Bubble Trouble. Due to the real estate bubble of the early to mid 2000’s nearly everyone is familiar with the term “house flipping”. For those of you who’ve been under a rock, you flip a house when you buy a ugly house and put some new stuff in and on it to make it pretty and resell it for enough money to buy a tyrannosaurus rex egg.
Because that’s baller.
There have been heaps of television shows centered around the ooohs and aaaahs of “before” and “after” shots of revamped houses. Flip this house. Flip that house. Flip Flippety. Flip Floppety.
People ask me what I do. And I tell them I flip houses.
This is the response that is easily digested as most have some idea of what that means. But I’m actually one of those house flippers that does no work to the property. I buy as-is and resell as-is and am typically a couple thousand miles away. I don’t see these properties and the peoples that I sell to are gonna do all of the hammer-swinging. I’m the guy who would supply the property to the rehabber featured on a show like “Flip that house”.
So, technically I’m considered a real estate wholesaler which is just a fancy-term for “middle man”. Some folks would rather find properties on their own. Others don’t care about buying it from a wholesaler who is also making a profit as long as the price is right.
You too can do this
The name of the game with the wholesaling biz, just like all biz is “Marketing”. You want to go through as many leads as possible. The more bad leads you have, the more good leads, and the more properties you’ll be able to flip, thus the more T-Rex eggs you can scramble.
The main three methods of marketing that I’ve found effective are bandit-signs, craigslist, and direct mail. And all three are capable from being administered from far away.
Bandit signs. These are signs that are placed on the side of the road, that say “We buy houses” and the like. These signs are very effective and yet very tacky. So tacky that homeowners notice the shit out of them and so tacky most cities have a ban on them. Which is why the term “bandit” is in the name because you’re basically breaking the rules by placing them out. Understand this, know the risks of the fines, and all will be good. It’s not breaking the law if you don’t get caught right? You can pay an assistant in your select local area to do this grunt work.
Craigslist. This website is very popular with real estate nowadays. With their clean and simple interface, it’s very easy for most homeowners to place a for-sale ad on this website. You can find tons of property on this site and simply shoot an email to the owner or phone call to possibly agree on a price. You can also place an ad yourself to attract homeowners that says, “I’ll buy your house and I’ll pay with cupcakes”. Or whatever works.
Direct Mail. You can always go the direct mail route and send letters and/or postcards to those you feel may be most motivated to sell their property at a discount. Best results come when targeting people “going thru some thangs”. These people could be those who got fired on their day off, going through divorce after a discovered text-message from the mistress, or their pet gerbil just died. Send these people a letter about wanting to buy their house, put it in a hot-pink envelope, with green ink, and litter it with a bunch of strawberry shortcake scratch-and-sniff stickers. In other words, get creative and stand-out if your going to snail-mail it. You can use an online mail service to dispatch your direct mail campaigns or you can hire someone local to your select area.
How to know what price to buy at
Use zillow to analyze most recent sales. Or better yet cash sales. Cash sales are an ideal filter for comparable-sale data because typically investors are the people who are buying with cash. You’re going to want to sell to them, ideally. And even if it’s not an investor, you’ll want to sell to someone buying with cash because a cash-offer without contingencies is much stronger than even a higher offer with a bunch of financing contingencies. You don’t want someone to say that they’ll buy your property, then pull out of the deal at the last minute due to a financing contingency. You can also do some research to know what kinds of prices your customers will be paying for remodeling and renovation projects. To do this, you’ll want to contact some contractors local to the area you’re looking to flip the house in, like Allstate Roofing. This gives you an idea of what profit margins you can expect to receive.
Once you have a good idea of what types of property, in what areas, and at what price is selling quickly for cash, you now know what your resell price is competing with. It’s best to price your property as the new low-comparable. Therefore, you’ll need to work your profit in backwards from the resell price and then arrive at what your offer price per property needs to be. These days people only act fast when you have a “steal”. Not a “good” deal. If the sales history tells you 3 bed/1 bath properties are selling for cash at 50K. You want to offer yours at 38K. Which means you want to buy it for 25K.
