Starting a house flipping business is one of the best ways to become a real estate investor.
You start with a low budget property, renovate and upgrade it, and sell it to make a profit.
Sounds pretty simple, but if you don't do things right, you can also quickly run out
of money.
I'm Priyanka Prakash, senior staff writer at Fundera, and I'm here today with Jamell
Givens, a veteran house flipper and partner at Leave the Key Homebuyers, a real estate
investment firm in Long Island.
Today, Jamell is going to give some advice for those of you watching who want to know
more about how to flip houses, and where to get the money to flip houses.
Thanks for being here today, Jamell.
Jamell, you got your real estate license at the age of 18, and you became a real estate
broker at age 20.
So my first question for you is, and I'm sure some of our viewers are wondering, what do
you need to become a house flipper?
Do you need to be a real estate agent or a broker?
So the answer to your question is no.
You don't need to have a license in order to become a real estate investor.
The most important thing is knowing your market and knowing your margins.
For me, getting my license at 18 was more of a gateway to kind of learn the industry
from the inside out.
So I thought, you know, it did help me.
I was able to, like I said, learn the markets, learn how to analyze deals, and more importantly,
I got a lot of contacts, contacts that still to this day that I lean on, and vice versa.
So you know, it, I wouldn't tell someone that they have to do it.
But if they did do it, if it's a good leg up, it's something to have, you know, and
again, you have access to certain technology.
Well, in today's day and age, there's a lot of stuff out there, but in our market is what's
called MLS (multiple listing service).
And in order to have access to that, you typically need to be a real estate agent.
So having a license, you do have some perks, and like I said, more importantly, are the
relationships you make because a lot of times in our industry, we get a lot of deals from
real estate agents and brokers.
So it did, like I said, help me a lot, but it's not something you need.
How did you get the funding for that first fix and flip?
And how did you find the property?
Okay, it was a really interesting deal.
So we had been, we did what we call, door knocking.
And what we would do is, we would get a list of properties that were heading into foreclosure,
and we would go out and knock these homes, and we would attack them in multiple ways.
You can either try to help them sell the property, or, you know, ideally, do the opposite and
purchase, but at the time, I didn't have the funds or the credit to do it.
However, in 2003, banks were almost giving away money.
I had a family friend who had found the property for about a year prior to that, and he, I
got him such a really good deal that he said, Hey, if you ever want to do a deal together,
let me know.
You know, I'll put up my credit.
And you know, we'll go in on the deal.
So I found this deal.
They were foreclosing it in about nine days, and we had to get financing and closing within
that nine days.
So that's pulling title, getting financing, doing all your due diligence, and only about
seven of those were business days.
So I went to the family friend.
He originally said he would just put up his credit, and I would put up all the funding.
But once he found out how rich the deal was, he then wanted to become one third partner,
because I had a partner also.
So we did it that way.
He put up the credit, and we all put up $10,000 apiece.
We got 90% financing on a $140,000 deal, and we laid out about $30,000 out of pocket.
And we bought the deal.
It was a pretty cool deal.
We got it done.
We got the financing and everything done within six days.
How long did the renovation on that property take?
And can you tell us how much of a profit you ended up making?
Well, it was an interesting deal because the homeowner did not actually have anywhere to
go.
So, what we did is we gave them a one year lease.
At the end of the one year, the plan was to sell the property and the three of us would
split their profits.
Okay.
However, the partner in whose name the credit was in, he decided he wasn't going to sell.
Because he wasn't in real estate, so it was a lot tougher for him to find deals than it
was for us.
He said he wanted to hold on to the deal, so what we did was we he was refinanced the
property, and he bought us out a year later.
So we put zero dollars in renovation, we bought it for $140,000.
A year later, we were able to refinance for $270,000.
So myself and my partner, we got bought out for about $40,000 apiece.
And he kept the property and a year and a half later, and he sold it for about $390,000.
Wow.
I mean, the market was soaring at that time.
So yeah, he was a little greedy.
But you know, we made a lot throughout the years.
So we weren't too upset about we got $40,000 apiece, we did nothing.
And, you know, we went on our way, and we went on to do many more deals.
One way to get money for a fix and flip is the way Jamell did, by utilizing the resources
of a partner, and then dividing up the profits when you sell the property.
But that's not the only option.
Other ways to finance a fix and flip is to get a loan from a family member or friend,
or take a personal loan.
Some house flippers also do a cash out refinance.
They refinance their existing home or another property that they own, and use that to get
capital for their next flip.
Sometimes, the current owner of the property might even be willing to finance your purchase,
especially if they've been having difficulty moving the property off the market.
House flippers with lower credit scores can consider hard money financing.
Traditional mortgages generally aren't an option unless you'll be occupying the property
that you're going to flip.
Okay, back to Jamell.
So, Jamell, what has been your biggest challenge as a house flipper and how have you faced
it?
