The Science of Flipping - Double or Quadruple Your Profits

Episode Date: December 16, 2020

Profit is the metric to chase on the finance side of your business, so as a real estate investor, is it possible to double or quadruple your profit?

What is up? What is up, everybody? Welcome back to the Science of Flipping podcast show. This is all about the tools, systems, strategies, and everything else that goes into becoming an awesome, successful, profitable real estate investor. I'm your host, Justin Colby. And if you are just joining us, make sure you go over to the science of flipping.com, a ton of free resources over at the science of flipping.com. And also, if you are interested in a strategy session with yours truly, feel free to fill out the form over at the science of flipping.com. With that said, I want to talk a little bit about a coaching student that I just got off the phone with. And he is very frustrated right now because of one simple factor. He does not have a process to figure out whether he is going to wholesale a

deal or rehab a deal. And this is something that is very common. I hear plenty about from many investors is they don't actually put a formula to when should you be using what exit strategy. And so the four exit strategies, the four pillars are wholesaling, wholetailing, rehabbing, and buying as a buy and hold. That's the obvious. But when do you make the right decision? This is what my students' frustration was about. And so I started to lay out some criteria that I look for, for when I'm going to wholesale something and it makes financial sense to wholesale or when I want to wholetail it and what makes financial sense or do I rehab it? And obviously all of those are quick cash. And then the last one, the buy and hold is, okay, am I able to financially pass on

this one? Keep it in my portfolio because I'm not going to be able to create the quick cash up front, but it is much more a long-term hold. I'll be able to build wealth, et cetera. And so that is the first and easiest one. If you are creating enough income to be able to pay your bills, that you're able to take a look at a good rental property, and that could be different for different people, but it's a good rental property, then maybe you keep it for your portfolio. You don't need to wholesale this or rehab it and collect that check to pay your bills. Everything else is going well. Then yes, I would tell you then it's a good time to keep it in your rental portfolio.

Now, when do you wholesale relative to wholetail? If you guys don't know what wholetailing means, that's simply the act of actually buying the property and then just immediately relisting it on the MLS. When do you make that decision? Now, in my opinion, our business model, not even an opinion, but our formula or our formula we make that decision on is whether we can actually at minimum, I'm saying minimum it's a good baseline. But if I'm going to wholesale something for five grand, I'm probably not going to wholetail it for 10 because of the cost of money, because the holding cost, just the complete process it takes to actually buy a home. I'd rather just wholesale it for five and be on my way. Now, the difference is if I could wholesale it for 20 and I could hold tail it for 40. Now it's worth my troubles. Now it's worth the cost. And obviously one thing that needs to be said here is that is net in my pocket. That is accounting

for all of the buying costs, holding costs to buy it and put it back on the market. So it accounts for all that, any commissions. If I can net 40 versus wholesaling for 20, then I am likely going to wholetail it. If you want to take that one simple step further, if I can actually double my wholetail cost, okay, so or my wholetail profit, I should say, so if I'm able to make $80,000 on that same property, by buying it, remodeling it, putting it on the market and selling it net in my pocket, then I will rehab it. Okay. So those are the baseline fundamentals of making a decision from wholesale, wholetail, or rehab. Now, are there going to be properties that lie right in between some of those numbers, right? You might be able to remodel that property and make 60 versus wholetailing and make 40.

Now it becomes subjective. Now you need to figure out like how much cash you need quick because obviously wholetail and wholetail is a lot quicker than remodeling. How much cash do you have at your disposal? Do you have enough money to buy it and rehab it? Does it choke your finances out? So all those things have to be a little bit more subjective when you're looking at the deal. But the formula to run every time you're trying to make that decision is, can I at least double my wholesale fee? And if so,

I will wholetail it. Can I double my wholetail fee? And if so, I will flip it. Then you have to do the deeper dives of how much cash is coming in, how much financing do I have, et cetera. What is the cost of financing? How much capital am I using? Am I liquid capital resources, et cetera. And in those, you just have to do a subjective deep dive on the deal. So I hope this is a shorter episode. I hope it finds you well. Again, go check out, if you're not watching my daily podcast episodes, go check that out over at youtube.com forward slash Justin Colby. I have daily videos on YouTube, as well as I have daily podcasts here for you on iTunes, Spotify, and all of the other platforms. Check me out, thescienceflipping.com. And I hope I will

talk to you guys all soon. Hopefully you guys have a great holidays. Talk to you soon.