Strategies to Flip 100+ Units Per Year
- Focus acquisitions on your company's defined goals.
- Facebook and Meetups are useful off-market tools.
- Know your contractors' staffing limitations.
Industry experts have said the days of fix-and-flip “easy money” are gone. Simple cosmetic renovations to foreclosed homes resulting from the 2008 housing crisis are no longer business opportunities. But today several companies are thriving on large-scale buying, renovating and selling homes. At the IMN SFR Forum (West) 8th annual conference, real estate insiders shared industry tips. In “The Large Flippers Plenary: Evaluating the Strategy & Infrastructure That Allows You To Flip 100+ Units Per Year” session, panelists agreed that real estate remains a “people business.” Networking and watching people in the business—including your contractors—is essential to succeed.
Focus on Your Goals and Products
Owners emphasized telling acquisition teams that it’s OK to say “no” and to give up a deal. Nathan Brooks, CEO of Bridge Turnkey Investments, in Kansas City, KS, said his company focuses on two to three-bedroom homes. The property should be larger than 800 square feet and built starting in the 1950s and later. He discourages his group from “wasting time on things that don’t make sense.” He reasoned that could keep your company from buying the right property. Once Bridge Turnkey finds the property, they’ll get a quick estimate and make a line item bid. “We know what we’re dealing with, and we launch the project on day one,” said Brooks.
Pat Flynn, VP of YellowBird Home Buyers, agreed. He added his company keeps a deal flow of 25 to 35 houses per month in Jacksonville, FL. They focus on local properties without trying to scale outside the area. “We’re so localized there that we can buy stuff in low-end areas, and we can do stuff at high-end areas,” he said.
While evaluating up to 100 properties a day, Paul Pettinelli of The Haven Group, in Charleston, SC, said his team looks for what meets their criteria. They evaluate for long-term rentals and flips. “It’s trying to find as many properties as we can to go to rental. But then using a specific amount of properties to go to a flip, so we can continue to recycle that cash and grow the fund.”
Strategy Properties, in the Detroit, MI area, looks for three-bedroom homes with garages and basements. “We’re very specific in the areas where we buy. We want a mixture of both homeowners and renters in close proximity to working areas,” said Michael Jordan, the company’s president. “Our numbers have to work. At the end of the day, we want something that’s going to grow at one plus percent a month, or we’re not buying.”
Leverage Technology and Relationships
The panelists noted Meetup groups are invaluable for acquiring property. Flynn said YellowBird basically “owns the Meetup space in Jacksonville.” Plus, they started a Facebook group. Bridge Turnkey also hosts Meetups. Their company has grown to 6,400 connections on Facebook over the last year.
Jordan said Strategy Properties’ monthly Meetups feature guest speakers, usually lenders. “A lot of people like to come out to meet lenders. That’s an attraction. Everyone loves money,” he said.
For off-market deals, Douglas Skipworth, the co-founder of CrestCore in Memphis, TN, said his most helpful tool is a network of wholesalers. With these relationships, every day, his company receives deals to review. Managing 3,000 units for 700 different owners, CrestCore looks at these properties for potential future sales. They also network with other property management companies for additional deal flow.
The speakers also said they scour the MLS. Their business development teams actively cultivate positive relationships with brokers and realtors.
Tracking Return on Investments
Bridge Turnkey tries to stay in a 1% return zone. That means for a $100,000 home, they look for $1,000 in rent. They track their target acquisition and renovation budgets. The company knows what they want. They consistently plan to get into a neighborhood at their price point, looking at specific square footage.
Strategy Properties submits slightly more than 500 blind offers per month on MLS. They average approximately $25 per square foot in renovations. Jordan explained that his inspectors look for problems such as mold or foundation or plumbing issues. That way instead of losing money down the road, he’ll negotiate for a lower price at acquisition. He characterized the strategy as “Mold is Gold.”
Hiring and Managing Crews
Controlling labor costs is also a critical component in managing budgets for ROI. Skipworth advised providing constant, consistent work with weekly pay. This encourages worker reliability. With new contractors, he starts with smaller projects and remembers the details. Steps include getting the W-9 on the front end, obtaining insurance, and making sure the paperwork stays up to date. It also means understanding workers’ compensation programs.
“We set up our insurance company to be able to provide them a payment plan,” said Jordan.
“We’ve got to help train these guys on a regular basis on how not to hurt us unintentionally by not having worker’s comp. That’s a really important point.”
Brooks recommended onboarding to establish expectations. During brand training, Bridge Turnkey shows contractors their houses. The workers see the consistency of the property having four or five exterior colors and the same interiors. Contractors learn about the company, its values, and its operations.
Jordan advised owners and operators to recruit construction crews continually. He noted all projects will have a drop-off of five to 10% workers every month. The decreases result both from people taking other jobs or not meeting company standards. Jordan said future crews come from different funnels, search engines, word of mouth referrals, Freedom of Information Act requests that list people who worked on city projects, and Section 8 offices. “These are the type of people and the type of crews that work on our houses. So, we want to be in touch with all of them,” he said.
The panelists warned against relying upon any contractor for more than a handful of jobs. They expressed skepticism of contractors saying they have four or five crews.
“Everyone will say they handle more than they can. They’re always going to tell you, ‘Oh yeah, I can handle it. I got 20 people.’ Really they don’t. Maybe they know 20 guys,” cautioned Jordan.
Finally, the panelists stressed the importance of audits for projects that fail to hit projected numbers. Jordan recommended, in particular, to evaluate project managers who consistently exceed the timeline and budget. Owners need to make sure managers are regularly visiting job sites. The best project manager has logic and knows what to look for, and knows how to delegate, manage, and verify, said Jordan.
“Most important is honesty. If you don’t have that in a front end, forget about it,” he concluded.
To listen to an IMN SFR Forum (West) post-conference Arbor audio Q&A, click here. The discussion provides more information on flipping, bridge financing and the latest single-family rental topics. You can download the Arbor-Chandan Economics Q3 2019 Single-Family Rental Investment Report and access this link to learn about Arbor’s SFR portfolio financing.