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How To Start A House Flipping Business Step By Step

by Danny Johnson

Start your house flipping business in 7 Simple Steps

Want to start flipping houses but just don’t know where to start? Do you need to set up a business? What type? What type of house flipping should you start with? What if you don’t have much money?

There are a million questions that can be asked. There’s so much information out there and it’s hard to know which is the right way to go and who to trust. I’m going to cut through all of the confusion and show you how to get started in a step-by-step way. This is based on my experience and is my recommended path to getting the ball rolling.

Step 1: Know Where You Want To Go

We shouldn’t just jump in our car and speed away without knowing where we are going. That’s crazy and a complete waste of time and money. We’ve got to figure out our destination first.

In my opinion, this is the single most important step in this process. You have to know your destination. It needs to be very clear and definite in your mind. An end goal of ‘getting rich’ is too general and not definite enough to allow you to envision where you want to be. We need to figure out exactly what we want and how we want our lives to be so that we have a clear vision of what it is we are trying to achieve.

Would you like to be able to take your family on vacations whenever you want and for as long as you want? Do you want to be able to earn profits insteads of wages so that you can do this full-time and be in control of what you are doing and when? Do you want to be able to achieve all that you feel you are meant to achieve without waiting for someone to give you the opportunity? In order to do these things, we have to lay them out as specific goals.

You can take ‘getting rich’ and ask the right questions to figure out what you really want and why you want to flip houses. We could ask WHY we want to be rich. What would being rich do for us? What kind of things would you do if you were rich? What would your average day be like if you were rich? Answer these questions and write down your answers. Something about writing things down helps you to fully realize and remember your answers. Better yet, start a vision board.

Figure out what your true dreams are and try to make them as specific and clear as possible. Try to have concrete goals that you can work towards. Narrow your focus.

Step 2: Get Educated (don’t overdo it)

Now that we know our destination, we still shouldn’t just jump in that car and peel out into the distance. That might be funny, but it would not be funny for very long. Especially when you find yourself lost and frustated.

We need to get educated so that we know the best way to get to our destination. We need to study the roads and figure out not only the shortest path, but the path with the least amount of traffic jams. The traffic jams in house flipping are the things that slow us down and make it more difficult for us to get to where we want to be. This can be things like having a ton of over-leveraged rental properties with non-paying tenants that are trashing the place and causing you to bleed money at a staggering pace.

You’ve probably already started your house flipping education. Well, I know you have because you are here reading this. At least you are in the right place! That’s a great start. That shows me you already know what you are doing so far. :)

What do you need to learn and where can you learn it?

In order to figure out what you need to learn, we need to figure out which house flipping strategy to focus on.

Focus Your Energy On One Strategy

There are a lot of strategies out there. I’ve seen some really crazy and down right dangerous ones. Most typically just sound great and look good on paper but are super risky in reality. When you add the human factor to a lot of these strategies (tenants that don’t pay and completely trash your house, unscrupulous investors and sellers, unforeseen costs and repairs, lawsuits, and list goes on and on), they are just not a good way to go. You have to get back to the basics. To the tried and true things that have been working for a long time for a lot of investors.

My Recommended Starting Strategies (and I still use them myself)

Starting with birddogging and wholesaling is the easiest way to get into flipping houses without much risk and with little to no money. These are the strategies that I feel you should focus on. I call these the strategies with the lowest entry costs in terms of time, money and experience.

Give yourself a better chance of really making it by laser focusing on these two methods. Heck, just focus on one if you want. The great thing is that both of these can be learned quickly and interchanged for each deal as you see fit.

    • BirddoggingA birddog is someone that finds “leads” and gives these leads to an experienced investor to work.Here’s how to do it:
      1. You drive around and find vacant houses and send letters to the owners of the vacant houses. One of the owners calls you and tells you they are interested in selling the house.
      2. You then tell another investor that has the ability to act quickly about the lead and he/she sets an appointment to see the house and makes an offer to the owner.
      3. If they come to an agreement and the investor ends up buying the house, he/she will pay you a finder’s fee. This fee can be as much as $2,000 or more.

      I typically ask for $1,000 to $2,000 depending on how much potential I feel the deal has. I think most investors probably pay closer to $500 each if the leads are screened as well as I screen mine.

      What I mean by screening is just that I make sure the potential for a deal is really there. That the sellers have enough equity in the home and there are signs of motivation to sell.

      Some investors will pay small fees just for the lead (just giving the lead, whether they buy the house or not). Don’t expect very much if this is the case (probably between $25-$50).

