I Found a Better Way to Flip Houses

TLDR
You can get wealthy in real estate without swinging for the fences every time. The gorilla house flipping method is ten rules that stack controlled wins, protect the downside, and work in any market. Base hits win ball games. Home run swings strike out more than they connect.

Table of Contents

Rule 1: Get a Great Deal on the Front End

Yeah, you’ve heard that. But what does it actually mean?

Ever heard of William Wallace? The Braveheart guy. There was this battle at Stirling Bridge where the English had double the Scottish troops. Wallace funneled the English onto a narrow bridge where they could only cross two or three people wide. The Scottish attacked right there. The huge numerical advantage got canceled out because Wallace had already won the battle before it started.

A great deal on the front end is the same thing. If you buy badly, you’re losing from the first day. You have to set yourself up for success just like Wallace did.

Here’s the 70 percent rule for flippers. Figure out the after repair value of the house. Multiply by 70%. Subtract the rehab cost. That’s your purchase number.

House that will sell for $400,000 fixed up. ARV times 70% is $280,000. Rehab is $50,000. Purchase for $230,000.

Seems low. They’re out there. You just have to work for them.

Pro Tip
If the deal is easy to find (Zillow, MLS, anything you can find from your basement), it’s not a good deal. The best deals are the ones you go out and find. I know that sucks. It’s crazy to think that to become wealthy you have to do hard work.

Whether you’re flipping to sell or holding long-term as a rental, the principle is the same. Get the deal right on the front end or don’t do the deal at all. The market right now is tough. I’m only buying deals that are great.

Rule 2: Follow the Line of Livability

Imagine a scale. On one end, raw land. Not livable at all until you develop it. On the other end, a fully renovated or new-build house with a certificate of occupancy. Somewhere in the middle is what I call the line of livability.

A house past that line can be lived in today. If it can be lived in, it’s bankable. A bank will lend against it.

Real stat: 78% of buyers will consider cosmetic issues, but less than 10% will consider homes missing basic utilities or safety. That means if the mechanical, electrical, or plumbing isn’t working, the pool of buyers shrinks to almost nothing.

You want to buy below the line of livability and push across it. Every move is forward. I played football a long time ago and we had a coach who was all about first-step drills. Once the whistle blows, you never move backward, not even a millimeter. Same with sprinters. Pistol fires, every motion is forward.

That’s the gorilla mindset on renovations. Don’t demo things that are already past the line. That’s a step backward. Only forward steps.

The distance between where the house is and the line of livability is your risk. Close that gap as fast as possible. The farther past livability you push, the more money you’re burning on diminishing returns.

Rule 3: Overbuild Your Contingencies

64% of home renovation projects run 10 to 50% over budget. In my experience it’s worse than that. All projects run over budget. The ones on HGTV run over budget and those are the easy ones.

Now think about a house that hasn’t been lived in for 10 years. Power’s been off. Plumbing hasn’t run. Don’t you think it’s probably going to be worse than you planned, not better?

Here’s the analogy. You’re driving down the road and you blow a tire. Bad day. You pull over, get out the jack, pull out the spare or donut tire. Everyone knows tires blow. That’s why we carry a spare.

But people show up to a $50,000 construction budget with zero spare tires. That’s dumb because the budget is going to blow out just like a tire. Carry a spare.

If you think it’s a three-month project, plan for 12. If you think it’s a $50,000 renovation, plan for $75,000 with extra cash on standby.

Common Mistake
People don’t lose flips because they pay a little too much. They lose because they thought the job was $50,000 and it was $100,000 and they had no reserves. The cost hurts and the time hurts more. Fix this before you start.

Rule 4: Get the Right Lending

Two lending stages: the front-end cash that buys the house (usually hard money) and the refinance after the project (DSCR or similar). One rule for both.

Fixed terms, longest possible period.

2008 happened largely because of adjustable-rate mortgages and balloons. When national interest rates jumped from 5% to 8% overnight, ARM payments shot up and houses that had been cash-flowing weren’t. Multiple properties, no cash to pay the bills, foreclosure.

Same with balloons. A 5-year balloon on a 30-year amortization meant you had to pay off the remaining balance at year 5. People assumed things would work out. They didn’t.

Even on short-term hard money, read the extension terms. Some are six months, some are 12 months. They almost all offer extensions because they don’t want to foreclose on you, as long as you’re pushing the project forward. Which you can only do if you have financial contingency.

For hard money specifically, care about how easy the money is to pull out of escrow. Some lenders have a daunting inspection and paperwork process for every draw. Others are, “Okay, we’ll send someone and wire the money this afternoon.” Go with the wire-this-afternoon lender.

Rule 5: Budget for Every Line

In 2001, US hospitals saw about 43,000 deadly infections from IV lines. By 2009 that was down to 18,000. The fix was a simple checklist.

  1. Wash your hands.
  2. Clean the patient’s skin.
  3. Sterilize everything you use.
  4. Wear PPE.

It didn’t matter what was on the checklist. The point was that there was one. Even the obvious steps, like “yeah, I’m going to put my gloves on,” had to be checked off every time. That saved thousands of lives.

Your scope of work needs the same discipline. Every possible job in a house goes on the list. Roof, siding, windows, mechanical, electrical, plumbing, drywall, paint, flooring, cabinets, trim, landscaping. All of it. You check every single line every single time, even if the line doesn’t apply.

That’s how you stop missing the appliance package. “Oh yeah, no big deal, $3,500.” Except when you do that on four items, it’s $14,000 you didn’t budget for.

The checklist kills the small budget killers. Go through it every time.

Rule 6: Set Expectations Three Ways

Communication is hard. What I think I said is not what you heard. And what you heard is not what you did.

