First Time Flipper
The title sounds a little misleading, because, well, this isn’t about a dolphin. “Flippers” or “rehabs,” as they’re more often called in the states, are a fun and exciting process that can come with a lot of work, stress and money.
In Real Estate in Alaska, there are a few different ways to make money on properties. You can buy and hold (income producing properties where you positive cash-flow) and also rehab properties that you can acquire at a discount, infuse cash into renovations, and then release like a wild salmon back into the open market bigger and stronger than when it first entered the stream.
The later, rehabbing, is a much more volatile type of way to produce cash. It is also typically much faster. I tend to think of this as a capital raising method of the Real Estate world. Think of it this way; you can work a solid career making decent money (income properties) or you can spend a weekend in Vegas and strike it rich (flipping).
Many people will try to tell you that rehabbing is gambling. Depending on how you acquire your property (could be sight unseen at an auction) you could go into it blindly. One of my favorite investors Warren Buffet said, “Wide diversification is only required when investors do not understand what they are doing.” Coming from the second richest man in America, I tend to listen. What Mr. Buffet is saying, is that if you know what you’re doing, it’s not gambling. Have you ever seen the movie “21?” Blackjack is only gambling in the presence of extreme lack of knowledge.
Below are some tips to help you get started in the flipping world, or at least something to considered if it has ever interested you.
- Establish Rules of Thumb – The 70% rule is a very common rule used by many investors. It should be noted that it is not a law, and merely a guideline to follow. Take your ARV (after repair value) and multiply it by .7, less your ERC (estimated rehab cost). This will tell you what you need to pick up your property at.
- Margins – For a lot of investors, it boils down to margins. Typically speaking, I like my margins to sit at around 20%. Anymore and you are getting greedy or the math isn’t adding up right. Any less, and you may be wasting your time.
- Know People – Know a lot of people who you trust that can help you out. Contractors, laborers, heavy equipment operators ect. If you think you can do a flip alone, hopefully you have a ton of time and experience.
- Be Conservative – Too many times people look at a house without a seasoned veteran and under-estimate costs. This is why people DO lose money on flipping houses. Be conservative with both of your ARV and ERC estimations.
- Tag Along – If you have any investor friends doing this, ask if you can be a fly on a wall for a couple of transactions just so you see how they go. Each flip is different, and it will give you an idea of it it’s right or not for you.
Those are just a few tips, and nothing in Real Estate is a definite thing. Just make sure you have great friends and/or mentors to guide you along this process, or have deep, deep pockets!