Beginner's Guide to House Flipping and BRRR Investing

TLDR

Flipping a house is four steps: the deal, the strategy, the work, the market. Those four sit on a foundation of why real estate works at all, and they are filtered through the long game of building an empire. Get those pieces in the right order and everything else gets easier.

Table of Contents

• Why Real Estate Before Anything Else
• Step One: The Deal
• Step Two: The Strategy
• Step Three: The Work
• Step Four: The Market
• The Empire
• FAQ
• Related

Why Real Estate Before Anything Else

Before any of the four steps matter, you need to understand why you are here. I boil it down to five reasons, and they all connect back to control.

Real estate has been around for thousands of years. Archaeologists dug up Mesopotamia and found tablets that were basically real estate transactions, people trading one person’s land for another for a profit. If an asset has been making people money since BC, it is reasonable to believe it is going to keep working.

Banks believe in it too. Instead of buying a $100,000 property with all your cash, a bank will give you money to buy it. Compare that to stocks. If you want to buy $100,000 of stock, you need to come up with $100,000 cash.

It is universal. Everybody needs a place to live. They either buy or they rent.

It is controllable. If you buy Amazon stock, you cannot call Jeff Bezos and ask him to make changes to the business. With real estate, you can walk onto the property with your own two hands and control the outcome.

And it is a two-in-one, like shampoo and conditioner. The same skills you develop to flip a house, learning rehab costs, project management, finding deals, they all transfer directly to holding rentals long-term.

Flipping builds the skills. Holding builds the wealth.

Step One: The Deal

Everything starts with a great deal. When I started out, I bought houses off the mls. What a real estate agent has listed, also on Zillow, also on the market. And I was overpaying every single time because anything listed on the market is priced at the rightmost tip of the range of comps. They have to pay a real estate agent, they have to pay fees, and the agent always tells them it will sell for more than it will because that is how they win the contract.

The best thing that ever happened to me was learning about wholesalers and buying off market. When you buy off market, you generally buy the house for its true value or sometimes less.

Key Concept

The scale of livability runs from bombed out to barely bankable to the range of comps. A value-add investor takes a house on the left side of that line and forces appreciation into it to move it to the right. That is the whole game.

To find those houses, you need a market, a few neighborhoods inside that market, and a marketing system. Start local. I hate out-of-state investing for beginners. Your presence, your eyes on the job, your ability to drop by the property, there is nothing more powerful. If your market is stale, drive two to five hours to a market you can actually visit.

Inside the market, pick a couple of neighborhoods defined by census tract and major roads. Then go hunt.

How to Actually Find Off-Market Sellers

You want inbound calls from people who want to sell. You do not want to spend time trying to convince people to sell houses they are not trying to sell. That eats your bandwidth.

You also need a home base. Local address, local area code, a website showing who you are. You are competing against out-of-state investors who have none of that. Your local presence is your edge.

The Houses to Skip

Some houses are dead on arrival no matter how good the deal looks. Odd birds that do not match the neighborhood. Houses with easements or property line issues. Flood zones in a neighborhood where most houses are not in a flood zone. Seven-foot ceilings. I do not mess with any of them because they never appreciate like the rest of the houses do.

Closing the Deal

Authority comes down to three things: rapport, trust, and expertise. The walkthrough is where you build all three because that is where you show you actually know how to write a rehab scope of work and talk about the property like someone who has done this before.

The simple math is the 70 percent rule. Take 70% of the after repair value, subtract the rehab cost, and that is your offer. Three hundred thousand ARV times 0.7 is 210, minus a $50,000 rehab, gets you a $160,000 offer.

Getting the Money

A bank is the worst place to get money for a flip. A bank wants to lend on a property that is already barely bankable. You are buying houses on the wrong side of the livable line because that is where the discount is. Even when banks do lend, they give you 80% of the purchase price and leave you to find the rehab money.

That is where hard money lenders come in. They are built for properties like the ones we buy. As you grow, private investors enter the picture, and eventually what I call private hard money lenders, house flippers who have graduated to lending their own money.

Banks are the worst money for the worst-looking houses. Hard money is built for what we do.

Step Two: The Strategy

Running comps for a renovation works the same way as running comps for a sale price. You look at houses in the range of comps and figure out what they did. Did they re-roof? Granite or butcher block? Soft-close Shaker cabinets or builder-grade? LVP or hardwood? Tub shower inserts or tiled showers? That is how you comp out your renovation.

There are four levels to a scope of work, and you build them in order.

1. safety and liability. Non-negotiable on every property. Anything less and you are a slumlord or a corner-cutter.
2. bleeding. Stop the water. A bleeding house gets worse every single day.
3. baseline. Hit the minimum of what the range of comps is doing. If some houses have granite and some have butcher block, you pick butcher block.
4. Psychological hacks. We will get into this in the Market section. This is where you push past the bottom of the range without spending big money.

