciate it!

Fix-and-Flip Investing: Estimating the Repair Costs

Let’s assume that you are new in the house flipping game. You probably heard a handful of advice from the experienced investors telling you one of the biggest and most common mistakes in the business: underestimating repair costs.

This is true and always happening. You may be surprised by a ton of unexpected home improvement costs which in the end will spell loss instead of profit. Entering the house-flipping business requires having a careful decision and foolproof planning.

As a successful investor, I will be going to share a checklist that will serve as your guide on anticipating and understanding all the repair costs of your fix-and-flip project.

Read on and take note of these critical things listed below.

The House – Be careful

The most obvious thing is to determine the condition of the house. Imagine what the repair costs will be. You can simply do this by asking yourself, “What exactly do I need to fix?”

It can be just a cosmetic repair where you’ll just do a basic paint job and arranging the furniture or do a complete rehab and fix everything such as renovating the 20-year-old kitchen, putting additions, changing fixtures, and so much more.

Not just that, sometimes there are other things that you need to fix and the bad part is you don’t see them or you ignore them! There are instances that it seems everything is okay, but when you take a look at the foundation - it’s the complete opposite and signals a disaster.

How to make sure that you are not overlooking anything?

Prepare a budget repair sheet.

This is basically a spreadsheet with a list of repairs to be made in the different areas of the house. Include your cost estimates and ask your general contractor what to add on your list. The budget repair sheet’s main purpose is to help you track and take note of the repairs needed and its corresponding costs.

Work with a reliable General Contractor.

Why work with a general contractor? When you are new in the business, it’s given that you have limited experience. That is why it is important to have a general contractor help you walk through your investment property. Trying to ‘do it all’ by yourself and pretending that you know everything will just put you at risk of losing more money than hiring someone who knows what to do particularly in the aspect of construction.

With a good GC at your side, your work will be easier and you can have more time and use it to find your next property. Choose a general contractor who is reliable and who has good credentials. Most of all, he should be willing to stick to your project until the very end and do the right job.

Hire Subcontractors.

Not just GC, you will be also needing to hire subcontractors. Who are they? These are the workers that will be in charge of handling specific repairs to your project. They are skilled to perform a certain task. Your subcontractors are typically your plumbers, painters, electricians, and others. Though you can find and hire them by yourself, most of the GCs will help you find subcontractors and take out the hassle.

Don’t ignore the Carrying Costs.

It’s a common thing that young fix-and-flip investors overlook. Typically, repairing the property will take a few months to be completed, and during this period, it is your responsibility to act for the maintenance of the property.

Generally, the carrying costs for fix and flippers are property taxes, property insurance, mortgage payment, utilities (water, electric, gas), and HOA fees. You can also include marketing and advertising fees since all of these affect your budget.

Simply put, the key here is the timeframe of your fix-and-flip investment. The longer the project, the higher you will have to pay for the carrying cost – and it can ruin your budget. Together with the general contractor, keep an eye to what your subcontractors are doing and have clear communication with them regarding your expectations, plans, and budget. Create a schedule that everyone will follow to avoid potential delays.

Expect the Unexpected.

Not because you have followed the checklist above, it will guarantee that your renovation is a complete success. Though you’ve been careful throughout the process, there will be some bills that can come the least you expect it. Be always ready and do not underestimate the repair costs. Remember that it’s better to have an extra fund to add to your budget. Add at least 10% to your overall estimated budget.

Fix-and-flip investment is a continuous learning process. No house is the same. Learn as much as you can, anticipate the costs, and plan how to approach the things you don’t know. These all will guide you to a successful real estate investment experience.

You know what they say, go big or go home. Go with your bold and crazy ideas. Sometimes they’ll work and succeed spectacularly, and other times you’ll have to reassess. We just tried an experiment with our recent house in west Oakland, and it didn’t quite go the way that we wanted it to. We tried listing for a $1 (our goal price is around 510K), but we actually received very few offers, likely because it wasn’t within peoples’ search criteria. After some thought, we hiked the price up to 188K. We had a fabulous response in both cases, but ultimately, no offers were near what we were looking for.

So we tried to go big, but ultimately, it didn’t work out in this case, and we’re pretty sure why. You live, you learn, you adjust your strategy, and you do better next time. Thought I’d share my experience with you all, best of luck in the real estate world!

The house: https://www.redfin.com/CA/Oakland/927-33rd-St-94608/home/1562219

Finding your contractor is a crucial part of the remodeling process. For cosmetic flips you’ll largely be focused on finding some skilled craftsmen to do painting, repairs, and perhaps some texture. Your more extensive flips will require a general contractor that’s able to fix multiple areas of the house. For both, the process is the same.

You begin by taking that bid sheet that you created previously that lists all of the repairs you need done, item by item. You’ll need to invite the craftsmen or contractors over to your flip to go over the repairs and give you a bid.

