House Flipping Pitfalls: The 9 Personalities at Risk

Thursday, February 22, 2024

The Larossa Workshop Blog/House Flipping Pitfalls: The 9 Personalities at Risk

House Flipping Pitfalls: The 9 Personalities at Risk​

The personas that struggle in the real estate investment world.

Everybody wants to be a house flipper these days. Well you sure can. It’s not even that hard to get started, but in my over a decade of experience flipping houses I have picked up 9 different types of people that won’t make it as a real estate investor or worse yet, lose their S*** completely.

Here they are:

  • ​The Pinner
  • ​The Jester
  • ​The Freeze
  • ​The Host
  • ​The Threader
  • ​The Freak
  • ​The Purist
  • ​The Collector
  • ​The Loyalist

PS - I was many of these types throughout the years. Luckily I always was able to overcome each one before it was too late and never lose everything. Just mostly everything on multiple occasions. Maybe that’s just initiation in this game?

  • The Pinner

If you have a Pinterest board of all the pretty stuff you want to put into your next house flip. Good Luck! I used to make some really pretty houses. I would have pictures of all the amazing craftsmanship and the cutting edge styles. Heck I even hand built the doors, cabinet, and even put in an indoor, two story waterfall. It was great. Something to be proud of. There was only one problem. I never made a profit! Flipping is hard and the profits are fleeting. Every decision has to be weighed against the bottom line, not your Pinterest board.

When I was first starting out I definitely spent more time on Houzz than I did in Excel. There is definitely a direct correlation between time looking at styles and the amount of money spent on finishes in a project. However I don’t even think that’s what this one costs you so much. I think it is the lack of focus on the priorities. Priorities = how every single dollar spent impacts the bottom line.

That means that if you cannot draw a DIRECT LINE to how upgrading from a simple subway tile to a golden bordered mosaic (an increase in cost of $623.47 for that shower surround) is going to increase the price that you will get for the house in either rent or sale, then DON’T DO IT!!! Or do it, but understand that you’re not investing. You’re either speculating or worse you’re a hobbyist and you don’t even know it.

  • The Jester

Cash is the KING, my friends. If you don’t have any you are going to get RUN OVER by the freight train that is this industry. You can spread sheet out a project until your fingers hurt, but when the reality of a flip project hits you like a ton of bricks you are going to find yourself up against a wall and the only way out is to gain power. That power is cash. Without cash, every decision you make will be filtered through FEAR. The fear of not being able to make your next payment, not being able to complete the project, or worse yet, not being able to provide for yourself or your family. Whatever great plans you make about the project (the aforementioned spread sheeting) just never play out in real time. It is just one unforeseeable problem after the next. Over time you will be able to see around more of those corners, but especially early in your career you will get surprised…REPEATEDLY. Without cash, you will not be able to make the best decisions on what is best for the profitability of your project. My advice is to have at least 6 months of reserves before you get started.

This cost me so much early on. Every time I got to the end of a project I would have to take a discount at the end because I “just need to get the thing sold!” The difference between “just getting it sold” and waiting to get the right price IS YOUR PROFIT. I still remember at the end of a project that almost sank me. I went to market at 795K and kept doing price decreases until I finally had to take a cash offer with a fast close of 667K! That man gave me a dead fish handshake with a look in his eyes that I’ll never forget. Those eyes said “got ya!”

  • The Freeze

BRRRRRRRRRRRRRRR! The Holy Grail. Buy a house, renovate it, throw a renter in there, then refinance and get all your money back. It sounds great on paper and sometimes it even works out, but DANG IT, you’re an INVESTOR! Investors invest. Don’t forget that. It’s ok to have to leave some money in a deal. What I see out there is new investors trying so hard to find the perfect deal that they get stunted by analysis paralysis. Some just fizzle out and never get a deal. Others get tired of underwriting deals, get antsy and end up buying a dumb deal. Either way is bad.

For the ones who fizzle out I’ll just say this - I made a whole lot of mistakes early on and lost a lot of money, but what got me here is that I BOUGHT and I kept buying. I did it conservatively enough to stay in the game and when you stay in the game long enough you will be able to see around enough corners to really hit your stride. So just get started!

For those who are so motivated to go that you end up buying a bad deal, be patient! It will come. You may have to go back to the drawing board and educate yourself on how to find a good deal, but they are out there. In fact, they are quite abundant if you know what to do.

Remember, you’re an investor and it’s ok to leave some cash in a deal. Eventually (through appreciation) you’ll be able to pull the cash back out plus some but not if you never got started!

  • The Host

“I just want to make it nice enough that I would be able to stay there.” Or some variation of these words are what The Host would say. Well that would be a fine thing to strategize around if you are dealing in the same kind of A class property that you’re probably living in, but most likely you’re not investing in those types of properties. If you over renovate a house the only way to make it work is to demand more rent or more of a sales price than the market allows. The Market is what it is. You cannot escape it. If you try to turn a C class property in a C class neighborhood into an A class property you have only flushed your money down the toilet. The key is to understand EXACTLY what a house NEEDS to optimize the profit margin and do NOTHING more. This is what I call making a SMART SOW. If you want to know more about that, check out more of my stuff.

