Monday, February 25, 2013

How to Break the House Flipping Rules


I recently chatted with Dan Link of Accurate Home Inspection, LLC.  Dan is not only a home inspector, but also a veteran home flipper.  Through his experience doing many houses over the years (and as he’s quick to say, learning through some mistakes!), he created his 10 Rules of House Flipping.  And they’re pretty darned good.  In fact, if they were carefully followed, you’d probably do very well financially as you flip multiple houses.

So as we started looking through this list, some really resonate.  And we know we should be following them, but after all, rules are made to be broken, aren’t they???

Truth be told, we really, really break some of these rules.  So I thought I’d start there:

Rule #4 –Don’t get emotionally attached to the house.  This is probably our biggest offender.  Since we spend days and weeks in these houses, we tend to fall in love with them. I’d be perfectly happy to live in any of them (and Richard still talks wistfully about the 2 car garage on the last one – particularly with all the snow we’ve had this year!). 


Photo - Jamie Salomon
Which takes us right to Rule #3 – Don’t over improve the house.  When you really love a house, you start to think about all the things you want to do it. And you sometimes lose perspective. So, should we have put marble floors in these houses?  Couldn’t we just have minimally updated the kitchen/baths & safety issues and put the house on the market?  Well, maybe. And maybe we would have a better profit margin.  But our goal is to create a beautiful home for a new buyer.  So we just don’t want to get by with the minimum.


Which leads us back to Rule #1 – Know where you are and where you are going before starting.  Now, we always start with a very detailed plan.  We use a detailed plan as the foundation for every project we've done.  Before we even make an offer, we know the investment level we plan (with a healthy contingency that we always need), the carrying costs, and the anticipated sales price for when it's finished.  And thus far, it’s never worked out that way.  We run into surprises (or we change our minds on something) and our investment is higher than planned, so it takes us longer to complete. Go figure!

Now we don’t break every rule, some of these we really try to follow.  For example, Rule # 6 – Be involved in the process everyday.  We are on site 7 days a week (and with the frequent furnace breakdowns on our current project, that means late night and early morning ‘check ins’ when the outside temperature dips into the single digits).  And no matter how detailed our planning, there are decisions that need to be made on the spot – every single day!   For example, we had planned several recessed lights in the house.  Well surprise, surprise, 2 of them ended up being right under an engineered joist – so we needed to come up with a different plan quickly, or delay getting the electrical done. 

Rule # 5– Look in the dumpster to know where your expenses get out of hand.  Wow, is that ever true!!!  We are on dumpster #4 on our current project and it’s filled with all kinds of things we didn’t expect – the bathtub that couldn’t be saved, the plywood flooring that we had hoped would be hardwood under old linoleum.  Can you hear the cha-ching, cha-ching sounds????
Dumpster #4 on Our Current Project

The final rule that really hit home for us – Rule # 7 – Plan on putting it on the market below competition.  I don’t know if we price below market – but we think our homes are very fairly priced. It really doesn't make sense to price high, the market knows what a house should sell for and will figure that out for you.  In our case, our houses have sold in less than a week and over asking price.  So while we ‘set’ a price, the market determined what it should be.

So what do you think of the ‘rules’?  Do you break them or follow them?


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8 comments:

  1. I think you should make the rules because they obviously work for you!

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    1. Thanks so much for the kind words Deb. We still see ourselves as newbies.....so I'm sure we have a lot more to learn, before we make our own rules!!!!

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  2. As a long time reader- the first thing I thought when reading the list is you break #3! But, as a reader and not an investor, I have to say, I love seeing you break #3....

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    1. You make me laugh Mollie! But seriously, I've been in plenty of 'flips' that have the cheapest possible fixtures, tile, and finishes. And I just don't think we could ever do that - for a modest bit more money, you can create some beautiful spaces. Well worth it in my opinion!!!

      Laurel

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  3. We put an offer in on your last project and I have to tell you: the reason was because you had done such a beautiful job and put in so many high-end touches! I know you had many offers, and I'm sure it's because all the other bidders felt the same. So breaking rule #3 is definitely working for you! Love your blog, can't wait to see what you do with this new place!

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    1. Thanks so much Kayte. I'm so happy to hear you loved the house. And so sorry you weren't the winning bid. It's so hard when there are so many offers and I always worry we hurt people's feelings. I hope to see you at the next Open House and thanks for reading the blog! I really appreciate it.

      Laurel

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    2. No worries! There is nothing personal in real estate, and I am sure the winning bidder is loving her new home!

      We have actually closed on and are renovating another house we found close by, so I will be watching this space for inspiration, and can't wait to see the next open house you put on!

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  4. Always makes me sad to see a bidding war. Is it really the market dictating the house's price? Or just a couple folks who happen to have more money than others? I can't help but think back to the house of cards that the 2005-2007 market was. And we all know where the 'market dictating prices' took us then. :) I feel bad about great, great families who miss out on opportunities to purchase one of your awesome homes because they just don't have the extra that others do to win bids. LOVE what you guys do though with regards to your super high quality flips. Thanks for contributing to South Portland in that regard. Love reading your blog.

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