    • WholesalingWholesaling is where you actually contract to buy a house and sell it ‘as-is’ to another investor.There are several ways to wholesale, but in the spirit of having you narrow your focus, I’m going to be discussing the assignment of contract alone. This is the strategy that involves the least risk and very little money. This is where you never take ownership of the house.

      Here’s how to do it:

      1. Market for leads (you’ll find out more about this further down in this article).

Start taking calls and analyzing the leads. Most investor buyers are looking to purchase investment property at 70% of market value minus the cost to repair the property.

So, if you find a deal where the house should sell for $100,000 and it needs $10,000 in repairs, you would want to buy it for $60,000 LESS THE AMOUNT YOU WANT TO CHARGE FOR THE ASSIGNMENT. If you want to be paid $5,000 for the assignment, simply buy it for $55,000 and offer it to an investor buyer for $60,000.

Estimating repairs can be difficult in the beginning. At first, I sure was clueless when it came to what repairs cost. The best thing you can do is find a contractor (preferably one that has worked for house flippers) that can help you with the basic costs of normal repairs. Just sit down and make a list of normal repairs and what they typically cost. Some of the items can be priced based on square foot or linear feet.

The key with estimating repairs is that you will never get it the cost correct to the dollar. You are just trying to get a good estimate. Be conservative in your estimate.

  • When you find what seems to be a deal that could work based on your analysis, you make the offer. If the seller accepts, you will sign a purchase and sale agreement (contract) with the seller that spells out the terms of the agreement. Most people use their own state approved contract for real estate transactions. I actually prefer a single page contract of my own that is straight and to the point. Most of the state contracts are full of CYA (cover your ass) stuff for Realtors and tend to be 9 pages or longer. Talk about taking forever to get the contract signed! I don’t enjoy explaining TIDE WATERS and other gobbledy-gook to sellers for several hours.

 

It’s important to make sure that your contract has ‘and/or Assigns’ after the buyer name so that you can assign the contract.

For the buyer name, you will use your name unless you’ve set up a DBA or company (read more about that below).

In the beginning, it’s best to have an escape clause. This is where you have a statement in the contract that allows you to back out if you are unable to find a buyer for it. The clause should be simple and could be something like, “This agreement is subject to further inspection of the property by the buyer.”

If the contract you are using has a section for a termination option, you can use that. This is typically used by buyers to pay a certain amount to be able to terminate the deal if they are not happy with the inspection or other aspect of the deal within an agreed upon amount of time.

  • Once you have the house contracted, you take it to a title company and have it receipted. This is where you pay the earnest money you agreed to with the seller (I typically only pay $10 or $25 for earnest money. It’s not a big deal unless you make it seem like a big deal (remember that).
  • Contact your buyers and let them know about the deal. You will end up finding out who the serious buyers are by doing this. You really only want to work with buyers that take action quickly and let you know whether they want the deal or not. Don’t waste your time with people that ask a million questions, like whether the bathroom toilet needs to be replaced. You are selling at a deep discount so those matters are irrelevent. Don’t waste your time with these people.

 

After a while you will develop a short list of ‘go-to’ people that you can call and tell about the property. It’s best to try and give them 12-24 hours each to see if they want the deal (one at a time of course). If they know there will be a lot of competition, they may not want to waste their time. If they know they have first dibs, they will be more than willing to check it out.

  • Once you’ve found your ready, willing and able buyer (must be able to close by the date you specified in your contract with the seller), you will sign an assignment of contract form with them. This is just a single page contract (you can download a copy of mine here: Flipping Houses Resources Page.

 

This assignment contract will then be taken to the same title company where you receipted the purchase contract.

You could get a non-refundable deposit from the buyer to help ensure that they are serious. Good buyers will not hesitate to do this if it is a good deal. Non-refundable deposits can be as much as you want, but are typically $1,000-$2,000.

  • When the deal closes, the title company will cut you a check for your assignment fee. Congratulations! You’ve just made several thousand dollars without even owning the house.

 

There is an alternative way to do this. This involves finding investor buyers and figuring out what types of deals they want and marketing and directing your efforts to find those types of deals. This way you can find exactly what they want so that you already have a ready and willing buyer. These investors might also help you analyze each deal so that you are buying at a price that makes sense for them (and of course you get the house for a little cheaper so as to cover your assignment fee! You do want to make some money for your efforts, don’t you?)

There’s no wrong or right way to go about it. It’s really up to you as to which one fits better for you. You can try one method and then switch to the other or work at doing both at the same time. Your choice.

This doesn’t cover every possiblity, but it’s a great introduction and good starting point for you to know what you need to learn about the process.

Stay focused my friend.

What if you stand to make a HUGE assignment fee?

