Why Did I Chose House Flipping As My first Start-Up Project?
The below is a journal entry announcing my first start-up project. It explains it quite well, so I’ll use it as my introduction. – Nick
Journal No.2 – First Startup Business Announced: Home Flipping
I’ve always loved reading about real estate. For ten years I’ve read every book and took every course on the subject. I’ve consumed the Robert Kiyosaki’s Rich Dad Poor Dad series which focused on business and real estate. In fact, I liked real estate so much that I got a Real Estate Broker’s License in Idaho and California. However, this has caused a few problems.
Have you ever heard this saying: You are what you gaze at? Well, for entertainment during my last Afghanistan deployment, I got into online business podcasts (see Journal No.1); and because of it, I now want to do something online; and I have way too many ideas. Way too many!
I love to give advice and not take it. I’ve told others, “Focus on one thing at a time and do it well.” I know I should take my advice, but I can’t. So, instead, I plan to do two or three businesses linearly or at least mostly linearly …and this time I mean it!
Isn’t that like saying, “Hey watch this,” just before you break a window? However, I simply cannot choose one over the other. So you can watch as I try to do them all.
The First Business: Sell It or List It?
So, my first business is one I’ve kind of already started. It will be a real estate “flipping” company. Flipping has kind of a bad reputation. In fact, before the Great Recession (2007/08), the U.S. Federal government tried to limit it with tax policy. After 2007 and through today, the Feds now like flippers. Why? because they take repossessed and/or trashed homes and fix them up and then put them back on the market. It’s good for neighborhoods and local economies.
Fix-and-resellers provide a valuable service at the business owner’s financial risk (just ask all those that went belly up in 2007-09 if it wasn’t a risky business).
Just as a side note: For a free country, we have way too many “progressive” laws to help us …or should I say, control us. Let us alone and let us live under maximum liberty. Way too often our politicians interfere with our personal liberty through progressive laws; each filled with special interest controls and exceptions! See my first article, Deployed to Afghanistan: An Epiphany About What America Used to Be and Needs to Be, to understand my perspective.
I bought my first “flipper” under a Limited Liability Company (LLC). I always put my business under the umbrella of a “Legal Person” such as an LLC or corporation. If you’d like a report that discusses the benefits of a Legal Entities, get my free report, Even Superman Needs a Legal Entity (it’s in the member area). Whether you pick up this report or another one, do your homework and consider it.
So here’s my business plan: I’ve not written an extensive plan for this particular business (yet). But it’s simple: I plan to buy one home per quarter. I’ll fix it up and then list it; and then do it again and again. I’ll have to see how much is left after taxes and expenses. I hope to make about $15,000 to 20,000 per resale, net of expenses and taxes. After one or two properties, I’ll re-evaluate my strategy and see if it’s a good business to stay with. That’s my exit strategy. If the market turns, I’ll be a landlord for renters.
Before pursuing this line of business, I did do my homework. I found that most “repos” are sold for 30 percent less than market value, before they’re fixed up. As it turns out, that should provide enough margin to risk purchasing a property, fixing it up, and then resell an improved version. If it was less than that percentage, it would be difficult to make a living given the risk of market fluctuations.
On this first project, I did all the fix up work myself. But next time, I’d like to sub-contract more of the rehabilitation work. I may not make as much, but it should speed up the process and reduce risks from market fluctuations.
Here’s the Backstory for My First Business
In April 2014, I bought a REO (Real Estate Owned) home. It’s called “REO” because the bank owned it after a repossession. Ever wonder why “they” don’t they call a human-owned home a REO? Why aren’t bank owned homes called “BOs.”
Just so you know, I’m not a big fan of banks. They’re never a “business partner” no matter how many times they claim to be. It’s their way or the highway: You’re out on the highway and they have your home. I don’t know partners that do that to one another. True partners weather the storm together.
Anyway, I bought it to fix up and resell, but ended up living in it (and at my other home with my 82 year old dad, in a nearby city). I tried to sell my house on Craig’s List. But guess what? Nothing really happened.
I sold a farm in the depths of the Great Recession in 2008 via Craig’s List and newspaper advertising, but it seems residential real estate is a bit different. Rural folks are more independent, I guess. They don’t need “no stinkin’ agent.” It makes some sense, since a buyer pays no commission to buy a house.
So after messing around for eight months, I bit the bullet and activated my license for about $1,500, which includes two courses, state required Errors and Omissions Insurance, local and national Realtors Association dues, and the Intermountain Multiple Listing Service (MLS) fees.
The MLS is the sole reason I reactivated. I’m too cheap to hire a broker and pay the commission – especially, since I should be able to do it myself. The MLS will figure prominently in my second business. That’s a hint, but it may not be what you think.
It’s an Awesome House
The 1440 square foot, four bedroom, two bath house was built in 2004; and sits in a nice middle class neighborhood. It’s the smallest floor plan among “McMansions,” but it should put a family in a nice neighborhood with good schools. I repainted all of it, cleaned it from top to bottom (it needed it), fixed up the landscape and pressurized sprinkler system, and rehabbed the kitchen. I’m going to upgrade the bathrooms some and then list.
In the neighborhood, the homes are currently listed from $129,000 to $145,000 for homes similar to mine. The homes sold a few months ago at or above the higher end of that range. It’s winter now, so the market has slowed. If I keep it until Spring, I should be able to avoid short-term capital gains and get a better price.
The lower priced one is in another neighborhood that’s not as nice. It’s not as fixed up as the other houses. The higher priced home is nice. It has new carpet, a fireplace, and a backdoor awning.
I plan to list my home for the same higher price, but with a $1,500 flooring/carpet allowance. My neighborhood is a little nicer than that home too. However, my bathrooms are a few square feet smaller.
So there you have it. My first business that you can follow with me. It’s truly a “brick and mortar” business. The next business, which I’m considering, is more of an online one – though most (if not all) business today have some sort of online presence.
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