Flippers are real estate investors that are looking for opportunities to buy homes, fix them up, and resell them for a profit. While having a small number of flippers as clients will help round out your business, in my opinion, I don’t think you should focus on working with these types of real estate investors.
There are two primary flavors of flippers: those that have their own money and those that don’t have any of their own money. The flippers that have their own money may not have the full amount to purchase the properties but they have some resources to be able to do a much wider range of deals. The flippers that don’t have any money need to find deals they can buy where they can borrow all the money, including repair money, from a hard money lender (or a private lender). The flippers that do not have any money are much more challenging to work with. Let me explain with an example.
Most flippers need to find properties they can buy at a steep discount. They need to find properties they can buy where there is enough room to be able to buy it, finance it, fix it up, market it, and make a profit. While numbers can vary widely market-to-market, a common number thrown around is that they often need to buy properties at least 30% below the value of the property after they fix it up and go to sell it. To be completely clear, that does not mean they need to buy the property 30% below the current list price. It does often mean they need to buy the property below asking price, so if you’re in any way squeamish about making low ball offers, just politely opt out of working with flippers. You don’t need to work with flippers to be successful working with investors as a whole; I much prefer Nomads, and buy and hold investors.
Back to our example, so a flipper needs to be buying properties at pretty steep discounts. Not all, but a good number of flippers use hard money lenders to finance their flip purchases. Hard money lenders often will lend up to 70% of the After Repair Value of a property (the value of the property after the flipper has done all the work on it and is going to sell it). If we’re talking about a flipper that has no money of their own that means they need to be buying the property for 70% of the after repair value minus whatever they need for repairs. They don’t have the extra money for the repairs so they need to be able to borrow that from the hard money lender. That means they typically are the ones making the very lowest offers.
If the flipper has money of their own, they can afford to pay for repairs out of their own pocket or pay higher than the hard money lender 70% loan-to-value requirement by putting some of their own money down. This makes the flipper with, at least, some money a far better client, all other things being equal.
As a real estate agent that gets to choose which clients you prefer to work with, I’d encourage you to find a couple really good flippers so that, should you come across a deal that looks like a good flip, you have a few to call. Beyond that, I personally would not focus on flippers.
Now that I said that, if you happen to be in a market with tons of flipping opportunities and you like that sort of thing, running a real estate investor group with classes on flipping will attract flippers and give you an opportunity to work with a number of them.
Working with flippers will allow you to work with fewer clients and make more money because they tend to buy more properties than a traditional homeowner living in a property for 10 years on average. In fact, many flippers will want to do 2 or more flips a year. Some experienced flippers might have 2 or 3 projects going at any given time.
Flippers also buy during the slower winter months. They understand that often the best deals are found in the slower season when fewer buyers are looking and sellers who can’t wait to sell in the prime selling season are forced to sell in the slower winter months. That means you can often do some extra deals during the winter when you’re working with flippers (and even other real estate investors). Flippers buying during the historically slower time between Thanksgiving and Christmas, might have their repairs done and have the property back on the market in very early spring, so for them, buying during the slower holidays is actually completely acceptable.
Real Estate Agent Exclusivity
Flippers, like many other types of real estate investors that have not been educated on the benefits of working exclusively with me, believe that the more real estate agents that know what kinds of deals they want the better. They believe that if they tell 100 different agents what they’re looking for that they have 100 different real estate agents looking for deals for them and that they’re 100 times more likely to have an agent bring them a deal. I don’t work that way and I suspect that a good number of other real estate agents don’t either.
I do teach a class on the buyer agency paperwork to our real estate investor group and, in that class, I do talk about the pros and cons of working with many agents versus working exclusively. I also tell everyone in that class that I work in exclusive relationships. Since investors don’t attend or watch every class recording nor do they remember everything that is said at each class, you do end up having this conversation with people one on one as well.
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