Good for you. If your end buyer doesn’t like it, find another buyer. You are the one with the deal. If it’s a problem for them that you stand to make a lot of money for simply assigning the deal, tell them tough S*!t. That’s the way it’s going to be. Simple as that.

Why I Don’t Recommend Rentals and Rehabbing – IN THE BEGINNING

  • Rentals
    Some people want to start out by picking up rentals. The reason why I don’t recomment that is because you should really have a certain level of cash reserves in case your places get trashed and go vacant, or tenants just stop paying and you have to spend a lot of time and money just getting them out. Rentals don’t generate the kind of quick cash that wholesaling and birddogging can.
  • Rehabbing
    Rehabbing is another one that I feel is better to start after gaining experience in wholesaling. This way you get a lot of experience in determining what the right prices are to buy the properties and in determining the repair costs, holding costs, selling costs and any other costs involved when rehabbing houses. There’s a lot more risk when rehabbing. If you start by wholesaling you might even end up developing a relationship with a local rehabber that can then help you to make the transition to rehabbing.

Stay Focused

Don’t keep buying course after course trying to find that new secret way to do this easily. It doesn’t exist and you are just putting off getting out of your comfort zone. Focus on one strategy, learn as much as you can about it and start taking action to gain experience and make a real go at it. Doing this will separate you from 95-99% of other people.

Where To Learn

Here, of course, is the best place. I’m only slightly biased. But, you should also spend some time on the incredible forums over at Bigger Pockets and REIClub. These are great places to really fill in a lot of the gaps. I wanted to talk about figuring out where to start first, becuase when you spend time on the forums you will tend to get pulled in a lot of directions. You have to go in with a specific question to get answered. Search for answers to your specific questions and TRY NOT TO GET SIDE-TRACKED.

People tend to get side-tracked easily because it’s easier (MORE COMFORTABLE) to just keep learning other things than to actually TAKE ACTION. Don’t fall into that trap. Stay focused.

Incidentally, the NUMBER ONE place to learn is on the streets. You will learn more hands down by taking action and finding out what you need to know. You don’t have to know everything about a topic to get started. You should educate yourself on the basics and GET STARTED.

Taking action will put you out of your comfort zone. It will be uncomfortable, but only in the beginning. You can read an article I wrote for BiggerPockets on getting out of your comfort zone – click here.

Step 3: Start Marketing

You’ve got to find deals and you need to find buyers to buy those deals.

I’m a firm believer that it is much easier to find awesome deals by targeting motivated sellers. You aren’t looking for the right houses as much as you are really looking for the right sellers.

A lot of new people think the only way to start is to find a real estate agent and have them find listed deals for them. There’s simply too much competition and the deals tend to be too slim. It’s possible to work it this way, but why when it is much easier dealing directly with motivated homeowners.

Marketing For Buyers

It would benefit you to start immediately looking for cash investors. These are the people that you will try to sell your leads and/or deals to. Typically, rehabbers (people that fix up the houses and sell them) and landlords are going to be the people you want to find. These are the ones that are always looking for fixer upper houses, the kind you will be finding.

Other wholesalers can also be great people to network with. If you are having trouble moving one of your deals, you can see if they’ve got a buyer that would be interested. You would work out a split of the profits with the wholesaler if they do find a buyer for your deal.

Here are some excellent places and ways to find buyers:

  • Local Real Estate Investor Association (REIA) meetings
  • Calling ‘we buy houses’ advertisers (call numbers on bandit signs, yellow pages, online, etc)
  • Marketing your deals – you do want to market your wholesale deals (bandit signs, newspaper ads, craigslist ads, etc)
  • Have a Realtor look up investment properties that were sold recently and find who bought them
  • Calling ‘For Rent’ signs
  • Driving neighborhoods where you want to invest and looking for houses being rehabbed

Marketing For Sellers

To find deals, I recommend marketing directly to motivated sellers. This is the ‘We Buy Houses’ type of advertising. You are trying to find people that have a house they need to sell. This does not just mean people facing foreclosure, which is what most people immediately think of when talking about motivated sellers.

There are a lot of other reasons that people will sell their house at deep discounts. These reasons could include (and are certainly not limited to):

  • House needs a lot of repairs the owner cannot afford to make
  • Person inherits a house and would rather have cash
  • Landlord is sick and tired of dealing with their rental property
  • Owner needs to relocate and sell their house fast
  • Divorce situation where the single owner cannot afford the house
  • Owner just doesn’t want the hassle of selling their house the conventional way

I could list the techniques on how to do this marketing, but a much better way would be to show you what I do and how I do it. And, in case you didn’t already know, I’ve already posted about 34 weeks of all the marketing I did and the leads that came in. Be sure to check out the first and second week where I show my marketing.

