As a young married couple, my wife and I are often encouraged to look beyond our W-2 income for ways to generate wealth. Real estate is often identified as the low-hanging fruit of investments. You buy a house, fix it up a bit and then put it back on the market for more than your purchase price plus the cost of your fixes. This topic came to mind as we headed down to Houston, Texas last Memorial Day weekend, which also happens to be where I purchased my first home—one that I still own to this day.
While it may sound simple in theory, investing in real estate can be rather complex and has risks. Consider carefully the steps to success to increase the turns of wealth generation (not degeneration). I hope that I can help shorten your learning curve and make your entrepreneurial real estate endeavors more profitable in a short period of time (Hat tip Michael Lacava’s Beginner's Guide to Flipping Houses For Profit). The first three steps in my guide are below:
Step #1: Assess Your Cash Situation
Before you get started, take stock of your own financial resources. You need to know how much money you have to invest on your own, or whether you’ll need to find investors (or win the lottery) first. Finding investors is an art unto itself (and the subject of many posts on this blog), but knowing how much cash you have to invest before you begin is the logical first step. Having your own money to invest is a bonus. If you don’t, there are plenty ways to flip houses with money from banks, private money lenders, and other means.
Another great way to get started if you don’t have the money to do it all on your own is to find a partner or partners who have money to invest with you. Splitting your first house flip profits with other partners is a great way to start, while building some momentum and getting your first house flip under your belt. Sure, you’ll have to split profits, but it’s far better to get 50% of something than 100% of nothing.
Step #2: Start Building Your House Flipping Team
After you finalize your cash situation you should start building your house flipping team. This team will help you to find, fix and sell the property—the right set of collective wisdom will surely help you reach your house flip goals that much faster. No matter your level of experience, you simply will not be able to do everything on your own. Enlisting your own mastermind group will not only help you be more productive, but will help you work through the inevitable problems and challenges that you’ll face.
Your team at the very least should be composed of skilled real estate brokers, contractors, architects, insurance specialists, accountants and money lenders. All these professionals can help you shorten your learning curve and get you making money flipping houses faster than you would have been able to do on your own.
Step #3: Find A Good House to Flip
Finding a suitable property to flip is certainly a challenge. This is especially true if you have decided to look in a specific geographic area—one that you’ve fully researched and which interests you. Ideally, you should be able to buy the house for a low price, eyeball it as suitable for a quick and relatively cheap rehab (so you can sell it at a higher price), and (obviously) make a profit. Knowing all these aspects in order to make the profit, you’ll need to rely heavily on your house flip team (see Step #2 above).
A skilled real estate agent can assist you in finding houses to flip. You can either focus on properties that may not need expensive repairs or you can look for properties that need more extensive repairs, but the kind of repairs that are likely to substantially increase the equity. Both real estate agents and real estate wholesalers can help you in finding both kinds of properties.
Feel like you’re just about ready? You’ll have to at least wait for the highly anticipated thrilling conclusion to this post next month. Keep reading to learn steps 4-6…