House Flipping for Beginners (Part 2)

By now you’ve had time to: Locate three or more rehab investors to flip contracts to; have your contracts ready and thoroughly understand them, and know which title company or attorney you will use to close that first deal.

If not, take time to complete these steps in House Flipping for Beginners (Part 1) before you start looking for houses.

Let’s discuss how you can increase your odds of finding and closing more deals in the least amount of time. Here are four ways to find houses:

  1. Farming for houses

  2. Tell the world–recruit bird dogs

  3. Research, research, research

  4. Advertise

To achieve maximum success you need to use a combination of all four. However, you may have other time constraints (like a full-time job) that limit what you can do. In that case, pick the methods that best fit your schedule or your budget.

Farming for houses

I recommend you start working within a 10 to 15 mile radius of your home (sometimes called “farm”). If you live in a major metropolitan area like I do, it will be hard to drive all over town to look for houses.

For me, it can take one hour to get from one side of town to the other. You’ll quickly find that you are spending more time driving than actually looking at houses or talking to motivated sellers.

You should get to know your farm area like you know the back of your hand. It can easily be accomplished by working just a few hours on the weekends. Drive around each neighborhood in your farm area.

Keep a log or journal with information about your target neighborhoods. You need to identify neighborhoods with houses that are about 20 years old. Newer houses probably won’t have enough equity to allow for a profitable deal.

Are there “For Sale” signs in these neighborhoods? Write down the address and contact numbers in your log then call to find out the square footage, number of bedrooms and baths, how long it’s been on the market, and the asking price.

You have just established the approximate market value of houses in the neighborhood. If all the houses are newer or in good condition then you need to find a different farm area.

What to look for

While you’re driving your farm area, do you see some vacant houses? Occupied houses in need of repair? Write down the address in your log and other notes about the condition of the property.

How do you spot a vacant house? Tall grass is certainly a give away, as is a porch or doorway cluttered with phone books, flyers, and coupons from the local pizza parlor. Perhaps a mailbox stuffed with mail that has not been picked up. Boarded up windows are a sure sign of a vacant house.

When you find a vacant house, knock on the neighbors’ doors and ask if they know who owns the house. Try to find out how long they lived there, why they moved, how you can reach them, how long has it been vacant, etc. Get any information you can about the owner and the house.

Tell the neighbors that you are looking for houses to buy in the neighborhood, and you work with a group of investors (these are your “partners”) who will remodel the house then sell it to a good homeowner. Chances are they are very anxious to have a “good” neighbor and will cooperate.

Don’t forget to ask if they know of any other houses that are vacant or in need of repair in the neighborhood. Leave your business card. They may think of a house after you leave, and you want to make sure they know how to get in touch with you.

If neighbors won’t give you names and numbers of the owner, leave your business card and ask them to please get a message to the owner that you are interested in buying the house.

Next, check the tax records. Some city tax offices will give you the owner’s name and address with just a phone call; others require that you come in to check it yourself. Many counties’ tax records are on the Internet. This is the first place to investigate.

Once you find out who the owner is, you can send them a letter or postcard or try to get their phone number and call. Tell the owners you saw their house at xxxx address and may be interested in buying it.

Ask if they are interested in selling and get as many details about the house as possible. Some things you need to find out are:

  1. How many bedrooms, bathrooms, garages. What is the approximate square footage? How old is the house? Does it have central heat and air? Why did they move? (These questions are just to warm them up for the important questions.)

  2. Is there a mortgage on the house? If so, what is the approximate payoff?

  3. Are there any liens or judgements against the property?

  4. What repairs need to be done? Estimated costs?

  5. How long have they owned the house?

From this information you can decide if the house is a good candidate or if you should just mark it off your list. For example:

From questions #2 & #4: What if they tell you they owe $40,000 and the house needs extensive repairs including foundation work? You know from the information in your log that homes in good condition in the neighborhood are selling for $55,000. You can quickly determine that this house just won’t work. Next!

From questions #2, #4 & #5: What if they tell you they lived in the house for 30 years and the mortgage is paid off, but it needs $10,000 in repairs, and they just don’t have the money for repairs?

You know from the information in your log that homes in good condition are selling for $55,000. Bingo! You’ve got a hot one! This has all the ingredients of a potential deal–lots of equity, a motivated seller, and a house that needs lots of work.

