Flipping Confidential

The Secrets of Renovating Property for Profit In Any Market

Kirsten Kemp

• Publisher: Wiley
• Year: 2011
• Print ISBN: 9780470068359
• eBook ISBN: 9781118039045
• Edition: 1
• Topic: Business
• Subtopic: Real Estate
• Index: Business

Master the art of flipping with KIRSTEN KEMP, host of the hit TV show Property Ladder!

"This book establishes a new standard for real estate authors. Kemp gives her readers delightfully written prose packed with her wealth of experiences. She lays out so many profit-generating (and loss-avoiding) ideas that while reading the manuscript my highlighter never got a rest."
— Gary Eldred, Trump University Professor of Real Estate, coauthor of the bestseller Investing in Real Estate

Real estate isn't just for the rich! And this book proves it. In Flipping Confidential, Kirsten Kemp, the host of TLC's runaway hit show, Property Ladder, gives first-time investors the guidance and inside tips to buy cheap, fix fast, and sell high. With a positive attitude and a healthy dose of humor, Kirsten Kemp walks you through every step of a successful flip--from finding the right house to getting your financing in order, from making big improvements to pricing the home to sell.

If you've ever seen Property Ladder, you know that successfully fixing and flipping a property can be a deeply rewarding experience--both personally and financially--when you do it right. Kemp makes sure you do it right in Flipping Confidential, revealing all the inside knowledge she has amassed as a successful flipper. You'll learn how Kemp became a successful flipper and much more, including how to:

• Get started with little savings or free time
• Find great leads and follow up on them
• Clean up your credit and find financing
• Sign up a great agent, lender, or contractor
• Learn when you can do it yourself, and when to hire a pro
• Keep costs down during renovations
• Set schedules and plan for costs and fees
• Master home staging for higher profits
• Manage mistakes before they become disasters

Real estate is the key to your financial freedom, and flipping is the fastest way to unlock that door. If you want to get out of the office, be your own boss, spend more time with your family, and make a truckload of money in the process, this is the ultimate guide to your new life. The key to financial success isn't a secret, it's Flipping Confidential.

1

INTRODUCTION

Flip·i·tis

n. Addiction to buying, fixing, and selling houses for profit.

No cocktail party conversation would be complete without the whispered mention of some mutual acquaintance who has just made a fortune buying and selling a house. When talk turns to profit, the numbers sound like Monopoly money to you: Are these people really making more money in 8 or 12 weeks than you make all year? You can’t help but fantasize—there you are, working for yourself (swinging a hammer like nobody’s business, I might add), creating extraordinary living spaces, and becoming wealthy beyond your wildest dreams in the process. What’s not to like about that particular scenario? But then you remember: You have no experience, no money, and no applicable skills.

I have some good news for you. There’s an art and a science to flipping houses, and it doesn’t take an engineering degree and a bottomless trust fund to do it. Several years ago, I had a real estate client, Lety, who purchased her first condo in Santa Barbara for $200,000, 110 percent of which was borrowed. Because she had no money whatsoever, she even had to borrow the cash to cover her closing costs. Lety was a single mom who desperately wanted to provide security for her young son. Although she didn’t have a penny to her name, she was employed full-time as a hairdresser and had a loyal, steady clientele. She possessed an inspirational resolve and an innate understanding that the key to financial independence was to invest in real estate even though, technically, she had nothing to invest.

Because Lety’s funds to get into her home didn’t come out of pocket, her mortgage payment was steep. Lety made many sacrifices to keep that condo, but she never complained because she had her eye on the prize: building equity and, hence, financial stability for her future, for her son. While she was living there, Lety made some minor cosmetic changes to her condo—replaced linoleum with tile, painted, and changed out some light fixtures and hardware. Two years later, she sold it for $298,000, a healthy profit in any market. She dropped $325,000 on her next condo, made similar improvements (and sacrifices to keep it), and sold it 18 months later for $435,000. With the equity she had acquired, Lety partnered with her sister and bought a house for $950,000, completely overhauled it, and sold it 16 months later for $1,175,000. They split their profits, and Lety purchased a single-family residence in need of her now well-honed special touch. There was a nice yard for her and her son, and she is now enjoying the comforts of well-deserved stability.