Click here to check out the 34 weeks of marketing, analysis and deals done
A good place to start are my websites for real estate investors. These are house buying websites just like mine (DannyBuysHouses.com). Check out LeadPropeller.com to see how you can generate more motivated seller leads.]

Step 4: Start Building Your Team

As you start to find and work deals, you will find it necessary to have good people on your team. These are not employees. Rather, they are people like a great closer (title company), real estate attorney, contractor (to help determine repair costs), accountant (hopefully you will need this as it means you are making money!), and a real estate agent (some are worth their weight in gold).

Melissa has written a post about who should be on your house flipping dream team – click here that covers the details in more depth.

If for any other reason, check out the image for that post. :)

Step 5: Set Up Your Company

Here’s a question that comes up a lot. People tend to get themselves stuck on these kinds of questions (including myself, in the beginning) and I think it is because it really is just another excuse to not get started.

NOTE: I am not an attorney, nor am I an accountant, and I don’t play one on the internet. I’m not giving legal or financial advice so take these suggestions for what they’re worth.

When you are starting out, there is no problem with just using your name. As long as you are conducting business in an ethical manner, there really is nothing to worry about.

DBA or LLC?

My suggestion is to wait until you’ve done a deal or two and then set up an LLC. If you want to check into which entity would be best for tax purposes, contact a competent accountant/tax person (try to get a referral from a successful investor if you can). For asset protection, contact a good real estate attorney.

In the beginning, I did business with an assumed name (DBA – Doing Business As) because we were actually closing on the houses and I didn’t want my name on record. When birddogging and assigning contracts, you don’t take ownership at all, so this isn’t an issue.

If you really want to set up a DBA, you can find out more here: DBA Why and How

Step 6: Get A Business Bank Account

If you do set up a company or DBA, you should set up a business bank account. Remember, this is a business bank account and should never be used for anything other than your business. You don’t want to end up with problems because you weren’t running your business like a business. The protections that a business provides can be eliminated if you do not run it like a business. So don’t be spending money from your business account on something that is for personal use.

You should consider whether you want to start one with a large national bank or a small local bank. They’re definitely not the same. I’ll discuss some of the benefits and negatives of each.

Large National Bank

Large national banks can be more convenient. They tend to have more options in the way of online banking and apps. The negatives that really, really grind my gears is that everything is done by their rules. What I mean is that when you try to call to find out one simple thing, you end up in a crazy labyrinth of a menu system….only to end up being hung up on just when you think you reached the right person. Another issue is that you can’t typically go in and talk directly with a decision maker when it comes to a loan.

Small Local Bank

Small local banks are not as convenient when it comes to having branches all over the country (obviously) and online banking and apps that do as much as the large ones (though this seems to be changing quickly).

The biggest benefit to the small banks is the ability to build relationships and the ease with which customer service is handled. Those are enough for me.

We still bank with a large, national bank, but that will probably be changing soon. I can’t even deal with them anymore. Anytime there is a problem, Melissa (my wife) has to handle it. And I thank her very much for that. :)

Step 7: Grow Your Business

When you start making money, be sure to reinvest it back into your business. Ok, you should use a small part of it to celebrate your success. But the rest needs to go back into marketing and building your company. The first years are the most difficult and you have to do your best to build a strong company.

Spending money on marketing can be hard at first. It sure becomes easier after you’ve made a couple grand with a simple birddog deal or several grand wholesaling a house. Don’t be afraid to spend money on marketing.

Make sure you are always planning your strategy and keeping an eye on your goals. Please be sure to figure out why you really want to do this. Step 1 above is the most important of all of these steps. Believe me.

Rehabbing

Rehabbing is where you close on a property, fix it up and sell it to an end buyer that is either going to live in it or rent it out.

The logical progression for most people is to go from birddogging, to wholesaling, to rehabbing. With rehabbing you will need a source of money, insurance, contractors, patience, design sense, creativity, a desire to turn a dump into a beautiful home. Did I mention patience? Good.

So what are you waiting for?

start a house flipping business now - y u no start?

Couldn’t help it. That picture just cracks me up.

Thanks for visiting the blog.

Danny
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{ 61 comments… read them below or add one }

Bob C November 19, 2012 at 1:35 am

W00T!! Finally the “big picture” I’ve been trying to figure out. THANK YOU thank you. You Rock!

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Danny Johnson November 19, 2012 at 10:14 am

Thanks Bob. Figured it was time to sit down and put the process in step by step terms. Glad you liked it.

