4 Unorthodox Rules to Skip Years of Pain

TLDR

I spent my first decade as an investor making every mistake. I made 80% of my wealth in the last five years because I stopped doing what everybody else does. Four rules: hire the right contractors, write the right scope of work, buy the right houses, and buy them from the right sellers.

Table of Contents

• Rule 1: Hire the Wrong-Looking Contractors
• Rule 2: Write Scopes for the Neighborhood, Not HGTV
• Rule 3: Buy Median Houses, Not Sexy Ones
• Rule 4: Go Direct to Seller
• FAQ
• Related

Rule 1: Hire the Wrong-Looking Contractors

If a contractor is easy to find, they are the wrong contractor for you. Big jacked-up truck, wrapped logos, ranked on Google for “best contractor in town.” That guy has a marketing budget, an admin team, an office, project managers, and other employees handling leads. You pay for all of it.

I am not trying to underpay contractors. I want them to get paid well. I just want it to work like a wholesale event. Strip out the marketing. Strip out the overhead. They do not need any of it because people like me feed them consistent work.

The guy I want is a one-man crew or a small crew where the lead guy is on site working with his hands. On every job site there is usually one person who actually knows what they are doing. Everybody else takes orders from that person. If you hire a company where that guy is in an office or at another job, your crew is walking in circles.

The All-Arounder

My real target is the all arounder. These are guys who do floors, paint, drywall, cabinets, carpentry, demo, cleanout, trash. A little bit of everything. The only thing they do not touch officially is mechanical, electrical, and plumbing because they do not have the licenses to pull permits. For those trades, you need a specific electrician, plumber, and hvac sub.

The more all-arounders I have, the more houses I can buy. One all-arounder stays on a job until it is done. One electrician can bounce between two or three jobs. Scale comes from the all-arounder.

The more all-arounders on your roster, the more houses you can run.

Build a Pipeline

Football teams do not have one quarterback. They have a starter, a second string, a third string. If the starter blows a knee, they have a backup. Your contractor list needs to work the same way.

I build my list at gas stations, red lights, and home depot. Look for a white work van or a work truck with lettering on the side, maybe ladders on top. The owner gets out with drywall dust on his pants and paint on his boots. That is my guy. I introduce myself every time. I put him in my CRM. I may not have a job for him that week, but eventually I will, and I want him on the bench.

If I bought a house today and needed a crew, I would go to the parking lot at Home Depot every morning and meet people. Look for the guys with a mix of items in their cart. That is an all-arounder. Not a specialist.

Pro Tip

The first question is not what they charge. The first question is what their truck looks like. If their truck shows overhead, their bid shows overhead.

Rule 2: Write Scopes for the Neighborhood, Not HGTV

Most of us got into this game because we watched HGTV. Flip or Flop. The design shows. None of it is real. They are not making money flipping the house. They are selling ad space while you watch. They could lose a hundred grand on the house and still print money on the episode.

I fell into the hgtv dilemma for years. I took roofs off and built second stories. I poured custom concrete countertops with built-in sinks. Great pictures. I did not make any money.

The Scale of Livability

Here is how I think about every house now. Imagine a line. This is the scale of livability. Everything on one side is livable, meaning a bank will lend against it because the mechanical electrical plumbing works and the house is safe. A civilian with a mortgage can buy it. The sliver right at the line I call barely bankable.

Anything on the other side of the line is not livable. A normal buyer cannot get a conventional loan on it. You need specialty financing like a 203k loan, or you need a cash buyer like us who is willing to take the risk and bring it up to livable. The moment a house crosses the line into livable, it becomes rentable or sellable. That is when it makes money.

The Range of Comps

When you run comparisons on a neighborhood, you find your range of comps. Say the range is $350,000 to $400,000. Every nice house in that neighborhood sells inside that range.

