In January 1997, I found myself on the streets without a job and very disillusioned with the prospect of going back to work in corporate America.
I had become accustomed to my life as a road warrior sales guy tipping the income scales at about $95,000 per year with additional perks and allowances but was just sick and tired of dealing with the political aspects of working in a moderate size company where it was either climb the ladder at all costs or risk obsolescence.
So, encouraged by my wife, I signed up for a weekend seminar by a local guru preaching an “real estate investing” strategy of locating pre-foreclosures, tying them up with a contract, and flipping to other investors. It made sense to me, and so off I went to do some “deals.”
The first few months were spent learning the county records building and chasing around town knocking on the doors of folks in dire financial straits. It wasn’t for me. For one thing, it just didn’t seem a very economical use of time, and one thing I didn’t have a lot of was time–the cash reserves at my house were running thin.
The next step was to recruit a couple of Realtors who were aggressive enough to try to put me onto REO, post-foreclosure opportunities. In my market, I learned, almost all the bank owned properties are handled through a dozen or so agents.
I also learned that there was not much flexibility in pricing and what really distressed properties there were went quickly to very experienced players, and it seemed there was little room for flipping.
At this point I had no concept of actually closing on houses and doing anything with them. I also learned a lot about dealing with Realtors, mostly negative, but I won’t go into that here.
As I began to spend more and more time out in the marketplace looking at listed houses, I also spent more and more time looking around neighborhoods that were more “down and dirty” than I had originally viewed, and I came across quite a few vacant or seriously distressed houses.
I learned to locate the owners and mail them a prospecting letter. I ran some ads to attract “real” buyers and developed a good data base of potential investors to buy my flips and learned from them what and where they bought and what types of prices made sense to them.
During that process I called the phone number off a FSBO sign on a rehabbed house and was blessed to stumble upon an old customer of mine from 15 years ago. I used to sell him home audio equipment when he had a retail store.
Unknown to me, he had shut down his retail business to begin investing in real estate and is now one of the largest rehabbers in the area and the founder of the local investor club. And he became my mentor!
I began to find, mostly from letters I sent out on vacant houses, and I began to write contracts. I certainly made some mistakes and got into some deals that I just couldn’t find a buyer for and had to bail out. Embarrassing, but I always had an escape clause, and only once did I lose earnest money ($100).
I dreamed about houses, I talked about houses to everybody I met–and when I talked to them they were just amazed and enthused, and I found encouragement from that. I worked 6 and 7 day weeks hunting for that one house that would translate into a $3,000 assignment fee.
Most of what I flipped went to my mentor, and we found a working arrangement whereby when I found a potential deal he would often go with me to meet the seller and preview the house, then tell me what it was worth to him. I would then negotiate the purchase price.
Somewhere along the line, I found this website and things really began to pick up. I learned about hard money lenders; I learned different ideas on locating deals; I lurked and learned and it was great.
I bought Joe Kaiser’s lease option course and got great ideas, though I still have not done. I gradually began to participate in this and through participating learned even more and gained confidence.
And then I did my first rehab: Bought for $12k and sold for $32k. Funded 100% by a mortgage broker, it was not without flaws, but it did translate into a $12k net profit, and I was hooked.
I now know without a doubt that this business can replace the income I had become accustomed to and without the negatives that accompany “working for the man.” If I fail, there is no place to point other than inward.
I structured the business as an LLC to provide a shield from liability. I recently established a relationship with a private lender for some of our rehabs and have taken on a “partner” who is finding opportunities for which I provide funding and knowledge–we split profits, and we currently have five houses in varying state of rehab. I have been approached by yet another wannabe investor who would like to work together in the same manner.
This, my first full year, my wife and I have taken out of the business $58,000 in personal income year to date and should finish the year at around $90,000. Wholesale flips account for about one third of our total with the rest coming from rehabs.
Most of our houses fall in the fair market value range of $30 – $45k, but we have done a couple in the mid 50s and have one in progress that will sell for $93k. The low end houses we sell owner financed and then sell the notes; while the higher end we sell ourselves, but on new loans.
Our goals include doing 15 rehab projects along with 25 wholesale flips. My recommendations to newcomers would include:
a) Learn to find ’em and flip ’em first;
b) They don’t call this “creative” real estate for nothing–think outside the box;
c) Don’t view this as a get rich quick business;
d) Plan on working long hours and long weeks;
e) Don’t get too distracted by all the many different investment opportunities that will come your way. Find you can do well and stay focused;
f) A college football coach of mine used to grab me by the jersey, jump up and down yelling, “Damnit boy, I don’t mind if you don’t know exactly what to do…just do something!” Well it applies to everything in life; boldness contains genius, power, and magic, so don’t be bashful because this is not a business for the timid.
Learn continuously from this and other resources but, by all means, you must get out there and do it!