The problem here is that we face a lot of issues with permits.
Typically, in other states, you can go in and get a permit anywhere from one day to
a week, whereas here you're looking at a minimum of three months in most townships.
They'll tell you six to eight weeks, but you're looking at usually three or five months, and
that's just on a regular permit.
If you have to get a variance, it can go a year.
So you know, that's really the bottleneck in our business, is the permit process.
Do you expect to have to hold the property for at least several months before you can
sell?
Yeah, we're, on average, we're holding our properties for eight and a half to nine months.
We figure about three months of permits, another two months of renovation, and then the rest
of the time is marketing the property, and then, you know, selling it.
So maybe we market it for an additional two months, and then we find a buyer, and they
have about 60 to 90 days to get their financing in place.
This point about the permit process shows that flipping is definitely a very regionally
based profession.
So what do you think are some problems that flippers outside of New York might face, and
what is your advice?
I guess the biggest issue outside of New York would probably be construction.
and protecting your deal.
For the issues we have with permits, the positive here is that because we’re an attorney state,
when you're in contract, your deal is protected.
Whereas in some states which are not attorney states, they don't really have contracts,
they basically have a document stating, you're going to sell to me, you know, at this price.
So you know, someone else can come along and offer you more than me, and then you can go
into that deal.
So that's an issue that, but again, I would say the issue I think that everyone feels
is knowing your market and knowing your margins.
In certain places, from one block to the next property can drop down five or 10%, 20% in
value.
So you don't want to buy a house on block A and then use comparables on block B that
those properties may be selling for a lot more, or a lot less, and then you think that
you're going to sell this one.
I've seen a lot of new investors get into that problem, and then, you know, it's a world
of trouble.
So knowing your market, and then knowing your margins.
A lot of people, they'll watch HGTV, and they'll see, you know, you bought the house for $100,000.
You put $50,000 in construction and sold for $200,000.
That’s not the case.
They don't account for closing costs, commissions, carrying costs.
So there's a lot, so you really have to run your numbers and run them again and run them
again, you know, to make sure.
And always put in contingencies because construction is never going to be what the contractor says
it’s going to be.
We've done over 150 homes, and only once or twice have we ever come in at the budget that
the contractor set.
So expect cost overruns?
Oh, yeah.
I'd say at least, if you're starting out at 20% contingency, just on the construction.
And then if you think you're going to sell it for $300,000, maybe knock it down five
or 10% on your first deal.
Do you use the same contractor for several properties, and what's the best way for a
new house flipper to find a contractor?
Okay, so the answer to your first question is yes.
We try to stick with the same contractors.
As we’ve begun to grow, we reached out and we had one.
We have now three crews that we use, and, you know, we have our tiers of which crew
we're going to have working mostly.
But yes, it's very important to stay with the same crew.
If you can keep them busy, then they know what you expect.
In the beginning, you’ll spend hours and hours with your contractor, but as the process
goes on, they know all right here, they’re going to want quartz versus granite.
There's just certain things that they'll learn over time that you don't have to keep teaching
a new contractor, the way you work.
So it's very important to find a good crew and keep them busy, if you can.
How to go about finding one, I think the best way to find a new contractor is through references.
That's how we found ours (well, two of our’s).
Go by another flipper or someone you trust because there are a lot of contractors out
there who will take your money.
That happened to us on a job actually two years ago.
The guy disappeared with $40,000 of our money.
Yeah, so you run that risk, and if you're a new flipper, that could wipe you out.
Right.
So I think, looking for someone who's referred by someone reputable.
My final question for Jamell is designed to get some inspiration for you viewers.
Can you describe your most successful house flip for us?
Yeah, sure.
So dollar wise, our most successful flip was actually a couple of years ago in my hometown,
actually in Brentwood, New York, a block away from where I grew up.
We found a property.
This property had been deserted years.
The homeowner, the neighbor across the street, was a family friend.
He told me about the property.
And he got me in contact with the homeowner.
The homeowner had inherited this property, and the property had become
basically like a drug house.
There were people in there that were using drugs, they were going there to sleep at night,
they were using the bathroom wherever they pleased.
So we struck a deal with him for $100,000 and closed on it, you know, within 30 days.
We had to go in there, forcefully remove the people that were in there using drugs, have
the house cleaned very well, and we ended up investing about an additional $100,000
between renovations carrying costs and such.
So we went to the project for about $200,000, and we sold it about eight or nine months
later for $375,000.
Wow, that’s a great profit.
Yeah, we did well with that one.
That's a really interesting story around out with and it shows how creative you can be
with starting a house flipping business.
It's vital to capitalize on the right opportunities and really know your market, and I think Jamell
has helped us learn how to do that today.
Thanks so much for your insight, Jamell.
And for more information on house flipping and entrepreneurship advice, head over to
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