Are you thinking about investing in a fix-and-flip, but not sure where to start? The process can be nerve-wracking, because there’s a lot of risk – and work – involved. In this episode of The Agent of Wealth Podcast, host Marc Bautis is joined by Viktor Jiracek, a full-time fix-and-flip real estate investor and mentor out of Gainesville, Florida. Together, the two address flipping basics: From how to find a deal to how to make an offer, and how to estimate repair costs to how to transition into this business full-time.
In this episode, you will learn:
- What it means to fix-and-flip.
- How to transition into full-time real estate investing.
- A formula for determining if a fix-or-flip opportunity will be profitable.
- Where to find fix-and-flip deals, and how to approach negotiating.
- How to fund (or invest in) fix-and-flips.
- And more!
Disclosure: The transcript below has been lightly edited for clarity and content. It is not a direct transcription of the full conversation, which can be listened to above.
Welcome back to The Agent of Wealth Podcast. This is your host, Marc Bautis. On today’s show, we brought on a special guest, Viktor Jiracek. Viktor is a fix and flipper based out of Gainesville, Florida. He also mentors students across the United States and teaches them all aspects of getting started in flipping real estate. Viktor, welcome to the show.
Marc, thanks for having me.
I’m excited to talk about today’s topic. A lot of people are interested in building wealth through real estate, but they’re not sure on how to get started. Or, they’re not sure what path in real estate to pursue. Fixing and flipping is one way of getting into the industry. Can you start us off by defining what a fix-and-flip is, and sharing how you got into it?
What Is Fix-and-Flip?
So with fix and flip… you buy a property, fix it up and sell it. I’ve tried all different types of real estate – whole selling, fix-and-flip and rentals – but I like fix-and-flip the best. I like that you’re in and you’re out. Rentals, in comparison, are long term.
I always had the bug for real estate. In the back of my mind, I thought, ‘Hey, real estate’s interesting, I want to try it out.’ My thinking was to be successful at X, and then do real estate. I thought I needed money to get started. But I eventually realized I should really do what I want to do – real estate. And I found out later that I didn’t need my own money, right? I needed other people’s money.
That’s pretty much how I got started. I went from doing real estate on the side, to part-time while working full-time, and then eventually made the leap to investing in real estate full-time.
That’s the path that I hear a lot of people take. So once you started doing real estate on the side, what was the first step? Is it finding a property to purchase?
Exactly, yeah. Finding a deal is the biggest thing. A lot of people think they should work backwards, and have money lined up or contractors lined up, then look for a property. You can have the best contractors in the world, but if you don’t have a deal, it’s not going to help you out.
It took me a while to figure out that you make money when you buy. You can make every mistake in the book, the flip can take longer than you anticipated, you can go over budget, you can sell it for less than you want, and so on. But if you bought the property at the right amount, you’ll be profitable. I’ve seen that time and time again.
So, how do people find deals? Should they hire a realtor, or go through the MLS themselves? Should they drive around looking for a property?
On-Market vs. Off-Market Properties
Well, let’s make a distinction here. There are two types of properties: On-market and off-market. Most people are familiar with on-market properties, which you can find on Zillow, Realtor.com and MLS. For those, you use a realtor, and the deal is public data.
There’s nothing necessarily wrong with buying on the market, but it’s very competitive, to say the least. Because everyone can see it, everyone’s bidding on it. If it’s a good deal, it’s going to go in a day or so. And you’re competing with everyone, which is a tough place to be in.
I get about 99% of my deals off-market. In these instances, a buyer goes directly to the seller (homeowner) to buy their property.
This is where I’ve seen the most success. In 2021, I’m on track for about 30 fix-and-flips, and only one of those properties were on the market. Hopefully that gives your listeners some context of where these deals are coming from.
So I want to make that distinction because a lot of beginners hear about fix-and-flip real estate investing and start to immediately look on Zillow. That’s going to be a hard place to find a good deal… and even if you do, there will be very slim margins – which won’t justify the risk.
How to Find Off-Market Properties for Sale
When you say that you’re marketing to the homeowner, how do you find them? Are you just randomly reaching out to people, and hoping that they’re interested in selling?
You could. You could open a phone book and call everyone. I think eventually, you’ll get something. But there’s a better way to go about it.
If I were to go to you, Marc, and I say, “I want to buy your house.” Let’s say your house is worth $100,000, but I offer you $50,000 for it. What would be your response?
