Page 23 - From Ghetto to Gucci: The Basic Principles of Flipping Houses

Financing – Intro

Welcome to the finance chapter! The Finance Chapter will take you through the nuts and bolts
of the numbers related to house flipping. This chapter here will walk you over the numbers that
you’ll have to crunch to be truly successful in flipping. Let’s rock and roll!

My Set-up

I must admit, that in my own operation my main focus isn’t on the numbers. It’s almost
impossible to be on top of the numbers, in person for the rehab, and buying all the homes
personally when you’re flipping as many houses as I do. But even though I don’t deal with the
numbers personally, it’s still absolutely essential to have someone rock-solid who’s able to give
me all the numbers that I need at a moment’s notice.

I have to pay for that privilege, and if you’re looking for someone who’ll be able to take care of
the numbers for you, it will probably cost you $50,000 a year for the privilege of not being
hands-on with your numbers. I know most of you won’t want to worry about that cost until you’ve
built-up a flipping machine, so your only other option is to have a good grasp on the numbers
themselves.

Read it over and over again until you understand how the numbers work. This is incredibly
important, and I want to make sure that you’re sufficiently comfortable with the practice of it to
take this number work into a real-life flipping situation.

Before You Invest

Let me start with a picture of your assets and investments before you begin to invest in
foreclosures. You know you want to invest in housing. Now the question is, where are you going
to get the money from to do it? Most of you will probably have enough money saved up for a
down payment and construction. They’re counting on using a conventional mortgage. Some are
coming into this, bringing only the down payment, and hoping to use a construction loan to
cover repairs. Some others are bringing all cash into the deal to cover all costs.

Whatever your financial situation is, I would highly encourage you to use the financing available
to you! Using financing allows you to leverage yourself, and spread your money further. Now,
imagine that you’ve got $150,000 to invest in flipping.
You’re excited, you’ve just found a house for $100,000 that needs $50,000 in repairs. After
putting in your $150,000 in cash, you’re going to be making a profit of $30,000 in three months.
That sounds pretty good, right? You’ve just gotten a 20% return in three months.

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