How to make $150,000 to $400,000 on each home flip!
In this article, Gary Massari shares his unique process to successfully flip a home, and explains his proven step-by-step plan for acquiring, rehabbing, and selling property to make big profits!
As a well-known realtor and flipper in the San Francisco Bay Area, Gary owns and operates a broker/builder company called REI Homes Signature Properties, a DBA of REI Fortunes LLC. He has been subdividing land and building custom luxury homes for his clients since the 1980’s, which led him to flipping luxury homes and doing minor subdivisions with private money investors. In addition to home flipping, Gary hosts frequent educational events through a local REI MeetUp group, where he mentors and trains about 1000 aspiring investors.
“I love helping my investors succeed by providing opportunities with higher-than-market returns. My qualified investors become partners with me, making 15% to 27% ROI in the process. My new investors make 10% ROI and have the opportunity to grow into a partnership with me through my entry-level training program.”
My Business Model
We buy small homes on large lots that are typically old, custom homes in upscale neighborhoods. For example, I’ll take a small craftsman style home with 2-bedrooms and 1-bath, and turn it into a beautifully landscaped 4-bedroom and 3-bath luxury home. Additionally, I’m always looking for lot splits and possible minor subdivisions.
With this model, I can expect to make $150,000 to $400,000 on every home flip! Unlike most home flippers, I am not looking for volume as much as I am looking for quality, so our jobs could take as long as 9 to 12 months compared to the lipstick flip that takes 3 to 6 months. However, it is well worth the wait with these profits!
Let’s Look at Some Examples…
2450 West Street
Scope:
- Convert bonus room to master bedroom.
- Remodel complete interior making floor plan open and airy.
- Beautiful landscaping for outstanding curbside appeal.
Results:
Purchased $895,000
Rehab $150,000
Sold $1,495,000
Profit $150,000
As a result, this property sold $150,000 over offer, $95,000 over list price, and became the highest priced home in the neighborhood!
233 Purdue
Scope:
- Combined two lots, expanding floor plan from 1186SF to 2450SF.
- Features high vaulted ceilings, waterfall bath and spa shower, carousel revolving closet, 4 bed, 3 bath, 2 laundry units, and a separate rental unit.
- Landscaping has 430SF wrap around deck, with private patio and lighted walking paths.
Results:
Purchased $860,000
Rehab $400,000
ARV $2,000,000
Profit $439,000
For comparison, similar property on same street just closed at $2,200,000, listed at $1,750,000.00 and sold in DAYS!
Lesson 1: Know Your Market
Amazingly, there is a strong market across the United States where home sales continue to climb even in an election year!
People are leaving the big cities in groves, buying homes in the rural areas to escape the COVID19 virus, crime, violence and homeless tent cities. Additionally, the new norm of “working from home” seems to be catching on, with more and more companies adjusting to the change by going virtual.
Thankfully, low interest rates are holding steady and the forecast looks like this may continue for a few years. The only thing that can hurt it is Fannie Mae and Freddie Mac charging a half-point more for refi’s.
Questions to Ask Before You Buy:
- What are the list-to-sold ratios in your area?
- Are they selling over list price with multiple offers or selling below list price?
- How much below list price?
- How many days on the market? Under 30 days, 60 days or more than 90 days?
- Is this a family, empty nester, millennial, or commuter market?
- What are the school, crime, and walking ratings?
Lesson 2: Know Your Trends
What are people buying? Modern, Traditional, Old Craftsmen? Are ADU’s still popular? Also, are extra rooms for rentals helpful? Similarly, what about these new green and blue kitchens? Is that style going to last? What kind of tiles are most popular?
For more insight on the home flipping market, Google home trends for the latest updates and news about the market.
Tip: Did you know, you can use professional designers free-of-charge to design your kitchens, bathrooms, tile selections and designs?
Lesson 3: Know How To Buy For Profits
At the end of the day, the money in home flipping is made at purchase. Our acquisition team is constantly doing deal analysis to help us make decisions. In order to do this, they pull a property profile to catch all sales in the last 12 months off-market and MLS.