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Nate January 3, 2013 at 12:18 pm

Danny,

I commented earlier this morning and you directed me to this site. I am working on saving for a rehab. After reading through your articles I believe that you have offered sound advice on how to get going to get me to my financial goal for starting. You say marketing is key. Is there an e-mail address that you have that I could send leads to for investors like yourself here in SA? I wouldnt mind birddogging for a couple extra bucks and getting my feet wet. My e-mail is listed. I really enjoy the read and your articles. It gives me a great perspective on what I can look forward to and what to do. This is awesome!! I have a partner that wishes to help me out to start off with a house or two and asked that i save $15K for him to step in. Its challenging on low ranking military with a wife and 2 little girls. But this gives me incentive and something to look forward to. Thanks again.

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Danny Johnson January 3, 2013 at 5:09 pm

I will send you an email.

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Brandon Turner November 19, 2012 at 12:04 pm

Danny – what an epic post! Excellent information from a 40,000 foot level. Seriously, this is such a great resource! I think when people ask me about what bird-dogging, wholesaling, or flipping is – I’ll just send em here! Nice work :)

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Danny Johnson November 19, 2012 at 1:08 pm

Thanks Brandon! You know I would never complain about extra traffic. :) Take care.

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jessie November 19, 2012 at 12:05 pm

Just a note to say this is a wealth of info on starting in the business for free. No fluff but necessary basics plus to get one moving in a positive direction. You will bless many and the reward to you will be numerous. We reap what we sow–your harvest is on the way!!! Great job.

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Danny Johnson November 19, 2012 at 1:06 pm

Thanks Jesse. I really appreciate that. Didn’t think I would end up spending as much time as I did on that post, but it ended up being a wonderful manual to getting started. Thanks again.

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Elizabeth Blazina November 19, 2012 at 9:38 pm

Danny, you know your craft well. I’ve always told my children that the true test of knowledge is how well you can teach others what you know. Thank you so much for this. It is clear , orderly and broken down into very doable tasks. It will help me immensely to clear through the clutter that has bogged me down in the past. Look forward to your next post.
Happy Thanksgiving to You and your Family!

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Danny Johnson November 20, 2012 at 10:37 am

Thank you very much for your compliments.

Hope you have a wonderful Thanksgiving too.

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@buyhousescheap November 19, 2012 at 11:01 pm

Great stuff Danny. You mentioned that your birddog fee depends on how much potential you feel the deal has. Could you elaborate on that a bit more pls. Also how do you structure your deals to receive your birddogs fee of you don’t have any paperwork that binds you to the deal?

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Danny Johnson November 20, 2012 at 10:46 am

To clarify on how to determine what the birddog fee should be:

If the leads seems like a strong one with a lot of potential, I will ask more. A strong lead is one where the seller is asking a low price to begin with, shows signs of a lot of motivation to sell, is anxious to get a deal done. Weak leads are ones where what they owe is more that what you would need to buy the house for or close to it (just a rough idea of this as you have not seen the house – this is just based on initial calculations with After Repair Value and your percentage of that), they don’t really seem motivated, are asking near market, etc.

Of course those are the two ends. There is a lot in between. You could always ask more for the birddog fee and if your buyer can make a deal but says it is going to be tight, you can lower your fee to help make it work.

When I tell my buyer about the lead, I tell them how much I want if they are able to do the deal. I get paid when they close. I do not use a contract as I am only working with investors that I trust and they know that they are better off paying me and receiving more leads than to not pay and never receive anything from me again. Each lead I tell people about gets entered into a birddog log spreadsheet I made so that I can keep track of who is working which deal. Randomly, I call sellers and find out if deals have been made just to check that I am being told about everything.

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Shane January 19, 2013 at 1:05 pm

This was my question exactly. I’m paranoid of someone stealing my deal. Guess I need to add some functionality to my lead spreadsheet & start bird dogging more stuff.

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Don January 30, 2013 at 10:32 pm

I’ve read in several forums that bird dogging is illegal in most states.
I ‘m in Florida.
If you find a property for an investor and they pay you a finders fee,should’nt you be licensed agent?

Can I get some clarification?

Thank you.

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Danny Johnson January 31, 2013 at 4:25 pm

Hey Don. This is a good question.

Most tend to think of this like they do speeding or hanging bandit signs. Those things are all illegal in a lot of places but people still do them. It’s really your choice.

I’ve never personally heard of anyone having a problem with this. If someone is getting good leads from you, I seriously doubt they are going to raise a stink. To me the fact that you can’t tell someone about a house for sale and get something for tipping them off, is ridiculous.

Edward Powell November 20, 2012 at 12:47 am

Another great post. The more you post the more I realize i can do this .
Please continue to inspire and educate us all.
Hope you have a wonderful holiday!

