❯❯ Working overtime on flipping projects can sap the time and energy you have for your family and your day job. Keep in mind that part-time flipping is like having a second job.
❯❯ When you work a full-time job, you’re less available for fielding calls and dealing with problems that arise.
To compensate for some of the drawbacks, consider the following solutions for integrating part-time flipping into your life:
❯❯ Work the second or third shift and focus on flipping during the day.
❯❯ Schedule vacations around your rehab schedule.
❯❯ Ask your spouse for help with paperwork and fielding phone calls while you’re at work – a perfect job for the work-at-home parent.
❯❯ Become a weekend warrior, performing cleanup, yard work, and other chores on your days off. If you’re married with children, make the project a family affair.
❯❯ Partner with a trustworthy friend or relative who has more free time or a more flexible schedule.
All the time in the world: Full-time flipping
Full-time flipping requires a big time commitment and a cash reserve to back it up. You need enough cash on hand not only to fuel your flip but also to cover several months of living expenses. Most flippers choose to become full-time flippers only after they successfully flip several properties, have a proven system in place, and have the financial resources to live without another source of income for at least one full year.
❯❯ Five years’ experience successfully flipping houses on a part-time basis
❯❯ At least one year’s income in reserves
❯❯ Health, dental, disability, and life insurance and sufficient funds to cover the premiums
❯❯ A blanket insurance policy that covers liability
❯❯ A line of credit that enables you to do two projects at the same time
❯❯ A solid business plan; check out Business Plans For Dummies by Paul Tiffany and Steven D. Peterson (Wiley)
❯❯ A team of experienced advisors with varied backgrounds – financial, legal, construction, and so on (see Chapter 4)
Without these essentials, along with a strong work ethic, determination, sufficient cash reserves, a well-defined goal, and a solid plan to achieve that goal, failure is almost guaranteed.
Delegating time-consuming tasks
You can get more done in less time by delegating tasks. But be careful when choosing tasks to delegate. You can safely farm out any of the following jobs:
❯❯ Securing financing for purchases and renovations.
❯❯ Anything that requires the handling of money, including making payments. You can hire an accountant to manage the record-keeping.
❯❯ Meeting city inspectors.
❯❯ Accompanying home inspectors.
❯❯ Managing your files and data systems.
❯❯ Visiting properties prior to purchase. (Never buy a property you haven’t inspected yourself, or as I like to say, “Your eyes or no buys.”)
❯❯ Negotiating and closing the deal. (Your agent can advise you and present your offers for you, but call the shots yourself.)
❯❯ Planning and supervising rehab projects. (You can hire out the work, but visit the worksite regularly to ensure quality and control costs.)
You don’t need a lot of your own money to finance your first flip. You can beg, borrow, or partner up with an investor (see Chapter 5 for details on these options). Before setting out to flip your first property, however, tally the costs and your financial health, have a solid plan for obtaining financing, and know your debt tolerance, as I explain in the following sections.
Figuring out how much money you need
When you flip a house, plan on netting at least a 20 percent profit.
How much money you need to finance a flip depends on the grand total of all the costs for purchasing the property, fixing it up, holding it (taxes, utilities, and so forth), and selling it. You never know the actual costs until you resell the property, but you can do some ballpark estimates to determine how much money you need. See Chapter 11 for details on how to estimate the costs of repairs and renovations. In Chapter 12, I lead you through the process of estimating your total costs and the maximum amount you can afford to pay for a property in order to earn a 20 percent profit.
I currently live in house number 23, where my family has lived since 1990. I moved 19 times before getting married. Before moving into a house, I’d fix up the bathroom, kitchen, and one bedroom. Then I’d live there for a few months to a year, fixing up the rest of the house. When the house was in pretty good shape, I’d either convert it into a rental or sell it for quick cash. I drew up a mini business plan for each property. Each plan was contingent on the current economic climate, my cash-flow needs, and the estimated long-term appreciation of the property.
Not all my deals were blockbusters, but from 1976 to 1990, I amassed property and cash worth millions of dollars. You can do the same, but don’t expect it to happen overnight. Draw up a successful long-term plan, start slow, and stick to it.
Finding cash to fuel your flip
Coming up with a cool hundred grand, two hundred grand, or three hundred grand to flip a house may seem a little out of reach at first, but several financing options are available, including the following:
❯❯ Flip the house you live in.
❯❯ Borrow against the equity in your current home.
❯❯ Borrow from relatives or friends.
❯❯ Partner with someone who has money to invest but lacks the time, expertise, or motivation to flip properties.
❯❯ Borrow hard money – a loan from a private investor that typically costs money upfront, requires lump-sum payments on specific dates, and carries a higher-than-standard interest rate.
Chapter 5 explores these and other financing options in greater depth.
Taking stock of your financial health
To borrow money at a reasonable interest rate, you have a better chance if you can prove that you have money (or at least some valuable stuff), are currently making money, have a great plan, and generally pay your bills on time. Having a strong financial position is a big plus because it gives you access to cheaper loans, but it isn’t essential.
To take stock of your financial position, formulate a financial statement that includes the following