Do you watch HGTV? Have you heard of people "flipping" houses? Have you been amazed by how easy and profitable it looks? As a licensed Realtor in Louisville, Kentucky, I spend a little time with each of my home buyer clients and home seller clients explaining to them that, like the popular home portal sites Zillow & Trulia, popular TV shows like Fixer Upper and Flip this House are shiny objects to enjoy, but often only tell part of the story, and partly accurate. I like the look & feel of these media, but getting the local on-the-ground view is typically more helpful and more indicative of reality.
That's not to say I think "flipping" a house is a bad idea or above anyone's pay grade. I think it's a great idea as long as you have the right team. This is a story about having the right team and about real estate investing in Louisville, Kentucky.
Several years ago I got cold-called about a 1-800 vanity number designed to uncover home seller leads. It was a flexible arrangement where, since I'm a Realtor and, at that time, a bit of a wannabee real estate investor, the marketing it allowed would undoubtedly find home sellers who needed to sell their homes quickly. It was flexible in the sense that if I couldn't purchase the home, I could list it and market it to sell at its highest price possible. From the get-go, I knew this marketing tool would work, so I was sold, and I paid big bucks for its use. I had it for one year, and I should probably look into getting it again, but that's another story.
I began using it, and the leads started to roll in. I talked to several Louisville home sellers in various situations. Some couldn't pay their mortgages and needed to sell to avoid foreclosure. Some were the executor of an estate that needed to be settled and really didn't want to go through the necessary steps involved in getting a home ready for market. Some had inherited property, and simply wanted the cash.
One such gentleman in Henry County Kentucky had inherited a tiny home from his now-deceased mother. He contacted me via email. Initially, I wanted no part of a property in Henry County. Though I'm licensed to sell real estate all over Kentucky, it's best to stick with what you know, and I knew nothing about Eminence, KY. But this particular home seller was persistent. He didn't have access to a phone, but emailed me non-stop, asking when I might come see his home. Finally, I decided to take a look, and I took a friend familiar with construction with me.
We met the man who claimed to own the home, and took a look. He was a bit of a salesman. He had printed the tax assessor's property card showing that the home had a tax-assessed value of around $40,000. This is a good time to mention that your tax-assess property value is absolutely irrelevant to market value. The reason is simple: The tax-assessor doesn't have access to the interior of your home, and relies on you, the homeowner, to divulge any significant upgrades you've made to the home each year. Think about that: They want you to tell them if you added a bath or converted a porch to square footage, etc...so they can tax you accordingly. I am not advoating for dishonesty, but how many people do you think actually discloses this info? And even if they do, the tax assessor never sees the interior of your home. That's the major limitation of the big home listing portal websites as well. They have limited data to work with, and they are very transparent about that fact, but you sometimes hear people relying on the "Zestimate" or the tax assessor's value, and it's important to know that these figures can be (and usually are) severely flawed.
Back to the story...we looked at the house. It was extremely small and quite dysfunctional in terms of its layout. Between the house's physical limitations and location far from Louisville, we said goodbye, and drove home. On the way home, I told my "partnter" I had no interest in the home. I decided to give the seller the blueprint for selling his home for top-dollar. I wrote a detailed email to him telling him which Henry County real estate agent to call. I told him he would be better off selling it through a local agent than selling it to me because he'd likely get four times as much money that way. After I hit "send" on the email about a day went by, and I hadn't given it a thought. The seller then responded, "If you were to make an offer, how much would it be?" As little as I knew about this particular location, I was able to determine that the house was probably worth $20,000 in its "as-is condition". I answered his email with a number I didn't think he'd take in a million years: "$5,000". He said he'd take it. I basically pleaded with him to call the agent, and sell it for a fair investor price, but he said he didn't want to pay commission...
I could stop here and talk a bit about commission, but let that sink in: The Seller was so opposed to paying commission (commission would have been peanuts on this deal) that he lost lots of money in convenience charges.
Anyway, we purchased the home within the next couple of weeks for $5,000. Once we closed, I took my own advice, and contacted the agent I'd recommended the Seller contact from the beginning, and he sold the house for a net sale price of $16,000. We didn't do anything to the home. It was a true "flip" in the sense that we acquired the home, and immediately sold it.
As of today, my team of three known as Uncle Karl Dyson LLC has flipped two Louisville area homes, and we have another in the wings which we will begin working on in the very near future. I sort of "fell into" my Henry County flip, and while it didn't make me rich, it was a no-brainer. The flips we've done most recently were much more intense in terms of the amount of work needed to make those homes profitable.
Here are 4 observations/suggestions I can provide you should you decide to invest in Louisville real estate:
1. Your profit is made when you buy, not when you sell. I can't overstate this point enough. Real estate investors who stay in business buy their investment properties "right". That is, they know their numbers. This means knowing either how much it's going to take to get a property to a certain price, and what the limit of that "as-repaired" figure is. You can't simply put $30,000 in a house and get $30,000 back. You must know the markets in which you invest.
2. Knowing the market is crucial. Do not assume that you are getting a good deal because an online property portal thinks so or because you are buying it so far below asking price, or because you are buying it below tax-assessed value. Think if I'd paid the gentleman in Henry County even $10,000 less than tax-assessed value...I'd have taken a bath. This is the first part of the team: The real estate part. Who knows the real estate market you want to be in? Do you trust him/her? Is he/she knowledgeable? Does he/she get a piece of the profit?
3. Is this a flip or a rental? The beauty of real estate is that it's flexible. It can be sold or rented depending on which scenario makes the most sense. Our next flip after the Henry county home was supposed to be a rental, but we simply had to do too much to the home to get it up to standard, and by the time we finished it, it was too nice. So we sold it...with multiple offers...in 4 days.
4. Time is your enemy. Our second flip took months to finish construction. We learned a lot. If you want to keep construction costs down, it could take a long time to complete a project. If you want to complete a project faster, hire more people, but make sure your margins can support it. Time is also your enemy when you go to market. I got a kick out of a national news article several years ago that said that real estate agents made more money on their personal residences when they went to sell them because they didn't rush selling their homes. Time is your enemy. The longer a property stays on the market, generally, the less money it will sell for. Add in in carrying costs, and it really is best to make your money when you buy, price competitively, and sell it quickly.
Are you looking to flip a house? Are you looking to buy some Louisville area rental homes? What's your real estate investing dream? Do you need to sell a Louisville home quickly? Let's talk. My contact info is all over this blog post, so contact me, and I'd be glad to provide you with some advice, guidance, or an offer on your Louisville home.