But how are you going to find the contractors to bid on your work? Most flippers rely on long-term relationships that have built up over years of working together with a reliable contractor, and as a beginner you’re going to have to approach finding a contractor in such a way that maximizes your odds of finding a good potential partner. That means putting in the effort to undertake a comprehensive search. More work now means less work later trying to repair the shoddy workmanship done by some contractor that you hired off the street.

There are multiple avenues to use when looking for a general contractor. The primary avenue in many locations is actually Craigslist, with many GCs lurking on the gigs section looking to sniff out construction work. Just post “licensed general contractor wanted” in the gigs section. Yelp in many locations is also an easy way to find GCs, just search “general contractor” in your city. Houzz.com is another good site to find licensed GCs.

Remember as you’re looking for your contractor what you’re looking for: 1) Price, and 2) quality. There are many contractors out there that will do a fantastic job, but charge too much for your budget. There are a few that will have a fantastic price, but will not do sufficient-quality work. Your job is to find the GC that will perform work that fits with both your price and quality needs.

However, going into your first flip you’re not likely to know what things will cost. That’s why you have your detailed bid sheet, and desired timeline. What you can do in getting bids for the first time is to have the contractors come, walk the site, and give you a bid and timeline for each of the items that you discussed. Getting those bids and timelines should give you a good idea what the market value is for the construction that you’re doing. As you’re getting those bids, make sure to let them know that you’re starting up a flipping business, and if they get the job and do well, it could mean a lot of business for them in the future.

After your GCs will come and give you bids for all the work that needs done on your property, you should ask for pictures of construction jobs that they’ve taken on. By seeing the level of finish that they are able to accomplish, you should get a sense for the quality of their work. Pictures of one or two job sites is really all that you need.

The other element that you’ll need use to check the contractor’s reputation is a set of references on jobs that they’ve completed. Two or three reference names and phone numbers should be plenty here. When your contractors have come and given you a quote, along with pictures and references, you’ll need to go through the references of your top few contractors, calling up the references to make sure that a) the contractor’s work was timely, b) they did a good job, c) there were no major price disputes, and d) that they were easy to get along with.

After you’ve looked at pictures, checked references, and compared prices to make sure that you’re as informed as possible about your contractors, you need to narrow the field down to your top 3 contractors. If there’s a contractor out there whose price is just a little bit too high, you’ve got a chance to still use the contractor. Contractor-given prices are like used-car sticker prices—there’s always room to negotiate. Take the lowest price from among your preferred contractors, and call up your too-high contractors. Let them know that you’d love to use them, but that their price was too high. You’re on a tight budget, and you can only use them if they can match the price that this other contractor gave. Remind them that this is also a chance to get consistent work. Usually most contractors will match the price, but if they do not, that’s fine as well. You’ve got your best alternative elsewhere.

Congratulations! You’ve found yourself a contractor to do the work on your flip. Now your work really begins! Because every contractor, as good as they may be, they will still require active management. To begin with, never give your contractor all their money upfront. If a contractor receives all the money for a job upfront, there’s a small chance that they will run off with the money. Beyond that risk, there’s also little incentive for them to do timely work on the property. Once they’ve received the money, any more work that they do will not earn them any more money, and they’re likely to gravitate towards completing other jobs that will earn them a cash infusion. In that scenario you’ll constantly have to be calling your contractor, urging them to come work on your house.

By splitting the payments up you give the contractor a monetary incentive to continue work on the property and protect yourself from the contractor leaving the job with your money. It’s also a good way to tie satisfactory performance in with pay.

You remember that bid sheet that you created at the beginning of this whole process? Well when your contractor gave you a bid, he wrote it down on that bid sheet, along with anticipated completion date. Since each item has a dollar amount associated with the work, you can pay him for each item as he finishes them. This way you can make sure that each item is done to your satisfaction before he gets paid. But make sure that you communicate this information with the contractor before you begin!

For almost all jobs, such as paint, the contractor will need a deposit on the job to acquire the materials needed to do work or to signal your good faith. It’s a good policy to split the payments for each item up into 2-3 payments. If it’s a small item, give the contractor half at the beginning of work and half at the completion of the work. For a larger item ($1,500 or more), you can split the payment up into thirds and pay at the beginning, middle, and end of work.

It’s important to keep to these payment schedules. Sometimes your contractor will agitate for a payment when they’re not ready for it. When that happens, it’s important not to give them the full payment. Sometimes they will be experiencing legitimate money stress, in which case you can advance them a portion of the payment, but don’t give them the full payment. This is your insurance against them deciding to quit the job without finishing and taking the money with them.