Once the profile is pulled, we do an extensive desk review and gather all of the pending and listed homes off of the MLS. Then, we compare every picture inside and out, looking for properties with the highest sales in a 3-mile radius over the last 6 months, and calculating the average sales for the neighborhood. By gathering this information, we are able to get an idea of the home flipping property’s RANGE. Basically, we’re finding out what similar rehab homes are selling for with similar square footage and lot size.
If it is a good deal, my wife and I will visit the property, drive around the neighborhood to personally view the comps we have selected, then determine what is selling in the area. These field reviews have been the biggest contributor to earning the incredible profits we have made on home flips!
Lesson 4: Pick Your Realtors Wisely
Before I make an offer, I run my properties through my chosen realtor. In order to do this, my wife and I interviewed over 100 realtors in 6 weeks to find the right realtor to work with. To qualify, our realtor had to be in the top 5 of their office, sell more than 25 transactions per year, well respected, connected in the community, know the market inside and out, and a tough negotiator.
For instance, do you recall when I mentioned that my realtor negotiated the offer up on West St? By doing this effectively, she was able to get $150,000 over offer and $95,000 over list price on that home flip!!! She became one of my investors too! ☺
Lesson 5: Marketing Is a Full Time Job!
My team targets certain areas to gain absolute market knowledge. Also, we are connected to wholesalers, realtors, rehabbers, and we review foreclosures and short sales.
To protect our home flips, we knock on doors when we are rehabbing and ask the neighbors if they can keep an eye on our property to make sure there are no loud noises, trespassing, or smoking on the lot when we are not there. As a thank you, we give them tours and invite them to a special open house party along with the rest of the neighborhood.
Additionally, another valuable marketing method we use is adding a construction sign on the front yard and labeling our truck so our company name is promoted at our project locations.
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Lesson 6: We Are Constantly Growing Our Investor List!
I teach my investors how to create debt-free wealth by creating high returns, then show them how to invest in remote control rentals that pay off their mortgages and increase their cash flow within 2 years by using velocity banking.
We give our investors the VIP treatment by getting early access to every offer we make (with a pro-forma), and receive weekly videos and photos of our new and in-progress deals. As a result, they love the transparent communication and valuable opportunities we have to offer.
Lesson 7: Controlling Cost = High Profits!
By purchasing most of my own materials, I am able to cut deals with my vendors where they give me a 10% off military discount, or put it out for bid to see if I can get a better deal than 10% off elsewhere.
Additionally, we maintain strong relationships with our vendors by taking them out to our wine clubs and getting to know them on a more personal level. We usually become friends with our vendors so it’s not always all about the business. Because of this, I enjoy 30% to 45% discounts on my cabinets and quartz!
Most importantly, I’ve learned to negotiate with my contractors and subcontractors without being unfair to them. It helps that I offer bonuses and provide lunch for them every Friday! Who doesn’t like a good meal?
Lesson 8: Test Your Subcontractor Bids Using Hourly Rates!
For example, I received a $12,000 siding bid and asked the subcontractor how many men would he have working with him. Then, I asked him what his hourly rate was for him and his four men. After he gave me his rate, I was able to point out that he was bidding 2x more than necessary, and I ended up getting the job for $6,000! Believe it or not, the best part is I get to share these victories with my home flip investors.
Be careful when doing this, because you don’t want to lose a good contractor! Keep in mind, you want to be especially cautious if the market is hot and there’s plenty of other work at market rates. Also, always make sure you have back ups.
Lesson 9: The Lowest Bid Is Not Always the Best Bid
For comparison, I had a bid for an interior demo at $9,000 compared to another bid at $12,000. Unfortunately, when I took the lower bid, it sat me back 10 days which is a huge problem for home flips! As a result, I had to fire the demo team and eventually hire the other contractor who came in and got it done in just three days.
Final Thoughts:
- Jack-of-all-trades and master of none will keep you broke and struggling. Pick your lane and stay in it!
- Do not chase money, but serve your passion and money will follow you! Your happiness is most important!
- You bring about what you think about. You will get what you focus on. Set your goals to achieve your dreams, and always take that small step outside your comfort zone… life has a way of rewarding you!
- Never give up! No one is smarter than you, and no one is better than you. We all have God given talents and gifts – just use them and believe in yourself!
- PLEASE VOTE! Our country needs us!!!!!
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