How To Start Flipping Houses As A Beginner (Step By Step)

how to start flipping houses as a beginner step by step what's up everybody it's Jamal Gibbs your family oriented entrepreneur welcome to another video so in this video what I want to do is show you how to start fixing and flipping houses even if you're brand new to real estate in order to make huge profits as a real estate investor and do this in a six step process I've been using the same six steps since 2001 and I'm going to share with you what works for me so that you can Implement you can rip off you can duplicate it and start making money in your own business as well the reason I'm putting this video together is simple over the last few weeks if you follow my Channel at all you'll see that I put together a playlist on me purchasing a property rehabbing a property and now as of yesterday we sold the property and we're going to make over $60,000 on that deal and you guys have requested a stepbystep video on how we actually did it even though I documented everything for you now if you want to see the documented playlist be sure to check the cards up at the top step number one in the process is the find the deals now what we do when it comes to finding deals is we go through wholesalers we go through Realtors we go through ourselves and find these deals off market I'll get back to that in just a second we also go through other means we find deals through Facebook communities Facebook groups and things like that we find deals through online auction sites in fact the deal that I covered in that playlist up at the top we went through auction.com in order to be able to purchase that property now we're seasoned investors I'm not recommending you do that right away there's some better ways for you to get your feet wet the only issue that I have when it comes to finding deals through wholesalers for example is the heightened competition and it's the same with Realtors as well when a realtor lists a property on a multiple listing service if it's a really good deal it's going to sell quick and you're going to have a lot of competition so this is how bidding wars are started if a wholesaler has a really good deal they're looking to max out their profit and I don't blame them for wanting to do that but you have to make sure that you stay within your numbers which I'll cover in just a moment in order to make sure that you have a good deal and you're not overpaying for a property so I do recommend as a brand new real estate investor as a beginner to find deals through wholesalers and Realtors this way you won't have a marketing budget and the deals can be handed to you the wholesaler and realtor does all the dirty work for you but once you become a little more experienced I recommend you add in direct mail and different marketing mechanisms in order to be able to drive deals as well find your deals off Market the reason you want to find your deals off Market you get to control the entire deal yes you're going to invest time and money into finding the deals but you eliminate the middleman and you won't have to pay a wholesaler or realtor in order to be able to get these deals for you but you'll be able to get deeper discounts and minimize your competition when you're looking for real estate deals but like I said we also go through online auction sites and there's a lot of other ways that we find deal but when it comes to online auction sites you really want to know your numbers up front so that when you do place your bids you're not over bidding on properties let me share with you what we were able to purchase that property for up at the top so that when I get into the numbers a little bit more you'll know exactly what I'm talking about let's go to auction.com so I'm going to go over to the right hand side of the page and I'm going to go down to where it says post auction the property that we covered in that playlist was was on louder Milk Street I called it the auction property it says that we bought this property for $888,000 but that's because the bank the auction company marketed the property as a three-bedroom one bad so when we ran our comparable sales we priced it as a 31 after doing a little more research I found out that the property is only a true two bedroom one bath and it has a huge bonus room which the bank was counting at as a bedroom but it's not technically a bedroom my actual price when I bought this property was $75,000 I got a $133,000 discount because I found a discrepancy in the way auction.com was marketing this property so now that you know some of the sources where you can start finding these deals when you approach these particular sources what you're looking for are your local bread and butter properties now this can be different depending on where you live for example I'm hearing in North Carolina when I lived in New York or when I lived in Pennsylvania the bread and butter property was completely different than here in North Carolina in New York you're going to have more multi-unit properties right so you're going to have that 2 to four family style home in Pennsylvania you're going to have row homes here in North Carolina you're going to have single family residences just for a Ru of thumb bread and butter are going to be ideal properties for first first time home buyer so the area that you're looking for properties in will be more so your firsttime home buyer style area within a firsttime home buyer price range now when it comes to the amount of work that these properties need obviously you're looking for the problem properties you're not looking to pay top dollar for a house you're looking for issues that you can fix as Real Estate Investors I say this all the time we're problem solvers okay so you want to find the problem find the distress in the real estate and when you're doing rehabbing you're looking for houses that need repair what I recommend as a beginning real estate investor is you not focus on houses that need to be torn down and rebuilt or houses that need to be completely gutted out the reason for that is because those types of properties can become money pits and when you're just getting started that's an easy way for you to be out of the business relatively quickly so what I do recommend you do is focus