I’d say no.
Exactly. So the question is, who would take that offer? Who would be willing to continue that conversation? And the answer is there has to be some sort of motivation there. And that motivation can be a lot of things, such as:
- The home is in disrepair.
- The homeowners are going through a divorce.
- The homeowner(s) are late on their taxes.
- The home isn’t up to code.
- The homeowner(s) lives out of state.
There are all of these layers that could motivate a homeowner to want to get rid of their property. If you were going through some of those things, and I asked you that same question again, we would have a different conversation. Perhaps your home needs a lot of work, but $50,000 is too low. You might ask, “Could you do $60,000?” And we’d negotiate.
That’s how I see it, where there has to be some sort of layer of motivation. And there’s ways to research those things: Information on the homeowners, code violations, late taxes, etc. So my advice is to target people based on those variables.
“If you’re just going to call people randomly, you’re not going to get too far.”Viktor Jiracek
What Is “Driving For Dollars”?
A lot of that information you’re able to obtain. But can you also drive around and look for houses that appear to be in disarray?
Yes, that’s called “driving for dollars.” Basically you drive around neighborhoods looking for houses that are in disrepair. If all the neighborhood is crummy and beat up, you’re looking for the worst house. If it’s in a nice neighborhood, you’re looking for the house that’s beat up. And once you have the address, you can look at the property owner. Once you have the property owner, you can look up contact information, like phone numbers and emails. Then you start reaching out.
I’ve gotten deals that way, so it works. But you have to put in the effort, for sure.
Earlier, you mentioned that on market houses have small margins, so they probably don’t work for fix-and-flip real estate investing. Let’s say you find an off-market property that you want to put an offer on. How do you determine what price to offer at?
How to Determine A Fix-and-Flip Property’s Value, Prior to Renovating
When it comes to real estate, there are a million variables:
- What’s the school district like?
- Is it on a main road or on a dirt road?
- How many bedrooms and bathrooms does it have?
You want to look at two numbers: The Estimated Cost of Repairs and After Repaired Value (ARV). It’s basically just these two numbers that get to the heart of if it’s a good deal or not.
The Estimated Cost of Repairs
What work do you need to put into the home to be able to sell it?
After Repaired Value
What can you sell it for once it’s fixed up?
I typically follow the 70% rule on top of that, which is 70% ARV minus repairs. So let’s say the retail price is $100,000 and there’s $10,000 in repair costs. That’s 100,000 x 0.7 – 10,000 = 60,000. Anything below $60,000 is a great deal. Anything above $60,000, not so much.
A buyer can know within 30 seconds or less if a deal is good or not. You want to be able to make decisions on the spot, because if you hesitate in real estate a good deal could be gone the next day.
Now, they’re not perfect – don’t get me wrong – but at least you have some sort of mental model to think through on the spot.
How does someone just starting out come up with the estimated cost of repairs? Do they partner with an expert and ask for estimates?
How to Determine the Estimated Cost of Repairs
Experience is best. You can start by asking around and talking to contractors, but over time you really lean on your experience. Typically, when it comes to repairs, you’re paying for material and labor. You can actually look material costs up on Home Depot or Lowe’s websites. Labor is a bit trickier.
I started by doing research on material, and estimating a cost for labor. I just hoped for the best, but it worked out. And you get more and more refined over time.
Another important thing to remember is once a property is under contract, you can back out of the deal for a variety of reasons. Perhaps the home doesn’t pass inspection, or there’s some other problem – a buyer can back out. Real estate investors can use this to their benefit, because it gets them some more time to get contractors in and get quotes. Then, if you’re way off on your numbers, you still have the opportunity to back out and there’s no harm, no foul.
Do you do any, some, or all of the repairs on your fix-and-flips?
When I started, I did as much as I could. I would paint, lay flooring and help with the demo – the easy stuff. I never did electrical, or roofing… Then, over time, I realized that I’m not very good at these things. At painting, I’m average at best. I also realized if I’m painting and laying floor, I can’t work on higher value activities, like finding new deals.
I thought, ‘If I’m working eight hours a day, that’s eight hours that I’m not getting deals.’ So I decided to focus less on repairing and more on the high-level, high-value work. So, over time, I slowly started hiring subcontractors and growing from there.
How to Fund Fix-and-Flips
You mentioned finding money, so let’s talk a little bit about that. After you find a property, estimate the cost of repairs and look at the ARV, you decide a specific deal is going to work out. Now, how do you fund these projects? What sources of money are out there?