HGTV teaches you to push past it. I saw an episode where the hosts did a design-off on upstairs bathrooms. Gold finishes, specialty lighting, mosaic tile. By the time a buyer walks up those stairs, they have already decided whether to buy the house. Those bathrooms are over-designed for the neighborhood. The house gets priced at $500,000 in a $400,000 market.

It does not work. Most buyers are borrowing from a bank. The bank hires an appraiser. The appraiser looks at what sold in the neighborhood. Nothing sold over $400,000, so nothing is worth over $400,000.

It is like walking hungover into a truck stop diner with twenty bucks in your pocket. You want the omelet, the bacon, and the pancakes. Then the waitress hands you a menu with fifty-dollar plates of tiny food. You either walk out and find a different diner, or you ask the owner to sell you the fifty-dollar meal for twenty bucks. The neighborhood decides the menu. You do not.

So I define the neighborhood. I look at what the nice houses have inside them. LVP or hardwood. Shower inserts or tile. What kind of cabinets and countertops. My scope of work matches the neighborhood and not one dollar more. Nobody pays extra for the money you poured in.

Over-Renovation Kills Profit

I lost over six figures on one single flip because I went for a home run. I over-renovated. The neighborhood was not buying a gourmet dish at a diner price. Every upgrade past the range of comps is money you donated to the project.

High-End Is Also a Contractor Problem

The all-arounder model breaks in high-end. On a median house an all-arounder can do floors, paint, drywall, and cabinets, and it is good enough. In high-end nothing is good enough. You need specialty cabinet guys, specialty countertop shops, specialty tile crews that can run mosaic and glossy finishes perfectly flat. Specialty contractors come with specialty prices.

When I used to run high-end, I needed a dozen subs per job. I had a chart mapping when each guy woke up and when he would answer his phone. One would pick up at 5:30 a.m. Another would not pick up until 6:00. I ran through that chart every morning across multiple jobs. Switching to median houses and all-arounders collapsed that chaos. Sometimes I do not step on a job site for a month. The crew hits a pay schedule, asks for a draw, and I go inspect.

Scope the house to the neighborhood. Not to HGTV. Not to your portfolio.

Rule 3: Buy Median Houses, Not Sexy Ones

In my part of Tennessee, the median house price is around $320,000. My rule is 20% over the median, max. That gets me to about $385,000. If a house has an after repair value above that, I do not buy it. Too much house.

Base Hits Beat Home Runs

Everybody loves a home run. Big swing, big profit. Barry Bonds hit a lot of home runs. He also struck out a ton. I think about it like the Moneyball approach. The Oakland A’s figured out that if they built a lineup of players who just got on base at a higher percentage than everybody else, they would win games. No superstars. No home runs. Just base hits.

That is my method. Strikeouts take you out of the game. In real estate, staying in the game long enough to build skill, see around corners, and stay afloat is the whole point. Home runs are what almost took me out. A single six-figure loss on one flip wipes out months of steady deals.

High-End Buyers Are Brutal

The people buying $600,000 houses are not first-time buyers. They have owned before. They know what they want and they will tear your house apart on the inspection report. The inspection resolution alone will cost you weeks and thousands of dollars in credits.

You got into this to control your life. Not to argue with picky buyers about grout lines. In the median range, buyers are not looking at the house with a magnifying glass. That is not cutting corners. That is matching the buyer.

High-End Dies First in a Downturn

When the market turns, the top end goes first. A $300,000 house can be covered with rent if you have to hold it. A $600,000 or $800,000 house cannot. Only people with extra money buy at the top, and the extra money vanishes in a tough market. Median houses survive because people always need a place to live.

Common Mistake

Chasing the sexy house because it looks good on camera. The high-end flip is the one that strikes you out when the market shifts. The boring $300,000 three-bedroom is the one that keeps the lights on.

Base hits keep you in the game. Home runs take you out of it.

Rule 4: Go Direct to Seller

When I started, I bought off the mls and Zillow through a real estate agent. That is what I thought flippers did. The problem is the MLS is the market. Demand is at its peak there because anybody can find those houses from their couch. supply and demand sets the price at the ceiling. You are not getting a deal.