The name of the game is numbers, numbers, numbers. Everyone isn’t going to be motivated enough to sell their property to you for an extremely low price. But you will find those individuals, after you sift through enough people. It’s simular to the pick-up game. These guys have some of the cheeziest but funny chat-up lines. But they go through enough rejections to get to the girls that it actually works on.
So with that said, you can’t expect much from 20 bandit signs, you’d be better-off with 150. Reply to 50 craigslist ads a day not 5. Send 200 letter pieces not 20. You smell what I’m cookin’…
And what price to resell at
Once you actually have a property under contract, the easiest thing to do is to put it on the MLS for resale. That way, you have a realtor who can facilitate showings for you and you can also take advantage of the MLS for exposure, which is very valuable (MLS = Big Ole Database that Realtors share).
With you not being on the ground in the area you want to utilize this realtor to the max. They need to give you an honest resell price opinion. They’ll put a lockbox on it if vacant or communicate with the residents to coordinate showings. If you have a strong roster of investor-buyers, then you may be able to avoid the MLS/realtor route. This is a bit more tricky. As you don’t just want a bunch of random tire kickers showing up to the house, having the lockbox code, or bothering the residents to get inside and take a look. You want the resell side of the transaction to be as smooth as eggs.
You don’t want to frustrate the owners at this point. They just want to close and move on with life. Once you have an end-buyer in place, you write up a contract with them that states yourself as the owner and them as the buyer and list the new price. Once you have two contracts in place you get the title work performed, to make sure that the title is clear and there isn’t a secret lien on the property for a bajillion dollars.
You may hire a lawyer to represent you at both closings. This is an option as your lawyer can sign for you as your POA (Power Of Attorney = dude can sign your name on the docs) and also can take care of any hitches that may come up during the closing of either transaction.
You can let the Realtor coordinate with your lawyer, title company, buyer, and seller for closing date/times. Then you can sit back and wait for the wire to show-up in your bank account.
Disclaimer: Be sure to obtain legal advice from an attorney in your desired area to be sure that you’re complaint with real estate law.
Don't Just Read and Leave. Share Your Thoughts.
Tom Wade says
Justin McClelland says
Allan Sidney says
I am a realtor, and I take what works from me from your Blog. I am not allowed to use craigslist, blind ads are illegal for realtors but the number number numbers information is so true and the info on flipping for my own personal investments is also good information. Since I am a realtor I have to recommend that you use a realtor as the tools they have to use in this crazy marketplace can save you thousands in actual cash and in pain, suffering, and time. A realtor’s knowledge base is of great value to all.
Justin McClelland says
Working with a Realtor can definitely be a good choice, when the right one is selected who isn’t afraid to think outside-of-the-box and be creative.
Michelle Goynes says
I died at the T-rex Egg video fyi. I miss Chappelle! Awesome info, I know all this stuff but I just can’t seem to hit the “GO” button…any suggestions?
Justin McClelland says
Perhaps, partner with another investor in your area and offer to bring a buyer for their properties and split the net profit. That way, you need only focus on half of the equation.
Ronda Love says
I really like your trip to Thailand photos, Wat to Go! YES. I want to invest Full-time. My interest at the time is Wholesaling, eventually, Buying and Holding is what I really want so that I can ride the wave up. Any suggestions?
Justin McClelland says
I would guess that you probably already know enough to start, as most people do. So just get started.
Noble R Malik Ali says
Using direct Mail how do you find prospective sellers? Where do you get your list from and does it cost? Also which marketing technique have you gotten most of your deals from?
Justin McClelland says
There are a few good sources for lists. Such as AngiesList and ListSource. And they’re not free. Bandit Signs and Craigslist have yielded most effective personally