I know - obvious, right?

You’ve been there before. You meet with a contractor, agree on the scope of work, price, and timeline. He begins work and then disappears into what we call The Contractor’s Black Hole: he
hasn’t been to the jobsite in a week, hasn’t returned your calls, and then one week of absence turns into three weeks of no progress.

Although it’s impossible to completely avoid The Contractor’s Black Hole, you can take steps to protect yourself by managing your contractors well.

Managing contractors well comes down to three things which are simple in concept, but require consistency to execute:

The type of houses we are buying are not like the ones you see on TV.

They are the epitome of “deferred maintenance,” and often have major issues with them. Whether it’s structural issues, water intrusion/damage, major plumbing/electrical problems, or replacements for the roof, HVAC, windows, or siding, you need to be prepared for these to take up most of your project’s budget. Some of these items will be easy to catch as you do your due diligence on the deal, but others may not be visible until you open walls or floors.

A quick note on your due diligence…It’s not uncommon to be in a situation where you have little to no inspection period before purchasing the property. Be prepared to devote what time you do have to looking for signs of these big ticket items.

Although there is no such thing as a perfectly planned budget, here are some ways to mitigate your risk:

There are essentially four different ways to find deals:

All of them have their pros and cons, but your primary filter for choosing your preferred method will be determined by how much work you’re willing to put in. The more work you have to put into sourcing the deal, the smaller the market. The smaller the market, the better the deal.

Let’s review an example.

If you want to buy a house on the MLS through a real estate agent, it’s easy to find willing sellers and put in your offer. Since it was easy for you, it was easy for everyone else. The MLS gives you access to the biggest market and therefore, the smallest chance of scoring a great deal. Now, consider the opposite scenario. You’re sourcing and buying directly from a seller who doesn’t have the house listed at all.

This is much more difficult to pull off, but your reward will be much greater.

I’ll cover this topic in more detail later, but for now, keep these tips in mind as you look for deals:

If you miscalculate the After Repair Value of your house flip, you’re going to be in trouble.

There’s no foolproof method to being right every time. Finding the ARV or “comping a house” (looking for comparison sales of your property) is a game of statistics. You’re trying to determine the likelihood of your flip being appraised within a certain range after the renovation is complete. Miscalculations happen often. Overlooking neighborhood boundaries, personal bias (in favor or against) of a certain area, and solely trusting the opinions of others are just some of the ways you could be setting yourself up for disaster.

Like any statistical game, however, there are ways to stack the deck in your favor.

Learn to get comfortable utilizing the following methods as you review deals:

Note that these methods are listed in order based on the likelihood of the deal closing.

Consider them as steps in your buying funnel and get reps in.

There are 3 main bloodsuckers in the real estate game: litigators, Uncle Sam, and bankers.

They are things everybody has to deal with, whether it’s in this business or any other. Don’t let these guys scare you into abandoning your dream, like I did. That’s a worse situation to be in than anything they could throw at you.

Here’s some quick tips for each of the 3 vampires.

Worried about being sued?

Set up an LLC and buy the houses in it. Then, set up a specific bank account for the LLC and use it only for investing. It’s really easy to do online, and you can sleep well at night (at least until you start flipping houses!)

Note - this is not an optimal (or even necessary) strategy, especially when starting out, but it’s a legitimate one if you are concerned about this particular vampire.

Keep your finances in order for Uncle Sam.

Spend some time educating yourself on the basics of business taxes until you understand the high-level stuff.

This just is what it is.

You’re going to have to pay interest and points on these deals. Don’t get caught up in the drama of fluctuating interest rates. Let everyone else worry about that.

Find a deal that makes the current interest rates work, and then underwrite the deal accordingly.

No matter what else you face in the house flipping game, you can only get ahead while you have your foot on the gas of the business.

This was the hardest reality for me to accept, but also the most necessary for my growth. If I hadn’t initially given up, I may not have come to terms with the nature of this business. I needed to go through the hard work of addressing the reasons that brought me so much frustration in order to set myself up for something bigger.

For me, that thing is a portfolio that would provide for me and my family when I wanted to pump the brakes a bit.

Although my primary focus is acquiring rentals, I do still flip houses, and I think you should too.

House flips are an essential tool in moving you toward the ultimate goal of picking up as many rental properties as possible. In time, your rental portfolio will be the source of most (or all) of your cash flow and wealth will come from. Note, however, the key word here is “time.” It’s going to take time to acquire these properties, and you’ll need a tool along the way to help you do so.

This is where house flipping comes in.

Use this tool wisely and you’ll get to enjoy the following benefits:

Flipping houses never gets easy, but it can get easier. Throughout the process, keep in mind the bigger purpose: growing your real estate holdings. That’s the gift that keeps on giving.

Good luck out there.