This happened to me recently at a commercial rental next door. The lease said we’d do a paint match on the awning. I thought “paint match” meant match the beige that was already there. We painted the whole awning beige. The tenant came back and said, “When are you going to paint the awning?” I said, “I already did.” He said, “It’s still beige.”

He meant paint match the dark slate gray of the rest of the building, not the original beige of the awning.

Communication is hard. Set expectations three ways with every contractor and vendor.

ChannelExample
VerbalTell them in person, walk the job
WrittenDocument it in the scope of work
VideoWalk the job with a phone, narrate, send it

In one of the three channels, you’ll usually catch a miscommunication before it becomes a problem. And later, when there’s an accountability question, everyone has something to reference.

Rule 7: Don’t Micromanage, Micro-Spy

Two methods: the 007 method and the newlywed nagging method.

007 micro-spy. Micromanagement is standing over someone while they do the dishes telling them how to do each dish. Micro-spying is watching from across the house to make sure they don’t mess it up so bad it can’t be recovered. On a job site, that means stopping by in the middle of the project to take pictures for my investor, or grab something for the permit office, while I’m actually checking the quality of the work. Contractors want agency. Give it to them, but keep an eye on things.

Newlywed nagging. “Hey, honey, could you please do the dishes?” When you’re newlywed you say it nicely, all sweet, and it’s hard to say no. Ten years in, the tactic is different. For contractors, treat it like the newlywed version. “Just keeping my records. Every week I’m going through each job. I just want to make sure everything’s on track.” Nag, but nicely.

Between micro-spying and the newlywed nag, you cover both ends: quality control without breathing down necks.

Rule 8: Baseline Plus the Big Three

Over-renovating is a terrible curse. I call it the hgtv dilemma. You watch HGTV, you see the beautiful renovations, and you think that’s what a house flipper does. No. That’s way overdone. You spend money you don’t get back.

Instead, you use baseline plus big three.

The ARV isn’t $400,000. It’s a range of comps, say $400,000 to $420,000. I look at what it took to get houses to the bottom of the range. What are the minimum expectations to be considered in that range at all? That’s the baseline. Every finish in the house meets the baseline, not one dollar more.

Then I use the big three to push further. The big three is the first three things someone sees when they walk into the house. Because a filter gets created right when they arrive. Curb appeal, front door, first step inside. I overdo it a little there. Better finish on those three items.

If the first bathroom is right at the front, maybe I do some extra tile work in the shower surround there. If it’s in the back third of the house, probably not getting that treatment. By the time someone’s past the big three, I’ve sold the house or I haven’t.

Sell the house with the big three. Don’t unsell it through the rest of the house.

Rule 9: The Market Decides

The market is what the market is.

People come up with all kinds of tactics to push past the market. If the house is worth $400,000, they list it at $450,000 to see what happens. No, man. The market says $400,000. It’s worth $400,000. Sell it for $400,000.

All of your planning was already done. You knew what you were going to buy for. You battled in a defensive position to do the renovation within the budget. Maybe you failed a little, but you didn’t push too far out of line. And the house is going to sell for $400,000.

Messing up the renovation doesn’t mean you can ask $450,000 for it. Over-renovating doesn’t mean you can ask $450,000 either. The market still says $400,000.

Plan appropriately. Accept the number.

Rule 10: Don’t Burn Your Ammo

When I flipped my first house and dropped a big chunk of money into my bank account, I’d never dealt with that kind of money. It’s enticing to go spend it on cool stuff.

Don’t buy a truck. Buy another house. Save the money. Act like it doesn’t exist. Treat it as separate from you as a person. Budget like you normally would and use the proceeds as the momentum you need to start creating real wealth.

Rich Dad Poor Dad has a story that stuck with me. Robert Kiyosaki wanted to buy some expensive car, cost $200,000. He had the cash. Instead of buying it, he put the $200,000 into an investment. When the investment made the $200,000 he needed, he used the investment money to buy the car.

That’s the mentality. Your ammo is finite. Spend it on things that buy more ammo.

Key Concept
Small controlled wins compound faster than home runs. Every time you swing for the fences, you increase the risk of striking out. The way people become wealthy in real estate is base hits, not home runs. If I could get on first base every time by bunting, that’s what I’d do.

FAQ

I’m starting out. Can I really skip the home-run mindset?

You should actively reject it. Home runs feel sexy but they take you out of the game the first time they fail. Gorilla flipping is boring. Boring is what compounds over ten years. Boring is what lets you keep buying when everyone else is panicking.

What does “base hit” actually mean in dollars?

A $20,000 to $40,000 profit on a flip that took three to four months, with a hard money loan doing most of the financing. That’s a base hit. If you compound that four times a year, you’re at $80,000 to $160,000 in a year from one crew. Not life-changing on one flip. Life-changing over a decade.

How do I know if I’m following the line of livability correctly?

If you can list the house and a bank will finance a buyer, you crossed the line. If buyers are walking away because the kitchen doesn’t work or the electrical panel is unsafe, you’re still below the line. Don’t cross and then keep going. That’s over-renovation. Cross and stop.

What’s the difference between the baseline and the big three?

The baseline is the minimum finish level across every item in the house to put you in the ARV comp range. The big three is the extra push on the first three things someone sees, because first impressions create the filter. Most investors either underdo the baseline or overdo the whole house. The trick is baseline everywhere, plus an extra bump on the first three items only.

How do I avoid burning my ammo on deal one?

Before you close on deal one, commit to three things. You’ll save 100% of the profit. You’ll run your personal expenses off something other than the flip money. You’ll treat the profit as the down payment on your next acquisition. If you can’t make that commitment out loud, you’re not ready yet.