Contractors – A Short Primer

First, before I begin, let me reiterate that if you’re a first-time flipper you should not be doing anything more than a cosmetic flip for your first time. Only once you’ve gotten the hang of conducting the painting and minor repairs that come in cosmetic projects will you want to go on to more advanced projects. If you do follow that advice, you’ll only need to get quotes on paint and minor repairs for your first flip. However, the same process applies to finding someone to paint or someone to rebuild a foundation.

To begin with, unless you’ve been paid to do work on a house, you’re not a contractor. Even if you say to yourself, “All I need to do is paint. I can do that!”, do not attempt to do this flip yourself. Even though you may have experience running a brush over a wall, there’s a huge difference in time and quality between a professional paint job and someone painting their own wall. A professional texture and paint contractor will come in and perfectly texture the house in less than a week, and paint it with industrial-grade paint sprayer in less than another week. If you’re doing that same work on your own, you’re likely to take four times as long and leave ugly splotches and drips on the wall. Trust me on this: you will always be able to tell professional workmanship.

This same principle applies to most labor, whether it’s replacing a foundation or painting a wall. It’s always better to hire a professional, who will do a much quicker and better quality job than you will able to do, unless you yourself are a professional contractor. If you do want to save money on labor, the jobs that you will be able to do yourself are demolition and landscaping. All other work-foundation, framing, drywall, texture, finish-should be done by a professional.

There are many different kinds of laborers that you can hire-licensed general contractors, licensed contractors for specific elements of the building process, skilled craftsmen, and laborers. Different sets of repairs require different types of labor, but for the most part you’re going to want licensed contractors of some variety.

General contractors or GCs are licensed to conduct repairs on any part of a house. As you start taking on more demanding construction projects, general contractors will carry out the majority of your work. Contractors licensed for specific skill sets, such as electric or framing, are sometimes used as subcontractors by a general contractor, and will sometimes be used by you for specific sets of small repairs.

Skilled craftsmen are the backbone of the construction process, as they are workers who have experience with various aspects of the process and are generally able to carry out most repairs. These workers will be able to do some tasks on their own without the guidance of a licensed contractor, such as installing flooring, cabinets, countertops and fixtures, landscaping, texturing, painting and doing patching work or light repairs. They are usually also found in a GC’s crews and operating as individuals for hire. They make up the bulk of the construction workforce. As you’re doing work, you might need to hire separate sets of craftsmen for specific projects, including painting, texture, landscaping, and cosmetic repairs.

Laborers make up the last segment of workers that you’ll see during the construction process, and these workers are usually found in larger construction crews. They’re the ones who won’t have the same knowledgebase as the craftsmen, but they’ll be about to help in just about every aspect of the remodel. The only aspects of construction that you’ll be able to use solely laborers in are demolition and landscaping.

In a continuation of a series, today, we’ll cover “What You Need to Look at When Doing Kitchens, Baths, & Beds”. Remember to look at these items and price your repairs accordingly!

• Bathrooms:
  • Toilets. Will you have to buy new toilets? You’ll almost certainly have to clean them up. Is the toilet properly installed and stable?
  • Vanities. Are they salvageable or will you want to replace them? The comps will tell you what level of vanity you need to have for the neighborhood.
  • Shower/bath. Is the shower/bath salvageable or will it need replaced? Again, pay attention to level of finish required. Are there any leaks visible?

• Kitchen:
  • Cabinets. Will you need to replace them, can you keep as-is, or will you need to refinish? Do they open and close properly?
  • Counters. What is the level of finish in the area? If the countertop needs upgraded, do it.
  • Backsplash – Does the house have a backsplash or need a new one? Nicer houses will require a new backsplash
  • Appliances – Are the appliances OK? If you’ve got white or stainless steel appliances that look OK, you can keep them here. If not, you might want to invest in new stainless steel appliances. They aren’t a necessity, but they sure do help. You will want to purchase the cheapest stainless steel appliances unless the neighborhood is very upscale and requires a higher level of finish.
  • Is there a working exhaust vent for kitchen?

• Bedrooms:
  • Closets. Are the closets in good order or will you need to do repairs?
• Staging – make sure you put this in your budget.
• Other rooms:
  • Check for any damage or items that will need replaced

Hi All,

I'm trying to go through and properly value a house that is right next to a major freeway. I've been very conservative in my valuation (comping it to 75% of value of similar houses without the freeway noise) but I'm looking for those with more experience dealing with this situation. What valuation should I expect for my ARV, versus comparable houses?

It's a house that has been completely remodeled, all new electric, plumbing, mechanical, foundation, windows, roof, kitchen, bathroom, floors, etc. We finished and staged it as we usually do, a high-end finish with designer colors. The property is about 1500 sq ft, and two blocks to the rapid transit in the area. (For those of you who are curious, we're in Mosswood, Oakland). What would you expect my value, compared to the top of the market, to be? If you work in the area, feel free to give me a solid number for ARV instead of a percentage.

Thanks all!