on properties that were built between 1975 and 1995 now obviously that's going to differ depending on where you live for example if you live up in the Northeast you're probably not going to find a lot of properties that were built before 1975 that's because those are older cities again focus on your local market the the idea here is not to Do complete gut Renovations as a beginner at least on your first one to three Deals okay if you can get properties that need a moderate amount of work on your first one to three Deals and you build up your Capital then you can start taking a little more risk and start expanding the type of properties that you're focusing on recommend you do is focus on your bread and butter properties focus on properties that need repair that are not complete gut jobs moderate amount of work is perfectly fine that's exactly what you're looking for if you focus on firsttime home buyer neighborhoods within a firsttime home buyer price range you'll find really good deals and as you gain more experience you can expand your ideal type of property right so when it comes to step number two there's really two things that you want to keep in mind you're going to have to view the property to get a repair estimate and you're going to have to make an offer on the property so what I recommend you do in order to view the property especially being a beginning real estate investor you probably don't have the relationships that you need yet what I recommend you do is find your contractors by going to Lowe's or Home Depot or you can talk to other investors in your local market the easiest thing to do for me is to go to Lowe's or Home Depot go to the prodesk at Lowe's or Home Depot and ask the person there if they can recommend any contractors that frequently visit their desk another thing you can do is sit in the parking lot and scout out the contractors that are pulling up to the pro section of Lowe's and Home Depot and take down the phone numbers that are on their Vans once you find a bunch of contractors call all of them up and find out which one will provide you with a free free estimate on the property that you're interested in and let them know that you're looking to get this estimate so that you can make an offer and purchase the property and ultimately give them the job now once you find the contractor that's willing to give you the free estimate go ahead set up the appointment in order to bring the contractor to the house now again I have a full video sharing with you exactly what to look out for in these properties all of the major things and some of the small things that you want to look out for as well so when you walk through the house with the contractor you know a little bit about what you're talking about be sure to check that video out up at the top but mainly what you want to do is you want to look at the roof you want to look at the electric you want to look at the windows you want to look at the HVAC system that's the heating and air system have a look at the plumbing you want to look at the hot water heater how the kitchen looks to you if you had to rate it one being the worst five being the best what would you rate the kitchen cabinets what would you rate the bathroom using the same numbers obviously you're going to paint the property how can you add more appeal to it these are different things that you're looking out for as you're walking through the property and you're going to get a contractor's estimate to see what it's going to cost to beautify this property using the contractor now once the contractor gives you your repair estimate what you're going to want to do is make an offer on the property now remember speed is your friend so the cont contractor has to move relatively quickly in order to get you this estimate so that you can make an offer on this property if not what's going to happen is somebody else is going to bid on the property they're going to accept somebody else's offer and you're going to lose out on a deal so when you're talking to the contractor make sure that they can get the repair estimate to you as quickly as possible now once you get the repair estimate from the contractor the next step is to go ahead and make an offer on the property now there's two things that you need in order to make an offer on the property number one you need comparable sales the best way to get comparable sales is to go through a realtor that you can add to your team who can then sell the property for you on the other end there's a lot of other ways to get comparable sales in fact if you use my investor deal pro software which I'll link in the description box for you you can get comparable sales through that software as well but the objective here is to get comparable sales now when you're looking through comparable sales what you're looking for are properties that sold within the last 3 to 6 months within a quarter or half mile radius that are like and kind to the property that you're making an offer on and you want to compare apples to apples if the property that you're looking at is a colonial style home you want to find colonial style comparable sales if there's single family houses you want to find single family houses if there're split level homes you want to find splits etc etc you're comparing Apples to Apples not apples to oranges once you have the future value of the property once it's completely fixed up you know what the comps are in the area you know what the property can sell for once you put the work into it then you're going to need your contractor's estimate those are the two things that you need in order to be able to make a solid offer on the house and here's the formula that you're going to use in order to be able to make your offer we use after repaired value or comps right so you have the comps SL arv multiply by 70 that's 70% of the arv and you're going to subtract the contractor's estimate make sure that when you get the contractor's estimate it includes labor and materials and Mechanicals and everything that you need to put into the house this way you're not short changing yourself on the offer arv times 70 minus repairs and obviously that 70 is going to vary from Market to Market in some areas it can go as high as 75 in other areas it might be as