The Science of Flipping - Never Lose Money On A Flip

Episode Date: March 22, 2021

Never Lose Money On A Flip

Yo, yo, what is up, everybody? What is up? Welcome back to the Science of Living podcast. I am your host, Justin Colby. And if this is your first time or not the first time, and you're just tired of hearing me say this, I'm still going to say it again. Make sure you go to youtube.com forward slash Justin Colby. I drop a video a day, all things real estate investing, business, and entrepreneurship. Go subscribe. Go like some videos. And I'm going to throw a bonus out there.

I still haven't thought what it really is. But let me know that you subscribed in one of those videos. Throw a comment in a video. I don't care which video you watch. And say, subscribed. I'm going to do a bonus. It's going to be a cool giveaway. I got to think of what I want it to be but it's gonna be a really cool giveaway um and so all you have to do is go to youtube.com forward slash justin colby subscribe to my channel and then like a video and make a comment that you

subscribed the giveaway will be awesome so i'm gonna give it some time because it's going to be a cool giveaway. Yeah. So again, do that. Make it happen. A video a day, all things business, entrepreneurship, and real estate investing. This podcast is about real estate investing. And I want to jump into what we're talking about today, which will be how to never lose money on flipping a home. So hopefully you guys get excited about this because there is a strategy that I'm going to teach you right here on this podcast. And I do deeper dives in some of my videos on YouTube, as well as my coaching. I've really gone deep with my students on this because they're crushing it right now. If you're interested in coaching, go to the science of flipping.com, fill out a form. I would love to

personally coach you. Uh, I am the coach. I am coaching you. There's no other coaches. And then, uh, I'll help, you know, move your needle, level you up. I don't care if you're just getting started. I don't care if you're trying to grow and become more profitable, go to the science of flipping.com, fill out a form. And, uh, someone from my executive team will get ahold of you and see if I'm the right fit for you and you're the right fit for me. And I can help you scale, increase profitability, hire a team, jump into multiple markets, you name it. Happy to help you and coach you there. So if this subject matter is interesting to you, then stay on because this is going to be pretty awesome. There is a strategy to make sure you never lose money. And let's first start with the point number

one. I always go to markets. And as some of you guys know, I am in Phoenix, Tucson, Oklahoma. Well, Oklahoma City, we're opening Tulsa and we just opened Milwaukee. So many markets doing 10 to 20 deals a month, wholesaling and rehabbing and wholetailing. And this month I bought two rental properties for my portfolio in Oklahoma. I'm actually trying to get another two before the month is over, which would be four rental properties for my portfolio for this month. So I do it all. And one of the reasons why I pick the markets I pick and why I can say how to not lose money while flipping is because I stay under, point number one is this, stay under the median price point across the country. So I believe the median price point across the country is roughly 350, maybe 325, $350,000 as a moment in time as I shoot this podcast. And so I make

sure I am well under that 30 to 40% below market value, right? So my markets are that. Now Phoenix is not. And Phoenix, as i mentioned on my last episode if you have not listened to it you should um phoenix market now has just gone to a medium price point like 435 or 450 and it's insane um but at one point it was under the medium right and now i have a stronghold here i've been flipping homes here for 14 years. People know me. I know how to navigate the waters, even though there's all these great competitors that I love dearly. I love them all. I mean, most of them are good friends of mine from Sean to Pace to Brent to you name it, Jamil, all of them are friends of mine. Even though there's that level of competition, I'm still

able to knock down 10 to 20 a month just in Phoenix alone. And so those numbers are going to continue. I would tell you stay under the median price point. So I would tell you Phoenix probably wouldn't be the best market for you. But are there surrounding markets like a Tucson would be better? Sure. Oklahoma, obviously, we're going to be in Oklahoma City. Tulsa are going to be our markets as well as Lawton. So that's three different markets, separate markets that we're going to be in

the state of Oklahoma. We're going to be in what we are in Milwaukee right now. And I'm going to continue to grow, but I'm going to markets that have a medium price point 30 to 40% under the national medium. So that's point number one. Now, why is that important? You might be asking. Well, I'll tell you why this is important. Because if things go wrong, you can keep it as a rental. So point number two, it's a good price point to keep as a rental. You're not going to lose everything. Buying a home at $140,000, putting in $40,000, being all into it for $180,000, it not selling on the market for one reason or another,

and having to refi out and make it a rental, you're not going to lose your ass, right? Like it's too cheap of a property and it probably still rents for $1,500 a month. So you're still going to be in a win scenario, which brings me to point number, I believe it's point number three, which is make sure you are buying it, rehabbing it all in for less than 75% of ARV, all in. And the reason that is, is for what I was just explaining is if it doesn't sell for one reason or another, and you can't get your money, the profit margin you want, then my suggestion is to go refi out with a bank. And there's a lot of banks that do this. And they will pull out all of your money as long as you stay under 75% of ARV. I have heard of, I have not yet used a bank that goes all the way up to 80.