So, way back to my first deal… I found a great property here in Gainesville, but I didn’t have the funds. At the time, I had maybe a couple thousand to my name. I found what’s called a money partner.
A money partner puts in funds to buy a property, fix it up and sell it. Then, we split the profit once it sells. So for me, I do the legwork – the sweat equity – of finding the deal, helping run the renovations and helping to sell the place. Essentially, I put my partner’s money to work.
The pitch is simple: Do you want your money to sit in the bank and make 0.01%? Or do you want to put that money to work and make $10,000k+ in net profits? On my first fix-and-flip, we split about $28,000 net profit.
I recommend using money partners. If you get a great deal, people are going to throw money at you to get it done. If there’s a big profit potential everyone can win.
Are you buying these houses for cash, or are you taking out conventional loans, where the money partners help with some of the equity that the bank is looking for?
When it comes to these properties, conventional finance – which everyone knows – is available. I’d say about 97% of fix-and-flip deals are financed conventionally. The other 3% are what I call “off brand,” or nonconventional. Let’s call it that. Typically, when you do conventional financing, there is an appraisal and everything has to work. You can’t have a hole in the roof, the HVAC system can’t be shot, etc. The property has to be lendable, essentially.
As you can imagine, with a lot of these fix-and-flip properties, you can’t go the conventional route because they are in disrepair. They might have a hole in the roof, or perhaps the plumbing burst and pipes are broken. So what are you left with? Cash. But there’s another route, too, called “hard money.”
What Are Hard Money Loans?
Hard money loans are also known as asset-based loans, bridge loans or STABBL loans (short-term asset-backed bridge loans). Hard money loans are used for short-term financing, and the loans are always secured by an asset. Traditional financial institutions don’t offer hard money loans, so this lending option is only available through private lenders and individual investors.
Typically, hard money loans are more expensive. But sometimes you need to go the non-traditional route for fix-and-flip deals.
Okay. So let’s say you got the deal and the financing. Now, the project begins. Are you essentially a project manager on the fixing side?
When you’re just starting out as a fix-and-flipper, I recommend being as hands-on as possible, because you have to learn a lot. You have to learn how to manage people. You have to learn how to estimate a typical timeline. You have to learn so that eventually, you can hire that work out. I currently have a project manager, but if you’re just starting out, I recommend being that project manager.
This concept plays into a larger management philosophy. You need to know the job before you hire it out, because if you don’t know the job you won’t know if they’re doing a good job.
If you know what you’re doing, it’s really cool to see the transformation of a property. Before the flip, it’s crummy, beat up and outdated. After the flip, it’s nice, modern and sleek – and everyone wants to live there! Going through that transformation is really cool.
At what point did you realize that fix-and-flipping could be your full-time job?
How to Transition Into Full-Time Real Estate Investing
I was working full-time as an administrator for a home health agency. I was also doing Uber on the weekend. I knew real estate was something I wanted to do, so I slowly started to get traction. I got my first deal and thought, ‘There’s something here, this isn’t all smoke and mirrors.’ Then I got the second deal, and then the third deal. That’s what I recommend to your listeners: Once you get momentum and find consistency, then you know it’s a great time to transition. That’s how I did it.
So I was working full time, driving for Uber and doing real estate. Once I started to get some traction, the first thing to go was the nine-to-five. Because driving for Uber was flexible, I kept doing it on the weekends. But as I got more and more real estate transactions under my belt, I thought, ‘It doesn’t make sense to drive for Uber anymore, let me just focus full-time on real estate.’ It took six to nine months to make the full transition.
You mentioned the number of houses that you’re on track to flip this year. What are your goals for 2022? And does it get to any point where it starts getting hard to scale?
How to Scale Your Fix-and-Flip Business
The biggest thing is to build more team members. Right now, I have a pretty lean team. It’s me, an assistant and a project manager. My next step is to hire a acquisitions person to find the deals.
Last year I did 20 fix-and-flips, this year I’m on track for 30. Next year, I want to do more of my own deals. So in 2021, I did 5-10 of my own deals, but the rest were with money partners. With a partner deal, you’re splitting the profit. This always made sense for me, because I didn’t have a million bucks sitting around – so I couldn’t do it all on my own.
In the coming year, I want to level off and focus on doing my own deals. I like my partners, don’t get me wrong, but I’m just in a place where I can just do it on my own.
