This article originally appeared on his website here and is reposted with permission.
A couple years ago my dream was to flip houses in the San Francisco Bay Area because I knew the area very well. I had grown up there. But the truth is, the properties in the area I was living in were over $1,000,000, and rehab projects or properties that I thought I could flip were selling for $800,000. The numbers just didn’t make sense, the returns were too little, and I didn’t even have that much money in the bank, nor was there anybody I knew who could help me fund those deals.
I had to start thinking creatively and so I came up with a system that allowed me to flip houses out-of-state. It is an eight-step process, and starts by building a team on the ground and having that team run everything for you. In this way you’re able to do multiple projects at the same time. For the same price that you can buy one home in the San Francisco Bay Area, you can flip ten properties out-of-state.
Step One: Location
Step one to flipping a house out-of-state is identifying the location where you would like to flip a property. There are many of news articles online which talk about great places for investors to flip real estate in. A lot of research goes into these reports, so this would be a great place to start looking for one of those top-ten places real estate investors can invest in right now.
If you want to do some of that research yourself, some things to look at are: population growth, major employers, unemployment, major industries, etc. When we’re flipping houses out-of-state, we don’t want to get our hands tied up in a property that is $500,000. We want to start really low-end, we want to flip properties that are a $100,000-$200,000 or less. There are a ton of cities around the U.S., especially in the Midwest, where you can definitely do this.
Step Two: Build a Team
To flip a property out-of-state, you’re going to need a pretty well-developed team on the ground that is going to help you find properties, rehab them, manage the rehab, and then sell them for you. The key to this team is the realtor, and realtors can be found by going to Zillow.com. You can go to the Agent section, type in the zip code or city that you’re looking to invest in, and it brings up hundreds of agents in that area. I would just get on the phone and start ringing them up. It might take you fifty to sixty calls to get one good agent who is really going to hustle for you and help you find that next deal or that first deal. This person is going to be the key lead to your team.
The next group of people that you need is contractors to do the rehab. If you find a killer realtor, they might be able to refer you to a contractor who you might be able to use for your projects. But, if not, there are dozens of websites out there to find contractors. Angie’s List and HomeAdvisor are tools that you can use to find contractors in the location where you want to flip the properties.
Step Three: Get Deals
Once you’ve found a great realtor, you’ll want to create searches with these realtors. When you’re calling all those realtors, you want to make sure that you tell them the type of property you’re looking for. You want to call them and say, “My name is Antoine Martel, I’m from Martel Family Realty, I’m a real estate investor from California, and we are looking to invest in Kansas City. We’re looking to flip homes under $150,000. I’m looking for homes that are 900 square feet or larger and have at least three bedrooms and one bathroom. That is something that you can do to all of these realtors to really show them you know what you’re talking about. They can easily go and create an MLS search for you, and properties will start coming through into your inbox.
Step Four: Analyze Deals
Deals are going to be coming in from the MLS searches from your realtor and from your searches on Zillow. Your job is to analyze these deals as many times as possible. You’re going to find more information about the city and new neighborhoods that are up and coming. You can also ask other investors about these things.
Once you have found a good deal through your searches, it’s time to present it to your agent. What I would do is I would take that property and go and forward it to my real estate agent. I would say,:”Hey, Stanley, here’s a property I found on Redfin or the MLS search, I think it’s a really good deal, I like the price point, I think that the ARV for this property is X, and I’m really not sure what the rehab budget would be, do you have any opinion?
From there just get the conversation started with the realtor. And if they’re a good realtor they’ll be able to tell you what the ARV for the property will be and how much work it’s going to need. Just from looking at the photos they’re going to be able to give you a good estimate. Then you have to take those numbers, go online and find a tool to start analyzing these deals. These tools are all over the internet. You can just search fix and flip real estate investment calculators, or something like that, to start getting these deals analyzed and start to create that conversation with your realtor.
Step Five: Make Offers
Once you’ve analyzed these deals and have gone back and forth with your realtor and have finally found a good deal where his rehab and ARV numbers makes sense, it’s time to begin making offers. This is the point where a lot of investors crack. Especially if you’re investing in a market that has a lot of competition, it can be very difficult to find good deals and to get them under contract. The key is to place more offers. The fix and flip game is a numbers game. I have people in Los Angeles who flip twelve to fifteen properties a year, but they’re placing 40 offers a month to get that amount of volume.
If you’re investing in the Midwest or somewhere else that is not as expensive, your odds may be a little bit better. They’re probably going to be five or ten to one, but that just shows you how many offers you need to place in order to get your first deal. Don’t be nervous, don’t be scared, just give yourself enough time while under contract to get your inspection done and to get your money together.
Step Six: Due Diligence and Close
Now that you’ve got your first deal under contract, start doing your due diligence. You’re going to have an inspector and contractor walk through the property. This is when you need to make sure that all the numbers that you had done beforehand line up with what the inspector and the contractor are saying. Normally I’d like to have the inspector and contractor walk through the property together.
Once everything has been verified, it is time to close on the property and begin the rehab! This is where you’ll need to raise the money beforehand or have the money on hand to buy the project. You can do this in many different ways. There are hard money lenders, private money lenders, and there are a ton of articles and blogs about how to raise money from those two sources.
Step Seven: Rehab and List
The next step, once you’ve closed on the property, is to manage the construction and go through the whole construction project. Three to nine months is a good range to have for your rehab projects. If you’re doing 12-month rehab projects on your first deal, that’s a little bit heavy, and that’s probably too large of a project right from the beginning. So I always try to stick to the lower range. Three to six month for rehab project would be a good range.
Managing the rehab and the construction from out-of-state is not as difficult as you would think. You just have to be in constant communication with either the realtor, who’s managing the contractor. Or you need to be in constant communication with the contractor to make sure your deadlines are being hit. You can also create deadlines and create payment plans to get that done.
No matter what, your realtor should be going there every week. They should be taking note of what’s going on, taking photos and sending them your way. Some realtors will charge you for this, but it shouldn’t be more than $500 or $1,000 to manage the rehab project you’re doing. If it is, find another realtor, or just be in constant discussion with the contractor.
Once a construction is complete, the property now passes back into the hands of the realtor, the killer realtor you found at the very beginning. This realtor will now stage the home, put it up for sale, and now it’s just a waiting game to get those offers in.
Step Eight: Profit and Repeat
The last and final step that everybody loves is selling the property and getting the check in the mail.
I know it sounds like a lot of information to handle, but you just need to take it one step at a time. It’s going to take time for you to build your team in these neighborhoods. It’s going to take time for you to find the right group of people to do these deals for you, but once you have every piece of the puzzle lined up and you do one deal, then it’s time to crank it up. Which means next time you can do two deals, three deals, four deals, etc.
It’s all about building the foundation before you try to overload yourself. Every step of the way make sure that you understand what is going on in the process. Having that right team who knows your level of knowledge and how much experience you have is really going to help you succeed in this business.
I hope you enjoyed reading this. I hope it helps you go out there and flip your first house. If you need any help along the way, if you have any more questions, please feel free to leave a comment below or just reach out to me by email. I’d love to chat with you and help you get your first rehab project done.