Before You Flip, Find a Mentor

IRVINE, CA-Home flipping is not a practice one should enter into blindly. In fact, two of the most successful home flippers—Doug Clark of Spike TV's “Flip Men” and Scott Yancey of A&E's “Flipping Vegas”—found mentors in the real estate industry and learned all they could from them before buying their first home to flip, they revealed during a recent RealtyTrac-sponsored webinar moderated by VP Daren Blomquist titled “Learn Before You Leap: Lessons from Reality TV Flippers.”

Both investors strongly recommend the mentor technique for the uninitiated. “I didn't go it alone; I got some great advice,” said Clark. “I learned from someone successful, and that's the way to do it. Learn from the best,” added Yancey.

There are ways to get into housing real estate without making the leap to flipping, Yancey pointed out. “There are ways to get involved without needing a lot of money: wholesaling, for example. In the end, you want to get to the point where you buy and hold many properties that generate income. Flipping is a great way to generate cash to get to your end game.”

But trying a variety of subspecialties in real estate is not a bad idea, said Clark. “I flip properties so I can hold properties, but there's no right or wrong. It's all real estate; there are lessons and benefits to all of it.”

With market conditions favorable for investing, it's tempting to want to sell soon after buying. “With all the demand, I'd love to be selling something right now,” said Clark. “I like to hold indefinitely, but I think it's a fantastic time to flip properties. There's a lot of demand for properties that need renovation.”

Both investors said now is a great time for real estate, since the market is at the bottom and starting to go up. However, their methods for acquiring properties differ. Clark buys 90% of his houses at auction on the courtyard steps, preferring the speed and ease at which the process takes place. Yancey, on the other hand, prefers to use agents and brokers in order to have time for review and due diligence before closing. “I'm personally more comfortable with that. Doug is obviously very successful, but I probably do the courthouse route the least of other methods.”

They do agree that moving quickly is key to successful flipping, and they prefer buying the “ugly duckling” home in a nicer neighborhood, putting a little “lipstick” on it and selling it for a profit to buying a $2-million mansion and trying to flip it—even though, as GlobeSt.com recently reported, high-end home flipping has become one of the most popular forms of the practice. “I try to avoid some of the competition with what everybody else is going after,” said Yancey. “I'm having fun playing a little bit away from where the masses are.”

If you are interested in home flipping, look for about a 25% profit margin, the experts say, and aim to for a 90-day turnaround, tops, for the highest profit. “If you take longer than that, you risk that market conditions have changed,” said Clark. “You want to make sure you're in a similar market when you sell.”

In order to meet that timeline, look for quick cosmetic renovations as opposed to new roofs or wall construction, particularly if you're just starting out. “Beginners need to do something that's more cosmetic,” said Clark. “You should have your inspection done and already know what you're going to need to do. You may find that as you update one area, you have to do others because they look more outdated now. But if you tackle the right property, turning it around in a week or two totally works.”

Yancey said the key is to have a good education and know what you're doing. “When I first started, I'd walk through 20 houses a day and bring a contractor and a yellow pad. I'd make notes: roof, $25,000; new appliances; etc. Find a good contractor because you're going to be doing a lot of business and they need to know what your level of finish is to renovate a home. Pretty soon, you'll know those numbers and can walk through a home and know it's going to be $4,000 to $9,000 to renovate.”

Regarding financing, both experts agreed that this will be the least of a flipper's problems if they find a good deal. “There's always a way to fund it,” said Clark. “There are investors, people like ourselves. We also have connections to big national organizations that help people fund deals. There are institutional investors. I worry less about that than learning, finding a mentor. Financing will never be a problem.”

Yancey added that if you're educated and know what you're doing, you'll know how to find a deal better than everybody else. “There's so much money out there; the word is out that real estate is at the bottom and going up.”