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Danny Johnson November 20, 2012 at 10:37 am

Thanks. I sure will. Have a happy Thanksgiving.

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jessie November 20, 2012 at 4:30 pm

What is your take on building a brand in your market? I had contemplated getting 1800sellnow or LuckybuysYuckyHouses as a brand for my market. Homevestors and “UG” are known in almost every major market in the country. Also, having tv commercials and radio ads to run(especially on the cable networks which can be really cheap compared to the exposure–sometimes as little as $10 a commercial) is a real brand builder. I am not committed but was entertaining the idea. Thanks for any thoughts.

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Danny Johnson November 20, 2012 at 5:31 pm

Great question, Jessie.

In order to really build a brand, I feel it would take a lot of money and time. That money is better spent getting your message in front of people that need it and are looking for someone to buy their house as-is. I’ve just always felt the money would go a lot further finding and targeting people that need your service. Doing this also will produce results much faster. People want to deal with a person more than a company. Be personable and I believe you will achieve better results.

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Terry November 25, 2012 at 1:19 pm

Danny,

This is a well written and through overview of the flipping business.

So far. I have been focused on purchasing rental houses, but this is great food for thought.

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Danny Johnson November 25, 2012 at 4:21 pm

Thanks, Terry. Glad you enjoyed it.

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Dave Tower December 23, 2012 at 12:00 am

The great educators all tell us novices to picture ourselves acting as if you were successful. How would you act, what sort of person would you want to be, etc.

Well, I hope you don’t mind Danny, but I want to be like you. The messages you highlight always seem to be the ones that have struck a chord with me while reading the greats (Tracy, Hill, Rohn, Robbins, etc). Especially the “why do I want to be successful” question. If the why? is big enough, you can overcome any how?

As always, keep writing’em and I’ll keep reading’em.

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Danny Johnson December 23, 2012 at 11:33 am

I’m flattered, Dave. Thanks for mentioning how much you appreciate those posts. Didn’t know if I was harping too much on figuring out people’s ‘why’.

Jim Rohn is my absolute favorite. Need to find something by Tracy as I haven’t heard any of his stuff.

Thanks again.

Danny

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Dave Tower December 24, 2012 at 1:07 pm

I like Jim Rohn but I really feel he needs to rethink that bit he does about the ultimate negative life where he talks about someone who’s broke, broke and stupid, etc with the last one being ugly, sick,fat,broke, and stupid. It just leaves a bad taste in my mouth and doesn’t add anything to his message.

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Belinda December 26, 2012 at 7:37 pm

I sent an email to some fellow RE investors offering bird dog services and one of them replied with this warning:

“The law is very clear in Texas.
If anything of value is given in return for providing a lead that leads to the consumation
of a sale of real property requires a license. It is defined as brokerage activity.
If there is a quid pro quo money for a valid lead that results in a sales is brokerage in Texas.
You can call it a gift, a marketing fee the name does not matter. Texas allows a $50 dollar token fee so long as you do not advertise the fee and the person who receives the fee did not expect to receive the fee.

This is posted on the TREC web site in their Q&A section.
What are the penalties for unlicensed brokerage activity?
A: Practicing real estate without an active license is a criminal offense, specifically, a Class A misdemeanor punishable
by confinement of up to one year in a county jail and a fine of up to $4,000.00. In addition, TREC may assess administrative
penalties not to exceed $1,000 against any person who engages in unlicensed activity. If the person charged with a violation was engaged in unlicensed activity and was not licensed as a broker or salesperson in the four year period preceding the date of the violation, TREC would be authorized to consider each day the violation continued or occurred a separate violation for the purposes of penalty assessment.”

Personally, I think it’s outrageous that aspiring RE investors are being discouraged from using birddogs as I don’t see anything wrong with paying folks for referrals. Anybody ever have someone come after their birddogs?

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Danny Johnson December 27, 2012 at 10:21 pm

Thanks for bringing this up, Belinda.

This, to me, is like the issue with bandit signs being illegal in most areas.

I’ve never heard of someone being fined for this, or ever even having any trouble with it. It’s not to say it hasn’t or couldn’t happen.

I guess that person is just not interested in leads. Just remove them from your list.

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Andrew Howerton January 7, 2013 at 3:00 am

Danny,

Great info and very helpful. Regarding wholesaling, I see you’ve provided a copy of your “Assignment of contract Form” on your Resources page but I didn’t see a copy of the form you use for your “purchase and sale agreement”. Any chance we could see the one you use or is that not a disclosed form for us? I’d love to avoid as many mistakes as possible and would enjoy any help with this.

