My name is James Watson and I am co-owner of Omaha Homes For Cash. Here is my reality…
Real estate investing is glamorous, right? Everyone has seen the social media posts or the infomercials from “gurus” across the country. Lamborghinis and stacks of cash. Guys with nice clothes and beautiful women. “For one small payment of $20,000 I can show you….”
Or maybe you have watched endless episodes of “Fixer Upper” and have thought to yourself ” Hey that doesn’t look so hard. I could do that”. Maybe you could, but everything isn’t sunshine and rainbows as they appear on TV. I promise you that.
While real estate investing is a very attractive career choice for many reasons, there is also a long list of not so glamorous factors that anyone considering real estate should know about.
Here are the cold, hard truths about flipping houses for profit. You can decide if you have the stomach to overcome them in order to be successful.
1.) No Deal Flow Means No Income
Anyone can sit around until a great opportunity falls into their lap. Anyone can flip that one house. The problem is, flipping one house likely isn’t going to pay your bills.
So how are you going to get a steady stream of deals coming in?
To have consistent deal flow, you are going to likely need a combination of the following:
- A good strong, credible website
- A team of wholesalers or deal finders
- A direct mail marketing campaign
- Online paid advertising (PPC, Facebook Ads, etc.)
- Connections and relationships in your local community
Even if you are doing all of these, and doing them well, I promise you that you will still find times where you need “just one more deal” to get things where you want them.
The hustle to find good deals, especially in today’s hot market, is never ending and relentless. Do you have the time and dedication to grind for deals on a daily basis?
2.) Managing Contractors Is Definitely Not What You See on HGTV
This is not meant to be rude or negative towards any of our contractors. I love and appreciate you all very much. But just know, it took many, many headaches, firings, heated conversations, tears, anxiety, and unimaginable amounts of stress to find you.
I remember watching all of the “House Flipping” television shows and thinking how easy it all looked. The contractors were super easy to work with, skilled, dependable, and appeared more as family friends than contractors.
Snap back to the real world.
Have you every managed a team of contractors? Have you ever had multiple contractors working on the same house at the same time? Have you every showed up to the work site to find half the work done, nobody on the job, and the contractors phone has been “disconnected”. Oh yea, he already collected a large majority of his payments because you felt bad when he said he was on hard times and needed the money up front to help his family.
Finding skilled, dependable help is NOT EASY. You will likely fail 10x before you find someone that works to your standard. There will be difficult conversations, often times heated. There will likely be half finished projects, requests for additional money up front, theft, and substandard quality of work completed on your projects. Avoiding these headaches and hiccups is always the goal.
3.) The Uncertainty of What The Market Will Do
Lets say you find a deal and have a great team of contractors in place. You are 1 month into a 3 month renovation. The market is strong and there are plenty of buyers in your city. Things are going GREAT!
Fast forward 2 months and the market is not quite as strong as it once was.
You also went 10% over budget as you ran into a few small hiccups during the renovation. You have 3 months of holding costs (utilities, taxes, mortgage payments) that have taken a small portion of your projected profits.
Due to the slower market, the house sits a little longer than expected racking up additional holding costs. Finally an offer comes in, but it’s less than asking price.
You can take the offer which provides a return on your time and investment, albeit small. Or, you can hold on and hope a better offer comes in.
The market could rebound, bringing a new wave of buyers and better offers. Or, the market could continue to decline, racking up additional holding costs, fewer buyers, and lower offers.
That’s the reality of the situation. You honestly never know what is going to happen. You have projections, hope, and calculated risks.
4.) Every House Has Skeletons in The Closet
Unless you are dealing with new or newer construction, every house you flip is going to have at least one secret that will be revealed after you complete the purchase.
The magnitude of these secrets can be the difference between losing your ass and taking home a nice profit.
If you are able, factoring in additional expenses in your renovation budget for “unexpected surprises” is critical.
Are you going to knock down a wall to open a kitchen and find extensive termite damage? Is a pipe going to break during the winter months of your renovation? Tear down some drywall and find mold in the basement?
The list of possible problems or setbacks is truly endless. To avoid disappointment and frustration, I have learned to never expect anything. Expect everything.
5.) Every Extra Minute Is Another Dollar Gone
Being time efficient is the only way to be profitable flipping houses, at least long term. Assuming you are not doing all of the work yourself (that deserves it’s own article another day), time is money.
Here’s the kicker: EVERYTHING TAKES LONGER THAN YOU THINK
Closing got pushed back a week.
The seller unexpectedly left all of their unwanted items and furniture in the house. Now you need to get everything cleaned out before you start on the renovation.
Your contractors can’t start until next week because their current project took longer than anticipated.
Needed materials are backordered.
Contractors ran into problems with the kitchen plumbing, adding an additional week to the project.
Painter got sick and missed 3 days of work. His projects are backed up and will be delayed getting to your house.
Now you are 3 weeks behind schedule and need to reschedule the photographer. He is booked out another week.
Just like that you are a month behind schedule. And that was without anything major happening.
If there is one thing flipping houses has taught me:
Never expect anything. Expect everything.
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