Listen, I know you are trying to do the right thing. I took the same approach when I started out. But I never made any dang money. It took me years and many failures to realize that mastering what it means to develop a B, C or even D class property into a rental or flip that fits the neighborhood is actually a service. Making smart SOWs doesn’t mean cutting corners and being a slumlord. It means making houses that are affordable for those searching in those neighborhoods. If you overdo it you’ve made a problem for both them and yourself. Unless you are willing to just gift your hard earned money?

  • The Threader

Bigger Pockets, Reddit, Discord, HGTV, this group, that group they all have KEYBOARD WARRIORS who do not know YOUR situation. Over time you will develop your own strategies and figure out what works best for you, your family, and your big picture. A lot of the stuff that I see on these forums or shows are fine strategies if a whole bunch of other things are in place. Worse yet, a lot of the stuff I see on there is a regurgitation of a regurgitation of regurgitation of…..somebody that actually knew what the heck they were talking about and by the time it go to you it was watered down by a bunch of BS that’s real intention was to make the poster look like a scholar not actually have any real world application. So be careful out there. Don’t base your decisions solely off of what they say or even what I’m saying. You need to educate yourself and truly understand what each one of your decisions mean to the bigger picture that you have created for yourself.

  • The Freak

The freak in the sheets. Excel Spreadsheets that is. Planning is essential in this industry, but The Freak doesn’t realize that plans are about getting you going in the right direction and not what the actual results will look like. See, in house flipping you just never seem to get what you initially thought you were getting. You’re just going to find problems and those problems just didn’t make a cell on that table you built. My belief is that successful people get one of two possible traits, the ability to organize/plan very thoroughly or the ability to get thrown in the middle of chaos and find their way out. The planner (or the Freak) doesn’t tend to develop the skill of dealing through the chaos because they overdeveloped the ability to plan around it. Visa versa - the one who can deal with chaos has never developed the ability to plan because they have always been able to deal with the storms they inevitably create. Well guys, take it from me as a recovering (yet always relapsing) storm causer, you will need both of these skills to succeed in this game.

  • The Purist

I’ve said this in other content - Cash is king, but THE DEAL IS THE TRUE KING. I see so many people out there who are only trying to buy houses on the Market (the MLS through an agent). This is a strategy that works sometimes but typically to get a deal on the market you have to have some other tricks up your sleeve which are as follows:

  • ​Be First - ​Be the only offer and somebody isn't willing to wait for better ones
  • ​Overpay - Pay more than others. Usually means that you're not getting a great deal
  • ​Big Renovation - Be willing to take on a nasty project. Which is fine if you develop the skills required.
  • ​Have Cash - Only helps some on the market because there are typically competitors who are willing to pay more because they have longer term strategies.

You see, it all comes down to basic economics - supply and demand. When you go to the Market you have become one of many. The supply - limited houses. The demand - all buyers. When you learn how to find your own deals off market you become a market of one or few. The demand - one or few.

This isn’t to say that you shouldn’t work with a real estate agent. In fact a good one will know many different routes to finding a great deal. For instance, my wife at Working Moms Realty, knows how to find some of the best deals for her clients. However, don’t get yourself caught up with an MLS Purist and become one yourself. Go find every wholesaler in your area and go buy yourself a stack of postcards.

  • The Collector

If you have a picture collection of your “portfolio” that you're showing off to your acquaintances you may be The Collector. If you are a true real estate investor your portfolio needs to be displayed on a spreadsheet not a photo album. PRIORITIES! I don’t know about you but I’m in this game to MAKE PROFIT to build a better future for myself and my family. I don’t care what you think about the addresses of my properties or the way they look. If that is what you care about, fine, but be honest with yourself.

  • The Loyalist

This is a hard message for me to eloquently communicate. It will help with a story about my past. I started my career in a corporate environment which is all about “leadership” and “trust.” It’s about getting results through hiring and delegating to the right people. When I left to be a full time real estate investor, I believed that I could be successful by implementing these same values. Man, that was a hard lesson. It turns out that it’s a whole lot different when you’re out there on your own in a sea of sharks whose primary goal is food on their and their people’s plates and you don’t have a strong brand at your back. This isn’t to say that over time you won't find the people that you can truly build Corporation YOU behind but I promise it’s not on day one. On day one you are just a tadpole and the Sharks smell blood. You need to take control by equipping yourself with education then experience and ultimately skills. More than any of that you need to develop a hard nose.

I strongly encourage you to take a look in the mirror and see if any of these things apply to you. Now I’m not here to be dogmatic. Some of the ideas above may be totally antithetical to your strategy. My goal is to make sure that you and I have thought through the financial consequences of the tactics that are executed.

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Hi, I'm Ross Paller

CEO Of Larossa

After flipping over 300 houses, holding a portfolio of 150 properties, and creating a successful construction company for over a decade, I felt compelled to pay it forward by sharing the wealth of knowledge and experience I’ve accumulated on my journey.

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