little as 65 but the Nationwide average is 70% two things when it comes to step number two get a contractor's estimate and make an offer and in order to make an offer you're going to need comparable sales and you're going to use that contractor estimate in order to be able to use the main formula all right so step number three is to find the funding for the deal all right now there's a lot of different ways to do this you can use your own personal funds if you have access to it I never use any of my own money I've been doing this for over 20 years I don't believe I've ever used any of my own money in order to be able to purchase real estate now I have used my credit cards to purchase deals through auctions and stuff like that but I always get my money right back out of it so you can use your own personal funds you can use private money or you can use hard money most people watching this video right now we'll be using hard money true private money takes time to build relationships and if you're brand new to real estate investing you may not know enough people with enough Capital to be able to borrow private money from them so the next best thing is to go to a hard money lender now when it comes to hard money lenders they're very easy to find if I go to Google and I type in hard money lenders in NC which is North Carolina you'll see that a number of different lenders will pop up so for example if I go to let's say Lima one.com which is actually a really good lender and I go over to where it says loan programs and I click on Fix and Flip sbri they provide you with all of the details that you need in order to be able to qualify for their loans now on their Fix and Flip loans they will lend you up to 92.5% so what that means is if you purchase a property for $100,000 they're going to give you 92,500 the rest of it will be in the form of a down payment you only do loans between $75,000 and $3 million they'll give you terms as long as 133 to 24 months which is f fantastic a lot of hard money lenders will only give you 6 months right uh non recourse available interest only loan payments which I'll talk about in just a minute and it's obviously residential but the the point is they're doing 75% of the loan to value so what that means is they're going to give you $75,000 toward your deal but you can see all of the criteria that they're requesting in order to be able to fund your deal now what I want you to keep in mind and you've just seen some criteria from one lender I want you to keep in mind that hard money lenders will only lend you a certain amount of money toward the value of the property and that's where the arv times 70 minus repairs comes into play so as you can see the lender that we just looked at they will lend up to 75% some lenders will lend 65% but Nationwide it's right around 70% but you have to adjust that percentage based on the lender that you're working with most hard money lenders would want to know what the value of the property is after it's fixed up and that's why you got to know your comps but there's another thing another step that they're going to take in order to be able to get this information I'll explain that in the next step of the process they also going to want to know how much work the property needs once they know how much work the property needs they're going to base their loan amount amount off of those two numbers let's say that you're looking at a property it's worth $200,000 and a hard money lender will only give you 70% of the value of that property what that means is they'll lend you up to $140,000 on the deal and out of that 140,000 you're going to have to purchase the property and you're going to have to rehab the property now if the hard money lender requires you to have some money up front obviously ly that money is going to be lower so let's say that they wanted you to have $10,000 out of pocket they'll lend you $130 you'll come to the table with the other 10,000 now in addition to the 70 cents on a dollar or whatever percentage the hard money lender is willing to lend you most hard money lenders will charge you two to three points up front and for those of you who don't know points are a percentage of the loan so what's going to happen is let's say that you borrow $200,000 and the hard money Lim charges you three points in order to be able to borrow the money what that means is they're charging you $6,000 just to borrow the money so this is their fee for funding the deal in addition to that they're going to charge you interest only payments most hard money lenders are going to be somewhere between eight and 12% some will be higher some will be lower but on average we pay between 10 and 12% on our deals let's use 12% as a nice round number if a hard money lender lends you $200,000 at 12% interest and they amortise it over let's say 12 months but they will like their money back within 6 months all that means is you're paying 1% per month if you take 12% over the course of a year and you take 12 12 months they're charging you 1% per month so in order to factor in your numbers properly and to understand how much you're paying for the money you're going to take $200,000 multiply by 1% so that's $2,000 per month that you're going to be paying on the interest only you're not paying off any principle and let's say that they want that money back within six months and it takes you six months to be able to return the investment you're going to pay $122,000 in interest that's it and then when you return the investment it's going to be the entire $200,000 so again understand that when it comes to hard money you're paying interest only on these loans and they going to charge you points just to borrow the money up front and sometimes they'll also require you to have a down payment in addition to these particular numbers so when it comes to borrowing hard money they're going to want to see that you have access to this money in the bank so again let's just say that they want you to have three points up front they're going to require you to have at least $66,000 plus closing cost in the bank in addition to enough money to cover their interest payments for a period of time as well as money to start the project so a lot of hard money lenders will want you to have 20 to $30,000 