The HGTV Dilemma

Trying to build the prettiest house on the block will bankrupt you. I once lost $200,000 on a flip where I put a second story, a three-car garage, and a two-story indoor waterfall in a neighborhood that could not support it. The guy across the street from me bought a smaller house, did no pop-top, no garage, did not even paint the exterior, and cleared six figures. HGTV makes money as a media company, not as house flippers. You are not HGTV.

Chunking and Media Packets

Before you buy, chunk the work. Not a long list of tasks one after another, but groupings of jobs you can hand to specific people. Then build a media packet for each chunk: photos, video, written scopes that spell out exactly what you want. Your job as the investor is to cast a clear vision.

Step Three: The Work

There are three kinds of contractors and you need to know which one to call for what.

Most of my work runs through all-arounders. They are not great at any one thing, but remember, we are going for the baseline.

Your contractor pipeline is your lifeblood. Treat it like a sales CRM. Go meet people in the streets, get them in the spreadsheet, follow up, work them until they bid a job. Always be recruiting.

Pro Tip

No accountability without expectations. If you have not clearly defined the vision in writing and pictures, you do not get to hold the contractor accountable for missing it. If you have, then hold the line ruthlessly. Both sides have to be on point, or you are just yelling.

Step Four: The Market

For sale by owner sounds appealing until you realize what filter it puts on your house. It tells every buyer, “this person is cheap, I can get a deal, they do not know what they are doing.” That is the exact opposite of what you want.

A great real estate agent earns their commission by getting you more for the property and handling the bandwidth of calls and showings. Most agents are terrible. You need a pit, someone who will fight for your price, who does not care about the feelings of other agents in the establishment. When you find one, keep them.

The Big Three

The big three are the first three things a buyer sees: the curb appeal as they pull up, the approach to the front door, and the first two or three things they see when they walk in. You push past the baseline in those three spots only.

If the first thing they see is a half-bath on the left, tile that shower instead of using an insert, even if the rest of the neighborhood uses inserts. If they see the kitchen, upgrade to butcher block or granite. The buyer makes the decision in the first few seconds. The rest of the walkthrough is about not unselling them.

The Digital Introduction

Before anyone walks through, they see the listing. Three parts: price, photos, and copy.

Price wrong and you are the worst house your buyer sees every day. Drop it and it sits longer, which tells every future buyer something must be wrong with it. That is a filter you cannot scrub off.

Photos should be shot in the order you want the buyer to walk the property. Same logic as the big three. Iphone photos from your real estate agent is a red flag. Fire them.

Copy is arguably the most important piece. If a listing starts with “welcome to 123 Main Street,” fire that agent immediately. Good copy puts the buyer in the house, makes them feel it.

The Empire

Over the top of all four steps sits the empire, the things that make the whole operation hold together over years.

Relationship capital. Every interaction with a vendor, contractor, agent, or anyone else is a deposit or withdrawal in the emotional bank account. Holding accountability when expectations were set is not a withdrawal. Taking out frustration because you did not set good expectations is a huge one. Keep the accounts full.

Financial contingency. Zero-down does not mean zero cash. You always need reserves. If you operate with your back against the wall, you make every decision to get to the next paycheck instead of what is right for the project.

Focus your bandwidth. The all-weather approach is four things: get great deals, constantly level up vendors, become a great project manager, and build smart scopes that do not over-renovate. Four things. Do them well and you will be successful.

Mindset. Real estate takes time. No get-rich scheme actually works. I met a guy once with 50 properties, zero mortgages, worth millions. I asked him how he did it. He said a neighbor sold a house, he went to the bank, got the money, put a tenant in, used the rent to pay the mortgage. Then another neighbor sold. Same move. He did it 48 more times. Thirty years later the mortgages were gone. That is the whole secret.

FAQ

I am just starting out. Do I really need a hard money lender, or can I use a regular bank loan?

Banks are the worst money for flipping. They want livable properties and they leave you to fund the rehab yourself. Hard money lenders underwrite to after repair value, which is how the math actually works on a value-add deal. Start there, bring a little skin in the game, build a track record.

How do I know what neighborhood to focus on?

Start with the market you live in. Walk or drive it. Define neighborhoods by census tract and major roads. Pick one or two where houses look similar so your comps are statistically strong. Pleasantville neighborhoods where everything looks the same are perfect.

What is the difference between flipping and BRRR?

Same first three steps. The only difference is step four. A flip sells to the open market for cash. A BRRR sells to the bank through an appraisal, the bank gives you a percentage of the appraised value as a long-term mortgage, and you hold the property as a rental. Same skills, different exit.

How small of a budget can I start with?

Smaller than you think, if you find a great deal. Hard money covers most of the purchase and rehab. You still need a down payment, closing costs, and a financial contingency. The smaller your cash, the better the deal needs to be.

Why not just do it myself without pulling permits?

Because when the city finds out, and sometimes they do, you tear open walls. Check out Acting as Your Own General Contractor for the full breakdown on permits and licenses. Either way, you are the one managing it.