I used to buy livable houses off the MLS, then tear them down to the studs so I could rebuild and add a second story. I was paying livable prices for houses I was about to make unlivable. Devaluing them before revaluing them. Stupid.

Step One: Wholesalers

My first step off the MLS was wholesalers. It scared me. Wholesalers can look shady. You cannot always inspect. You have to decide fast. A lot of them are shady. But one of my first wholesale buys was a boarded-up house for $21,000. Siding was fine under the boards. Windows were fine. Inside it was unprintable. Needles, mattresses, a human waste problem in the kitchen. Most agents would not touch it because it would wreck their reputation.

Thirty grand in work later, the house appraised around $180,000. I made six figures on that one deal. You will never find that house on Zillow. If it does show up, a dozen investors bid on it at once and the price runs up.

Wholesalers Got Greedy

The problem is wholesale fees kept climbing. I recently paid a six-figure assignment fee on one deal. Still a good deal, and I know the argument. If it was a good deal, who cares what the middleman made. True. Human nature disagrees. That was their money when it could have been mine if I had been marketing directly.

The Real Move: Direct to Seller

Going direct to seller is less work than working the MLS. You are not firing off offers and losing. You are not keeping up with a roster of wholesalers. You control the pipeline. You decide when to turn on marketing. You get deals on demand.

The method is simple. You build a list. You refine the list in three passes.

1. Buy box. What kind of house will you actually buy? Size, age, condition, neighborhood. Strip the list down to properties that fit.
2. People. Filter to real humans, not LLCs. Owners with fewer than three properties. Owners who have held more than five years.
3. Pain. Find the pain points. Tax delinquency. Fire damage. Water shutoff. Out-of-state owner with a vacant house. Pain is what makes a seller actually answer.

Then you market to that list. Either cold calling if you are on a tight budget, or mail, which is my favorite. Mail costs around sixty to seventy cents per postcard in bulk. Handwritten letters run up to $1.50 per piece. For a few deals a month, I spend around $3,000 in mail against a 3,000-person list. Some sellers call me every month. The list refines itself as I go.

Compare $3,000 a month in mail against a $20,000 wholesale fee on a single deal. It is not close.

Key Concept

The deal is everything. When you have a good deal on the front end, you can be mediocre at project management, overpay your contractors, and write a bad scope. You will still come out ahead. A good deal up front forgives almost every mistake that comes after.

Control the deal and you control the business.

FAQ

I am just starting out and do not know any contractors. Where do I actually find my first one?

Home Depot at 6:30 a.m. I am serious. Stand near the pro desk or the contractor parking area and watch. Look for guys loading work vans with mixed loads, not specialty gear. Introduce yourself, explain you are a new investor building a list, and ask for a card or a number. Do that for three mornings and you will have ten names.

What if my local market does not have a $320,000 median?

Use your own median. The rule is 20% over median, max. If your area is at $180,000, your ceiling is around $216,000. If it is $500,000, your ceiling is $600,000. The principle holds everywhere. Match the house to the meat of your market, not the top.

Can I run this method part-time while I still have a W-2?

Yes. The direct-to-seller mail route runs itself once the list and the mail schedule are set. You spend a few hours a month refining the list and taking seller calls. The all-arounder contractor model also fits part-time because you are not managing a dozen specialists.

Is it worth doing one high-end flip for the experience?

No. One bad high-end flip can take six figures off your account and push you out of the game for a year. You learn the same lessons on median houses without the extinction risk. Save the sexy project for when you have real cushion.

How do I know if a neighborhood is actually livable-bankable?

Pull the last twelve months of sales in the zip code at your price point. If the houses selling are all being bought with mortgages, the neighborhood is bankable. If half the sales are cash or investor buys, the neighborhood is still working toward livability and your exit will be harder.