Another couple clarification questions regarding wholesaling: after the assignment of contact form is signed you mentioned you go to Title Co…and I assume you don’t need the selling party involved at this point? If so, and you then land a buyer and get the assignment of contract form signed, who typically takes it to the Title company, me as the seller or the newly contracted buyer?

Lastly, regarding the amount provided in earnest money as the buyer, do you offer the amount or do you let the seller offer and you counter with your “$10 or $25″ you mentioned above? Thanks!

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Danny Johnson January 7, 2013 at 12:21 pm

I will consider putting the purchase contract up.

To answer your questions:
The original sellers are not needed with for the assignment.

You should be the one taking (or emailing/faxing/etc.) the contracts to the title company just to stay in control and make sure it is done.

I just tell them what I am paying for earnest money. Just don’t make a big deal out of it. Just fill it in. If they have a hard time with it, tell them that you don’t give much because you are closing so quickly. If they still do, offer a little more. Usually nobody says a thing.

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Shane January 19, 2013 at 1:08 pm

This post is the motivation I need to get back to generating my own leads and building my buyers list for real. I’ve been way too lazy on this. I have a few guys that I can call, and haven’t done much beyond that. Shame on me. No excuses. Lol

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ANGY March 24, 2013 at 12:04 am

Danny, good gob! you really answered all my questions of how to start this flipping house Business. i was stocked on what nest to do if find good house with good potentials? But after patiently reading through your lines now i m good to go! Again good job!!! from
Angy

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Danny Johnson March 24, 2013 at 12:08 pm

Thanks, Angy.

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Howie J April 23, 2013 at 7:30 pm

On the actual assignment of contract, you (the seller in this instance) are the assignor and your Buyer is the assignee, correct?

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Danny Johnson April 24, 2013 at 10:06 am

That is correct.

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D. Jones April 24, 2013 at 8:36 pm

I want to start but my credit isn’t the greatest. What do I do?

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Danny Johnson April 25, 2013 at 2:58 pm

This is how:
http://www.flippingjunkie.com/2013/how-to-flip-houses-with-almost-no-money

These are great ways to get started without good credit or much money.

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Sharon Hiebing June 16, 2013 at 4:10 pm

Hi Danny! In the Wholesaling section, you said:

“Market for leads (you’ll find out more about this further down in this article).
Start taking calls and analyzing the leads. Most investor buyers are looking to purchase investment property at 70% of market value minus the cost to repair the property.

So, if you find a deal where the house should sell for $100,000 and it needs $10,000 in repairs, you would want to buy it for $60,000 LESS THE AMOUNT YOU WANT TO CHARGE FOR THE ASSIGNMENT. If you want to be paid $5,000 for the assignment, simply buy it for $55,000 and offer it to an investor buyer for $60,000.”

Why would you buy it for $55K instead of $65K since you said investor buyers are looking to purchase at 70% of FMV? This is confusing me a bit. Thanks!

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Danny Johnson June 17, 2013 at 11:52 am

Sharon,

You have it all correct, until this part: “$65K since you said investor buyers are looking to purchase at 70% of FMV?”.

They usually buy at 70% of FMV MINUS the cost to repair, which was $10,000 in your example. So they would want to buy at $60,000.

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Sharon Hiebing June 17, 2013 at 11:56 am

Oh, duh! OK, that’s exactly what I was missing. I guess after hours of reading my brain got fuzzy :) Thanks for explaining, Danny.

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Danny Johnson June 19, 2013 at 3:09 pm

No problem.

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Kevin July 15, 2013 at 4:15 pm

As for Birddogging which is where I’m starting currently then working up to wholesaling. Like you said before, most investors won’t mind paying out money since that means you will provide more leads which in turn makes it easier for them. Have you or anyone you know ever had an issue where you passed on the lead but then the investor decided to not pay out? Obviously because it’s “illegal” to do so, they kind of have all the power over what you get paid. I know there has to be some jerks out there that will try and screw you over. How can I ensure I get paid or is it more of a lesson learned, move on to the next investor type thing if an investor decides to rip you off?

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Danny Johnson July 15, 2013 at 8:25 pm

This is where it gets to be mostly about getting out of our comfort zone and talking with other investors. After talking to a lot of investors you will have a better idea of who the real players are (the ones buying a lot and paying cash). You will find that you trust some more than others and those are the ones to sell leads to.

Who knows, maybe one of them will even become a mentor.

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mike k July 19, 2013 at 10:41 pm

What are the benefits of starting an LLc ? i have flipped 2 homes this year in my own name and was wondering .
thanks Mike

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Danny Johnson July 20, 2013 at 8:28 am

The benefits are the benefits you would get from the tax and asset protection standpoint. That discussion is best had with a qualified accountant and attorney.