Think about this scenario. Here’s a single mom with no money and limited skills. Lety struggled to get into a $200,000 condo, and just five years later, she was dabbling in million-dollar deals. Did she set out to become a “flipper?” Probably not. Was it easy? No. Scary at times? No doubt. Worth the sacrifice? Absolutely.

Lety didn’t have experience or cash, but she did have what it takes to be a successful flipper: a principled conscience, an iron gut, a keen sense of organization, a passion for the process, a healthy dose of reality, and a finely honed sense of humor. That last bit is key. Take it from me—someone who’s lost (and made) more money in 12 years than some people see in a lifetime—because there is no better backdrop for raucous laughter than a construction site under a self-imposed time crunch. Of course, how long and how heartily you chuckle (and how quickly you recover) will depend on your mind-set, attitude, and perspective—all of which we’ll be sure to get in the right place before you begin your flipping journey.

Let’s say you meet the basic criteria: You’re a ballsy yet pragmatic control freak who’s interested in real estate and, on occasion, has brought the house down with a well-timed one-liner. But how can you really know if flipping houses is for you? First, you must determine what your goals are and, perhaps more important, what they aren’t. If you want to find a creative outlet and leave your stamp on the world of decorating, go to design school and enjoy making the world a more beautiful place, one grass-cloth covered wall at a time. If you dream of overhauling something unsightly—overnight—get yourself a nice garage sale umbrella stand and a can of spray paint and call it a day. If you want to have scads of money but don’t really want to work all that hard, find yourself a willing benefactor and spend your days watching football or popping bonbons.

But, if you want to be your own boss (not just finally tell the one you currently have where to go), you’re in the right place. If you want to spend more time on vacation and less time punching the clock, keep reading. If you’re looking for more time with your family and less hours behind a desk, don’t skip a word. If you want to be an efficient, professional leader of a team with a common goal, don’t put this book down. If you know without a doubt that you have fantabulous taste and want to test-drive your creative ideas on a house that you won’t necessarily want to call home (but would be willing to live in if push came to shove), get a high-lighter. If you want a sense of accomplishment unlike any other you’ve felt before, start taking notes. If you want to increase your wealth because of what it will make of you and do for you, and not just for money, get ready to sit down to a banquet of information.

Even if you’re a complete novice, don’t be daunted. Like anything worthwhile, flipping properties is hard work that happens to have untold side benefits. Beyond making you wealthy and wise, your new hobby will almost certainly teach you more about yourself than you ever thought you wanted to know.

Because here’s the thing: This flipping business is a journey, and the destination is probably not the one you had in mind when you first picked up this book. Just about everyone I’ve ever met who’s been desperate to get into this game has had dollar signs where pupils should be. I’d be flat-out lying if I told you I started turning houses for altogether altruistic reasons. I was raised by frugal parents who thought that brand-new clothing was a luxury and that coupons and toilet paper were winning Christmas gifts. We weren’t poor, but we didn’t spend much money either. If I received an expensive present or we went anywhere fancy, it was because my parents—particularly my dad—knew how to finagle a deal.

We traveled a lot when I was growing up—mostly performing as a family. My Dad a concert pianist, my Mom a singer with the voice of an angel, and I rounded out the trio with my singing, dancing, fluting, and guitar-playing so together we were sort of the scaled-down Von Trapps and I ached to have the glamorous things I saw in far-off places. I wanted to buy designer clothes and drive a luxurious car. But I also wanted the freedom that money could bring. I wanted the good life. I didn’t want to have to worry about mundane things like retirement accounts and mortgages. I wanted to feel secure. After my maiden stint in the first-class cabin of an airplane, scored by Dad simply walking up to the ticketing agent and “volunteering” to be bumped up, I vowed never again to fold my elongated frame into a miniscule coach seat. Little did I know these experiences were shaping my future.

Yes, money allows you to make even more money. And if that’s all you’re interested in, that’s fine; skip ahead to Chapter 7 to learn all about the mechanics of a flip, and repeat until you master the fine art of flipping. But I’ll let you in on a little secret: Whoever said that money can’t buy happiness never helped a penniless single mother purchase her first home and make more money in equity in just a few weeks than she had made in her entire lifetime. Whoever thinks poverty builds character (or affluence annihilates it) never saw the look of pride on that mother’s face the first time she fixed lunch for her family on the countertop she had helped install or pulled a load of clothes out of the dryer she had paid for with her own earnings.