in the bank and it doesn't necessarily have to be your money you can borrow Gap funding from somebody that you know for example in order to be able to make that happen Gap funders will fill the void between what you need to bring to the table and what the hard money lender requires so they act as a business partner in that regard right but hard money lenders will want to see that you have access to this money in the bank in order to be able to fund your deal so that's how you get the deals funded if you have access to Capital that's obviously going to be your best bet I prefer to to keep my Capital if you have private money that's going to be your best play in fact the deal that I purchased through auction.com I use private money in order to be able to get that done and again if you're brand new and you don't have access to any of that stuff you're going to have to use hard money we don't go to the traditional banks in order to be able to fund these deals that's not how it's done but you got to have access to a little bit of capital and hard money is probably going to be the easiest money that you can get in order to be able to start fixing and flipping houses all right so step number four is to go ahead and close the deal now there's a couple of different things that a hard money lender will require in order to be able to fund and close the deal for you number one is you're going to have to get that future value slash subject to appraisal done remember I talked about this earlier in the video you're going to have a future value you got comps but now you have to get an official appraisal done on the property so they call this a subject to I call it future value the technical term for it is subject to appraisal and what that basically means is the number that the appraiser provides on that appraisal report is subject to you actually going out and doing the work required in order to force the appreciation bring the property value up on that particular property so you're going to have to get one of those and that's going to be an easy $400 out of your pocket give and take the next thing as I've already mentioned you're going to have to have that contractor's estimate as well in addition to that you're going to use an attorney or title company based on where you live in order to be able to draw up the paperwork make sure that the attorney or title company draws up the promisory note to be able to pay the lender in order to be able to protect their investment in the property as well if you don't pay pay them they'll simply foreclose and that promisory note from you will ensure that they're going to get their money back in one way shape or form so the closing attorney is going to draw all of these things up they're going to draw up the closing documents the promisory note they're going to make sure everything is funded properly it's going to be taken care of in a professional way whether you use an attorney or title company is really based on where you live so you're going to go ahead and close the deal get the future value appraisal done get the contractors's estimate in get all the documents in that's required get the deal closed this is the easy part now a couple of other things that you want to take care of during the closing process in addition to getting the appraising when a contractor estimate you want to make sure you have Builders Risk insurance before you actually close the deal you don't want to take on a project get the deal funded and you're not insured the day you buy the property the house can burn down and guess who you owe the money to back to the lender it's going to come out of your pocket instead of the insurance company so get Builder Risk insurance also make sure you get any permits needed in order to get the rehab done you want to make sure you get the contractor's agreement signed you want to make sure you have the scope of work signed the scope of work is going to spell out all the terms everything that the contractor needs to do and fine detail should be on that scope of work from A to Z from demo day on to the last day to cleaning the property everything that you want done on that property should be on the list if you miss anything the contractor can simply say that it wasn't on a list I don't have to do it so make sure you have everything that you want done by the contractor on that list and the price that you agreed upon on there as well also have your penalties if they go past a certain day and bonuses if you choose to if they finish early these are all things that you can add into your contractor's agreement right so you have your contractor's agreement and part of that is the scope of work you also want to get your Insurance liability wavers sign so if one of the contractor's workers get hurt on a job it's the contractor's responsibility and you also want to get what's called a final and unconditional lean waiver sign and all that means is the contract cannot put a mechanics lean on your property stating that you didn't pay them for the job so this is why is important to keep all of these records so get all of this paperwork done before you actually close the deal and then after the closing you want to make sure you get all of your utilities cut on as quickly as possible as well as order a dumpster for the property as well so that's all part of the closing process before and after and now it's time time to get into the rehab so step number five is to go ahead and get your rehab done I take a five-step approach when it comes to rehabing houses we do demo and roof first after we do demo and roof we get all of the utilities taken care of so for example if we needed to take care of the HVAC new Plumbing new electric new hot water heater any of that stuff all that's done in phase two phase three we get into rep pairing walls and we get into painting interior and exterior as well and we start getting into beautifying the property a little bit the fourth thing we take care of is the installation part of the rehab so whether it be cabinets or bathroom installation flooring windows Gutters anything that needs to be installed we take care of that during the fourth step and then finally during the fifth step we take care of the finishing touches as well as cleaning the property now