I've heard of banks doing that, but it is much more common and traditional to go up to 75%. So of every dollar you have in this property, between the purchase, remodel, et cetera, interest payments, you name it, keep you under 75%. You can pull the home off the market, go to a bank, refi out, throw a renter in there and have a great rental. And by the way, you have no money in the deal anymore. It all came back to you. It's a beautiful business model. Quite literally, it's the Burr model, right? Buy it, rehab it, rent it, refinance.

And then you repeat. And why this is so great is because once you get all your money back, you can go do another flip. Now, if you're going to, with the intentions of flipping it, make sure you can sell some of these, right? Or if you're just going to focus on the BRRRR model, that's fine too. But if you're going into it as a flip, this shouldn't happen to you more than, you know, once or twice, right? Like, otherwise, you're just really not understanding the numbers. You're underwriting it wrong. You know, you're not really doing a good job valuating ARV. So these three points are incredibly important for you to not lose $200,000, right? If you don't get the,

well, sorry, let me take a step back. I'm using 200,000 because that's the list I go after. That's why that number came in my head. So if you stay under by 30 to 40%, the price point, the median price point across the nation, which is I believe 325 or 350. So stay under that as a market, what you're offering. When you are underwriting the deal, make sure you estimate, you know, your purchase price and estimated rehab, all of that to be under 75% of ARV. And if you cannot get your number that you want in a very quick amount of time, because it's a seller's market. So like we, we listed a home last Friday and we

already have an offer and kind of going back and forth just about some of their terms, but they have a full price offer, 20% down. They have a couple of weird little terms, but essentially it's sold, right? And I'm expecting another offer to come in this weekend. So all that being said, if you don't get your number pretty darn quick in this market, pull it down. Then make sure to go refi,

put a renter in there and go repeat it right that's how you don't lose is to make sure you're in a good neighborhood good price point uh you're all in for 75 000 and now you have a rental portfolio and all your money's back and you go do it again this is how i flip this is why i am limiting how many flips I do. I have students who are absolutely murdering it at the high price point flips. I love it. I encourage it, but I'm very cautious with them. I tell them, hey, be cautious. But listen, there's a lot of people leaving New York. There's a lot of people leaving California that have a lot of money. So coming into a property at a high price point right now is a good thing. Just be cautious. And some of my students are murdering it. Again, soft pitch

here, guys. If you're interested in me coaching you up, getting really profitable, building your business, go to thescienceofflipping.com. Fill out the form. On the form, let us know that you heard this on the podcast. So we at least know where you came from. And we'll figure out, my executive team will figure out if I'm a good coach for you and you are a good fit for me. Again, thescienceofflipping.com. So I'll wrap it up here, guys. If you guys are interested in flipping,

this is the best way to do it. And you can do it slow. You can do it consistently. You can wholesale all the other deals that you're getting that maybe don't fit that mold. And this is how you don't lose money, right? Anytime I've lost money on a flip, anytime. And I can tell you the worst was this million dollar flip I did.

And the reason why it's the worst is because we lost hundreds of thousands of dollars. That's why it's the worst. and why that happened is because we are outside of our circle of expertise, if you will, as Warren Buffett says. I've always played under a certain price point, always under $300,000, and we bought a million-dollar home. We did the renovation. It didn't sell. Terrible, terrible scenario. But it's because I was never an expert at that. And yes, some would say, well, you got to try your first one to become an expert. Yes, I understand that. But the reality is I was just chasing a paycheck. I was never going to be a high end flipper. I don't have an

interest in that. And so the reality is I was chasing a paycheck. It was not what I should have done. And so almost any time I've ever lost money on a flip, it's because I was chasing that paycheck. So I will tell you guys, stay patient. The deals will come. Keep marketing. Be multiple marketing. I got a question today on my TikTok right before this episode that I answered. Oh, yeah. Go follow me on TikTok as well. Justin Colby, TSOF. Justin Colby, TSOF. Go follow me on TikTok. But the question was, what marketing strategies am I doing?

And the person said, I'm doing cold calling. And I said, well, you need to have two to three. So you got to layer on text messaging and maybe virtually driving for dollars. But keep marketing. Have multiple marketing strategies. And you will be able to flip these homes. I promise you that. I hope this finds you well and big giveaway coming. Go follow me on YouTube, youtube.com forward slash Justin Colby subscribe. Let me know you subscribed in any one of my videos and I'm going to be doing a giveaway. Haven't figured that out yet, but just make sure you do that so you are in the running. And the more times you do it,

the more times I have a chance to pull your name out of the hat. But make sure you subscribe to my YouTube channel and make sure you let us know. Hopefully, this finds you well. Talk soon. Peace.