Anyone can make money. And as much as our society might have you believe otherwise, money isn’t the answer to all your problems. There are enough miserable millionaires to fill a stadium. It is what having money makes of you that counts at the end of the day. Beyond fattening your bank account, flipping houses can give you the power to transform lives—your own and those around you. Get yourself a tasty beverage and find a comfy place to read, because I’m here to tell you how to do both.

The rest of this book details the highs and lows of the series of home sales that have occupied the past decade of my life. I explain where I made money, where I lost it, and precisely how much. I share stories of royal screwups, as well as every single painful but necessary lesson I learned along the way. I describe how this business has made me a better mother, daughter, neighbor, employer, and friend.

First, a note about semantics: For the sake of ease and clarity, I use the term flipper to refer to any person trying to make money by buying, rehabilitating, and selling a house for profit in the least amount of time. It is an industry term that we use on the television series Property Ladder, so it’s an unconscious part of my vocabulary. I know what you’re thinking because I’ve heard it before: Flipper was a dolphin. You, of course, are no one’s pet porpoise. You are a Real Estate Rejuvenator, a Realty Recycler, a Residential Resuscitator. Nothing negative is implied by the word flipper as I use it here. In some circles, however, the word has dubious connotations. Case in point: When other Realtors or neighbors hear of your plans, they may state (not ask) with no small amount of contempt, “So, you’re just gonna flip it.” You will likely see, if not actually feel, the spittle coming from their lips as they deliver this line. They are implying that you are going to cheap out, do the least amount of real work possible, hide as many problems as you can, use cut-rate materials, and walk away with a pocketful of cash. I don’t really need to say it, but I will: That is not what we are trying to do here.

If you are going to be buying and selling houses for a profit, if you are willing to gamble your money, spend your precious time comparing fixtures and finishes, run a crew, manage the most tedious of accounting jobs, put out an endless string of fires, and generally work your ass off, you deserve to be handsomely compensated. You are still a flipper, but in the best possible sense of the word: someone who takes a neglected and outdated space and polishes it into something attractive and desirable.

For sure, there are some flippers out there who do things on the fly—they continually cut corners, do shoddy work, use inferior products, maybe even treat their crews deplorably—and still make obscene amounts of money. They are sometimes called “lick and stick” or “fix and flip” experts and they are why flipping occasionally gets a bad rap. They may lug home a hefty paycheck now and again, but over time buyers find them out. Are lenders, real estate agents, and subcontractors willing to work with them again? Do they sleep at night?

You and I didn’t create this opportunity, but the reality is that there are many buyers out there who don’t have the time, skills, or interest to get personally involved in the fix-up business, and they’re willing to pay a premium not to have to do it. It is really not so different from going out to eat. My guess is that you are probably capable of reading a recipe, shopping for a prescribed list of ingredients, opening and closing the oven, and cleaning up all by yourself. But sometimes for whatever reason—you don’t have it in you, you’ve got other things to do, the dog ate your apron—you choose to pop into a restaurant and have your meal catered. Blissful, no? Do you think you’re being scammed just because you could have done it yourself but chose not to? As long as the experience is a good one, everyone wins. On the other hand, if your meal, the service, or the atmosphere was miserable, the eatery in question is not likely to get your business again (and you’re likely to tell anyone who will listen about your bout of botulism /surly server/rodent-sighting experience).

The bottom line is, don’t be that guy (or gal). Do the job right and you can wear your flipperhood proudly. Do it for the right reasons and I promise you that you will experience a kind of wealth you can’t even fathom yet. With enough folks like you and me in the game, eventually the term flipper might even begin to be seen as positive. Dare I even hope, complimentary?

Another note about terminology: I’m a modern gal, and I try my best to be politically correct. I know that men are nurses and women are neuroscientists. However, this book would be a miserable, tedious read if I had to say “he or she” every time I referred to a lender, buyer, seller, contractor, or real estate agent. It disrupts the flow of thought. So I alternate using pronouns such as he/she, him/her, his/hers, but unless I indicate otherwise, either gender is meant; the appropriate pronouns are interchangeable.

