Flipping Houses – Investors’ Mistakes

I get frequent calls from investors and referrals consistently of those who are fliplooking to invest in and/or flip properties.  The latest was a semi-retired contractor who has enough cash to buy and improve a home, and would like to do several of these a year.  The potential problem:  He’s never done this before.  So I did a little hand-holding, went over spread sheets and took him through a real potential property to flip.   This was an off-market deal – not offered to the general public – derived from a relationship I have with another investor.  At the end of the day the seller asked for $5000 more than they originally said they wanted – still a good deal.  The buyer (being new) got really offended by this and said that he felt jerked around.  I agree, no one likes to pay $5000 more after expectations get set at the lower price.  Instead of trying to negotiate or come up with a solution, the buyer just emails me, “You’ve found some real winners to work with!  Have fun!”  I emailed him back (since he stopped returning phone calls), erring on the side of miscommunication I replied, “I’m not sure how to take this last email… clearly you are frustrated.  Are you calling it quits?  Is that the way I should read it, or are you just frustrated with this deal?”    I’ve yet to get a response, taking that to mean he threw in the towel, with no acknowledgement that I took the time to educate him, coach him, and served him up a sweet deal – just that I somehow was part of “jerking him around.”  He’ll probably never know how good it was, even at the higher price.  Some of you may wonder how sweet at deal it actually was, or if it was a good deal or not?  The proof is in the rest of the story.

The very same day I return a call to one of those investors who calls saying, “Looking for a good deal… want to flip a property [yada yada yada].”  I almost didn’t call him back after that last incident.  After asking the caller a few qualifying questions (realizing that this guys if for real), I told him about the same deal at the higher price.  He got so excited that he ran out to the property the same day, met his contractor, and we wrote an offer the following day!  He thanked me profusely.  The deal closed in two weeks without a hitch.  Again, he could not stop thanking me and was so glad for the deal.  In fact, they will be done with the project in a few weeks (1 month turn around) and they asked me to list the property.  A home run for everyone!

This is what a seasoned investor/flipper realizes:

1) It’s all about inventory – at least right now in the Sacramento CA area.  Without the project/property, nothing else matters.  If you cannot land the deal, everything else is a waste.

2) It doesn’t matter what the previous owner paid for it, nor what they will make from the sale, nor what the agent will make.  What matters is if the deal is good for them per the numbers.   Don’t miss the obvious and focus on your situation answering the questions, “Is this a good deal for me?”  This is the only magic there may be – figuring out the real disposition cost and an true exit strategy.

3) They don’t take it personally.  Clearly the first, unseasoned guy let his emotions get in the way and let them cloud his judgement.  I think that if he could have got past the feeling of being jerked around and realize that it’s part of the “game,” he could have executed a great turn-around.  The next guy swooped in and is going to make a chunk of change, and we’ll probably do a bunch more deals in the future.

4) Relationships are of the utmost importance.  I always appreciate the trust from those sending referrals and putting in a good word.  And it takes time and energy to develop relationships that create a win-win on both sides of the deal.

I guess the comments by the “rookie” that were meant to hurt me, were the truth after all.  I picked some real winners to work with [not him] and I AM having fun.  I took it as a learning lesson and reminder to qualify the would-be investor/flipper more carefully.  I am thankful for the experience and hopefully I can have more discernment on the future –  it never feels good to pour into a would- be-investor, only to get kicked in the stomach on the way out.  Thanks for playing!

What’s your recent “war” story, whether as an agent or investor?

Cheers,

Signature2

 

Keith Klassen, Broker

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2 responses to “Flipping Houses – Investors’ Mistakes

  1. “It doesn’t matter what the previous owner paid for it, nor what they will make from the sale, nor what the agent will make. What matters is if the deal is good for them per the numbers.” So true Keith. Very well stated. By the way, I know you’re at coffee right now with our mutual investor friend. Too bad I couldn’t join you guys today. 🙂

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