From question #5: What if they tell you they owned the house for one year but just couldn’t keep up with the payments? Because it’s such a new mortgage, you can determine that they probably owe about what the house is worth, and it’s not a candidate.

You are looking for houses with at least 50% equity–the more the better! So if houses in good condition are selling for $60,000, you want to find houses that have at least $30,000 in equity.

You are also looking for houses that need plenty of repairs. Sometimes you’ll be able to buy a house well below market that doesn’t need a lot of repairs, but that doesn’t happen very often.

It is the excessive repairs that will motivate a seller to sell below market because they think it will take $20,000 to fix the house, and they don’t have the money and have no way to ever get the money.

If you don’t have these two elements–lots of equity and lots of repairs, then it is unlikely that you will be able to buy far enough below market to flip the contract and make a profit for yourself.

But someone’s living in that junker

Sometimes the first sign of a motivated seller is a house that screams “Please help me!” when you drive by. Perhaps the owner is having financial difficulty and just can’t afford to maintain the house. Or perhaps that’s just the way they live. It could be a rental, and the landlord won’t put any money into fixing the house.

You’ll never know until you contact the homeowner. To do this, you can:

  1. Knock on the door and tell the occupant you are looking for houses to buy in the neighborhood Ask if they would be interested in selling (or know someone who is). Make sure to leave a business card. If it’s a renter, try to get the owner’s name and number.

  2. Write down the address, look up the owner in the tax records, and send them a letter or postcard saying you are looking for houses to buy in the neighborhood and want to know if they would be interested in selling (or know someone who is).

  3. Look up the owner in the tax records, find out their phone number then call.

If you send a letter or postcard, you may not get a response the first time. So you’ll need to continue mailing to them every three to four weeks.

When you knock on the door, they may say they aren’t interested in selling right now. Follow up with a letter or postcard every three or four weeks. Stop by the house every once in awhile to remind them that you are still interested in buying. Leave a flyer on their door (and all the other doors in the neighborhood) saying:

I Buy Houses – Cash – Quick Close – Any Condition

If they show some interest in selling, then you need to ask the questions above to see if it is a candidate for a flip. The follow-up is VERY important. Time has a way of changing everything–even turning an unmotivated seller into a motivated seller.

Tell the world–recruit bird dogs

You can expand your farm area and not take up any more of your valuable time by telling everyone you come in contact with that you are looking for run-down houses to buy.

Tell all your co-workers, the people at the grocery store, everyone at church, your kid’s friend’s parents, your kid’s teachers, the guy that fixes your car, the people at the cleaners, the waitress at Denny’s, the people at the barber shop or beauty shop, etc, etc.

The more eyes and ears you have out there looking for you, the more deals you will do.

Hand out business cards when you tell people you are looking for houses to buy. The business card lets everyone know you are serious, and it insures they have a way to contact you when they find a house.

You may even want to hand out flyers to recruit bird dogs. Leave flyers at the college, senior citizens center, local churches, the grocery store, etc.

Make sure everyone knows you pay a finder’s fee of $250 to $500 or more for each house that closes.

The very first flip I did was because I told my son’s best friend’s mother that I was going to get into real estate investing. I told her I was looking for houses to buy that were run down, and I’d pay a finder’s fee to anyone that found houses for me.

A few days later she just happened to overhear someone where she works talking about a house he inherited from his mother. It had been a rental and was so run down that he thought it could not be sold.

She told him I was looking for run-down houses to buy. A few weeks later he had his house sold, a rehabber had a new project, my “bird dog” had $500, and I had a check for $4,000.

Get to know the mail carriers, UPS driver, and Fed Ex driver assigned to your farm area as well as people that do lawn work. These people travel all over town and can help to expand your farm area.

Research, research, research

A motivated seller is sometimes motivated because of some recent event that has happened in their lives. Many of these events, like a foreclosure, are time sensitive meaning you have a window of opportunity to act, and after a certain date, it is too late to buy the house from the owner.

Find out what the state laws are concerning these events, so you’ll know how much time you have. You can get information about all these properties at your county courthouse, tax office, or other city municipal offices. There may also be a legal newspaper where this information is posted daily or weekly.


By CREOnline Contributor

A content contributor to the original