I used to be of the mindset “grow as fast as you can,” but I’m starting to realize that you have to trade things off as you get bigger. I was talking to a flipper out of Texas about this… He said the sweet spot is 20-30 deals a year. After that, you start to have lower margins and less profit because you have to hire people. When there’s more people on your payroll, you have more mouths to feed, so you start to get into a different game.
Right. How long do each of these projects usually take from start to finish?
The closing table is four months. First, we buy it. To renovate, it typically takes 30-45 days. Then we list it. Luckily it’s a really hot market, so typically within a week, we’re under contract. To close, it takes 30-60 days. That’s typically the timeline, four months in and out.
Is your typical buyer looking to live in these flips? Or are they an investor looking to rent it for cash flow? Or is it mixed?
Nine times out of 10, it’s a retail buyer with a family who wants to live there. And we’re seeing that people want turnkey, move-in ready properties. This is a good tip for your listeners. I’ve played around with getting a property almost there – maybe it needed a couple more repairs, but I listed it for less – and that wasn’t as successful. People want move-in ready homes. They don’t want to paint walls. They don’t want to install baseboards. They just want to move in and get back to life.
Are you strictly doing your projects out of Florida? Are there better geographical locations for fix-and-flipping?
I’d say it’s best to work locally, and that’s what I do. If, for whatever reason, your local market is saturated or non-accessible, I would recommend getting started in a smaller market. If you can do virtual, do that – I’ve done a fix-and-flip in Indiana.
I guess it’s a learning experience.
Yes. That’s the main thing I see with flipping and investing in real estate. It is a skill that you get better at over time. Your wins are going to be bigger, your losses are going to be smaller and you’re going to get quicker. So realize that your first flip is going to be your worst, but the good news is you’ll keep getting better from there.
Looking at when you got started to the present day, what are some of the mistakes you made, or things that went wrong? Is there anything you would have done differently?
A mentor five or six years ago told me to get into fix-and-flip real estate. I didn’t listen, which was a mistake. I eventually got started, but that was three years ago. I wonder, if I started five or six years ago, where I would be today. I wish I would’ve gotten started earlier, honestly.
Real estate, just like every other market, is cyclical. And obviously no one knows when the cycles will take place. How do you account for a pullback in the market?
Fix-and-flipping real estate works great when it’s a seller’s market. Rental real estate works great when it’s a buyer’s market. They’re opposites. So as things start to pull back from our current market, I will start to load up more on rental deals. That’s the plan.
So you’ll purchase properties, take the net cash flow from them as income, and then if the market shifts back, you’ll sell them and repeat the flipping process?
Tips for Getting Started
What advice or tips do you have for someone just getting started?
You hear a lot of motivational speakers saying you have to take massive action to get started. I really disagree with that. I’ve seen, both in my journey and in the students I teach, that the best way to get into fix-and-flipping is baby steps.
One way I get deals is cold calling. The first time I ever cold called, I think I called for two minutes. The second time I cold called for five minutes. The third time, 10 minutes. I eased into it. That’s what I recommend for your listeners, too. That’s how you implement habits. That’s how you make change.
By now, you know that the biggest thing is getting a deal. How do you get a deal? Well, you need to talk to a seller. So that’s your listener’s homework. Don’t make an offer, just have a conversation. Ask them:
- How long have you owned your home?
- Why are you considering selling it?
- What is the condition of your home?
- What do you think it needs, in terms of repairs?
These questions will get you comfortable. And the next step is to make an offer… And so on and so forth.
Makes sense. Well, we’re just about out of time. Viktor, I’d like to thank you for being on the show. You provided some great insight into the world of fix-and-flip. I know you are a mentor to newcomers in the fix-and-flip field. How best can someone reach out to you?
Yes, I flip full-time but I also mentor full-time. The best place to reach me is on Facebook. I also have a free Facebook group, if your listeners want to join, it’s called Six Figure House Flippers. I have great tips there, including a repair estimate guide that breaks down the cost of many commonly used goods. I’m really active on Facebook, so feel free to reach out, even if you’re not interested in the mentorship, just say hi. I’m here to help.
Great, we’ll link to that in the show notes. Thank you, Viktor, and thank you to everyone who tuned into today’s episode. Don’t forget to follow The Agent of Wealth on the platform you listen from and leave us a review of the show. We are currently accepting new clients, if you’d like to schedule a 1-on-1 consultation with our advisors, please do so below.