I’m a flipper. I can say that with confidence and pride. If you’d like to be a flipper, too—if you’re ready to enrich not just your bottom line but your entire life—read on.

2

MY STORY

Flip·per

n. A person who tries to buy, rehabilitate, and sell real estate for profit. Or a dolphin.

If you are reading this book, chances are that you’ve either seen the television show Property Ladder, or someone you know recommended Flipping Confidential to you. Maybe Aunt Betty gave it to you as a birthday present because she thinks you are hiding your inner designer. Maybe you stumbled on it in a bookstore purely by accident and began thumbing through it out of curiosity. Whatever the case, now that you’re in possession of these pages you are probably wondering if and how I’m qualified to dispense advice on buying, fixing, and selling houses.

As I describe in detail in the following chapters, I’ve flipped houses enough times to land a TV show on the topic and, in fact, earn a nice living. Eventually, I could no longer ignore the constant requests to put my experiences down on paper. This is not all gratuitous boasting, I promise. (The truth is that my mistakes have been many and profound.) My hope is that by sharing my rent-to-own story and explaining what buying and selling homes has done for me personally and professionally, you may be inspired to jump into the flip game with minimum pain and maximum gain.

Now you may be asking yourself why I should care about you and your happiness. Part of the reason is admittedly selfish. The whole real estate industry (not just the handful of crooked flippers out there) often gets a bad rap. And since real estate is my career, I have a vested interest in changing the perception that anyone who makes money off of your money has to be a shark, right? And folks who talk in absolutes (“This house will never sell at that price”) cannot be trusted. People who feel the need to put their mug on every ad, business card, flyer, and sign they use are more interested in ego aggrandizement than personalized service. (I tend to agree with that assessment, although the industrywide belief is that recognition builds trust.) The truth is, Realtors have a tedious and time-consuming job, and if they are doing it well, they deserve every penny they earn.

But there is a bigger motivation for sharing my story. People ponder the question constantly: “Can you really have it all?” Who has it all—The former supermodel with a zest for life; a designer home; attentive spouse; well-mannered kids; ample time for her philanthropic passion; a massage and facial in the middle of the day, if she wants one; and of course, a job that she looks forward to most days even though she doesn’t need the money?

So what is having it all? The simplicity of having your basic needs met with a little extra on the side, maybe. There’s a book I read to my kids that illustrates my point. It’s called The Rainbow Fish (North South Books, 1992) and stars a flashy little fellow who happens to be covered in gorgeous, glittery scales. The Rainbow Fish knows that he is more beautiful than his oceanmates and snickers when they ask him to share his gilded gills. He is so much better than they are! Why should he share with the likes of them? And if he did give away his scales, why, he wouldn’t be better than them at all! So for a while, he chooses superiority over popularity. (I’m sure you can see where this is going.) Eventually, loneliness trumps vanity and he grudgingly gives away a scale. And then another. And yet another. Although he is becoming less glamorous with each offering, his happiness is growing exponentially. He has friends! The other fish like him! Alas, it was only in giving away what he had that he learned its true value.

Okay, it’s a little simplistic. But it’s a sweet story with a nice message. Before you get all exasperated, let’s get something straight. I am in no way suggesting that you work your ass off to build yourself a nice nest egg and then donate it to the nearest mission. The money you make is yours to do with as you please. Spend it, save it, gamble it away, set it on fire for all I care. I am simply saying that material wealth can and will bring you more (joy, freedom, grief, anxiety) than you ever dreamed possible.

Money is power, and how you use that power can make or brea...

Table of contents

• Title Page
• Copyright Page
• Dedication
• Acknowledgments
• Chapter 1 - INTRODUCTION
• Chapter 2 - MY STORY
• Chapter 3 - GETTING STARTED
• Chapter 4 - ASSEMBLING YOUR TEAM
• Chapter 5 - BUILDING A BUDGET
• Chapter 6 - CREATING A TIME LINE
• Chapter 7 - IMPROVING THE PROPERTY
• Chapter 8 - STAGING YOUR FLIP
• Chapter 9 - FLIP-FLOPS
• Chapter 10 - ADJUSTING YOUR MIND-SET
• Chapter 11 - FREQUENTLY ASKED QUESTIONS
• Flipbonics
• Photos of Flips
• Index