one thing I will say is just like with our new construction properties our rehabs are very cookie cutter when it comes to the finishes that we put into it so we stick to a lot of the same paint colors a lot of the same flooring and appliances and kitchen cabinets and light fixtures and all of that stuff is all the same the reason we do that is because we're taking a systematic approach to rehabbing houses and we know exactly what we're spending money on and how much it's going to cost before we actually start the project so think about doing that same exact thing in your business consider doing that because it's going to be a lot easier to rehab houses As you move on so now that we have the rehab out of the way the next thing is to exit the property whether you plan on renting the property or selling the property so let's just say you decided to rent the property you can go shortterm midterm or longterm on these types of deals if you go longterm then obviously you don't have to furnish the property but short and Midterm you will have to factor in a Furniture budget as well but for the purposes of this video let's say you want to keep it simple and you want to fix and flip the property you want to sell it there's two different ways that you should think about doing it as a beginner number one is the one that I recommend and that's going through a realtor we pay Realtors between four and5 % and the reason why you want to go through a realtor is because they'll help you get the property sold they'll tell you exactly what needs to go into the property how the property should look they'll run a comparable sales for you they'll do all the Dirty Work in order to get the property sold including marketing the property because that's how they're going to get paid again we pay as much as 45% in order for a realtor to be able to handle that for us the other way is by going going through a flat fee listing broker this is how you gain the exposure of the MLS without having to pay a realtor fee now obviously if you're listing the property on the MLS you're going to pay a realtor's commission but you're not going to pay as much as if you were to go with an exclusive realtor so you can pay $100 to $200 to go through a flat fee listing broker and then offer two to 2 and a half% maybe upwards of 3% if a buyer's agent sells the property for you what I why recommend you do as a brand new investor work with a realtor exclusively in order to be able to get your properties sold so those are the six steps you have finding the property viewing the property and making an offer on it you have funding the property you have closing the deal you have rehabbing and you have selling the property and this is how you get to the bag at the end of the day now what I'd like to do is share with you the before and after footage of how this particular property came out as you can see on this first video we're walking into the house right now and as we get to the other side of the door you can see we're actually looking at the first bedroom so you can see what the condition was before and here's the other bedroom next to the bathroom and here's the bathroom right here the only thing that we didn't change in that bathroom was the tub here's the dining room area that we're stepping into you can see there's a back door there and there's a wall there that you you're going to see a big difference in the after footage here's another door that was in a kitchen and the kitchen cabinets and we also have the living room space right here again this is all before footage and here's the after footage a drastic change and this is literally a 30 day flip if you check out the footage the playlist up at the top you can check the dates for yourself we did this all in 30 days you see where the stove is that's where that second door was in the kitchen before we knocked down that wall that I was telling you about going into the bathroom now you can see again the only thing that we didn't do in there was the tub but it looks fantastic uh there's the master bedroom and here's the second bedroom right here one thing that you want to keep in mind when you're doing these houses is you want to appeal to the masses until you're more experienced so the way we do our projects is we try to appeal to the masses we're not going after a niched market I had someone leave a comment on one of my videos my before and after video of this particular property and they said I should have left the wood paneling up because everybody doesn't like the modern look I agree with that everybody won't like the modern look but that's really minimizing my buyer pool by focusing on a niched market so we go after the mass Market in order to be able to turn our profits over as quickly as possible so you want to start thinking that way as well and again as you build up your your money and you build up your experience you can start doing things the way you want to do it but I recommend you at least start appealing to the masses in order to gain capital as quickly as possible I recommend you watch the playlist linked up at the top so that you can get even more insight on how this actually works because I'm sure there's some things that I probably missed in this video that I've covered in those videos in full detail be sure to like this video subscribe to the channel click the notification Bell I hope you gain value from this video leave a comment let me know your thoughts what you think about the property before and after and also when is your next Flip or your first flip going to be taking place leave a comment in the comment section let's start a conversation and I'll see you guys on the next one take care

Channel: Jamel Gibbs

Views: 23,971

Keywords: real estate investing, wholesaling real estate, wholesaling houses, jamel gibbs, flipping houses, wholesaling, wholesale real estate for beginners, real estate, jamel gibbs real estate, flipping houses for beginners, house flipping, how to flip a house, house flip, house flipper, house flipping for beginners, real estate wholesaling, how to flip houses, how to wholesale houses, getting started flipping houses, should i start flipping houses?, investing in real estate

Id: QtMX987TgV8

Length: 33min 6sec (1986 seconds)

Published: Thu Nov 30 2023