D2-2 Development Inc. is a fairly new company, but the management team has been buying, renovating and selling spec houses for over a decade. In that time, we have made a nice profit on every deal we’ve done. That didn’t happen by accident.
In this post, we’d like to share some information with our readers, about how we make it work. You may be fellow property developers, or lenders who are interested in what we do. Some of our readers are the professional tradesmen we work with, or our wonderful real estate agents.
In the months since we last posted, we have signed a lot of offers, somewhere around 30 of them. I should keep count but I’ve been busy. We currently have two properties under contract, both of which should be great money makers for us. We expect to be marketing these in late spring and summer 2016.
To find 30-plus properties worth making offers on, we looked at many dozens more that were not worth pursuing. We look at between two and 20 pre-qualified properties per month, to keep enough volume in our pipeline and hit our earnings goals.
The kind of “flips” we do are complicated. They typically involve major renovations in older properties. Most of those properties have issues serious enough to drive away most other buyers. We have the construction experience to correctly price these renovation projects and turn these properties into very desirable homes again.
How We Find Properties
We have seasoned real estate agents, in various neighborhoods they specialize in, in two states, who know what we are looking for. When they see something they think will be good for us, they send me the listing information with their take on the as-complete comps. Sometimes I find a property with the various on-line property websites, or I see something when I am driving. We buy foreclosures, estate house, granny houses, and houses with serious issues.
We work with great, hard-working agents. If they find us a deal, we buy it through them and then sell it through them later. We have long relationships with our pool of agents. We treat these professionals with respect. All of them work hard so we all make money. They are experts at what they do. Over the years we have had only one or two agents who gave us less than good advice and we don’t work with them now.
How We Pre-Qualify a Property
We are not in the “looking at houses” business. If the listing information shows there is not enough spread between the buy and sell side to leave room for everyone to make money on the deal, we don’t go out to look at it. We have renovated enough houses to have a general idea what it will cost before we write up a repairs list on site. We know what it should cost to get into a deal and sell a house too. We use a small quick spread sheet tool to calculate the spread.
Know How You Know How to Make Money
We are very good at making money by renovating remuddled older or historic homes to maximize their hidden value. We are not experienced at bird dogging or other faster flips. We don’t work “under the table” with our contractors. So we can’t compete with flippers who use illegal contractors who do cheap low quality unpermitted work.
Since about 2013-2014 we have moved into new markets that bring better profits to us and are easier to work in. We saw that too many low end flippers were paying too much for houses on the front end that appraisers would not value on the sale side. That situation removed the spread we needed to get everyone paid on the sales side. Generally our projects are in the middle to higher end of the flip strata.
We are able to track 100% of our costs and analyze “budgeted to actual” profits. We can be nimble during the renovations phase to maximize profits at sale. An agent or a lender may tell you you only need to invest 10-25% cash in on a deal. The truth is the costs are much more than that.
Know What Your Goal Is and Why You Are Flipping a Property
Other flippers might want a couple thousand dollars to bird dog a deal, or they may flip to make some extra part time side pay. Some flippers might want to buy and hold before selling. But we flip properties to make cash and build our company. Generally we aim to double all our “in money” on a deal when we sell it. Our projects are too big and too risky not to make a big pay day when we sell.