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Thomas July 20, 2013 at 8:07 am

Just when I think I have it figured out. I just saw one of you newer video posts about taking action. I think that this post makes more sense for me as it allows me to learn the process. I dont mind wholesaling or birddogging but I just need to take action. I can say that I was one of those people that wanted to start out rehabbing/flipping. Now I want to get in so I can stack some cash and have reserves so when I get to that point I have the money needed. Thanks again for the information.

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Danny Johnson July 20, 2013 at 8:32 am

Your plan is a good one, Thomas.

Now it is time to take some baby steps and build up to a slow walk and then jog. Before you know it, you will be sprinting!

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jessie July 20, 2013 at 10:36 am

Danny I started wholesaling 3 months ago. I have closed 5 deals and have 4 more in the pipeline. I need your training to move to the next step but I do want to thank you for your precise words of wisdom and motivation articles.

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Danny Johnson July 20, 2013 at 2:32 pm

That’s awesome, Jessie!

My training will be available within a couple of weeks.

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Shayna August 12, 2013 at 2:38 pm

Hi Danny! My husband has read your blog for quite a while & has asked me several times to read it. Well, here I am! :) We’ve talked about starting up our own real estate investment company & my husband has explored whole selling but, neither one of us has ever taken the leap & just done it! After reading this post today, I’m ready! You make it sound quite easy (I know it’s not though) but, it’s also not rocket science – it’s good, smart business. Thanks for this post! It makes me excited & ready for the real estate business!

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Danny Johnson August 12, 2013 at 3:03 pm

Hello, Shayna.

I’m glad the post was inspiring and motivating. You’re right. It’s not hard, but it does take work and perseverance.

Just take it one step at a time and realize that it gets easier and easier as you progress and build momentum.

To your success.

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Lance LaGrange August 30, 2013 at 4:20 pm

Danny,

You said, “I actually prefer a single page contract of my own that is straight and to the point”. This is my biggest stumbling point. I have yet to see a contract for wholesaling that is straight to the point. They are usially the 9 page documents. What are some points that you make sure to address?

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Danny Johnson August 31, 2013 at 9:26 am

I sent you an email.

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george November 1, 2013 at 2:07 pm

This article was great! Its been my “go to” page for pretty much everything! Still in the start up process and getting as much info as possible before my first deal. This is because I’ve come to a fork in the road where I’m a little lost. You said your earnest money is usually $10-$25 whereas everyone I’ve spoken with said they would ask anywhere between 3%-10% of the said purchase price where if its 65k I don’t have even the 3% of that to pay up front. Could you elaborate on how you make it possible to pay such a small earnest money amount?

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Danny Johnson November 1, 2013 at 4:03 pm

Hey George. Glad to see you are finding a lot of value in the blog.

I’m going to assume when people say that you will need 3%-10% for earnest money they are referring to buying listed properties (bank-owned and for sale through a Realtor). I buy from private sellers that I find through my marketing.

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george November 1, 2013 at 4:38 pm

Yes exactly, most of the people I have spoken with do not understand the process that I’m buying from private parties as opposed to an agent or other form of typical buying like a listed property as you stated. So basically the earnest money is stated specifically in your purchase and sale contract with the owner. I saw in earlier comments that you said you’d think about posting a link or something of that sort to that contract. Did you ever post it or did you decide not to? If you did where can I find it to use as an example to create my own and also better understand that portion. Thanks for the fast response!

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Danny Johnson November 4, 2013 at 10:35 am

George,

All purchase contracts for real estate should have a section for earnest money. I just write it in there and say that is what I am paying and move on. Hardly ever doesn’t anybody request more.

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mike k November 1, 2013 at 4:22 pm

$10-$25 down ?? am i missing something ??
investment flipping banks want 20% down .

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Danny Johnson November 4, 2013 at 10:33 am

Hey Mike.

We are talking about earnest money, not down payment for a loan.

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Nick February 5, 2014 at 3:35 am

Starting anything new definitely needs good planning, hard work, honesty, sincerity. You have penned down all the steps very carefully.
I love your knowledge sharing skills.
Finding motivated sellers is little tough job. What are some of the best questions that I can ask the seller to know if he is really motivated?

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Danny Johnson February 11, 2014 at 6:28 pm
Nick February 13, 2014 at 3:45 am

Thanks Danny, This is awesome.

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Charlotte Roof Repair February 23, 2014 at 12:14 pm

Very nice write-up. I absolutely appreciate this website.
Keep it up!

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