RealtyTrac recently caught up with the stars of Spike TV’s Flip Men, Doug Clark and Mike Baird, fresh from finishing up Season 2 of their show, which premieres this Sunday, Aug. 5 at 10 p.m. In this exclusive interview with RealtyTrac, Clark and Baird provide insight into what it takes to be successful real estate investors, particularly when it comes to flipping distressed properties.
RealtyTrac: What are some of the things you love most about being a flipper?
Mike: By far the most exciting thing about being a flipper is that you never know what you are going to be doing every day. Flipping is not some cubicle office job, doing the same old thing every day. Some days we are jam packed hunting deals, other days we are trying to find solutions to the world’s most bizarre problems, (meth, mold, squatters, rodents) while at other times we feel like we are high-end designers trying to put final touches on a home. The variety and the challenge of each problem keeps everyday exciting.
Doug: You can set your own hours, your own pay scale, and see the difference you made to a neighborhood. You get total control over all the design aspect of taking a dilapidated property and turning it into the perfect family home.
RealtyTrac: Why do you continue to flip when it seems like many investors are flocking to the buy, hold and rent investing strategy?
Mike: Truth is, Doug and I maintain and hold several rental properties for the long term as well. Without a doubt the buy/hold strategy is one of the greatest ways to create long term passive wealth and cash flow. Flipping is a very active business. Buy/ Hold is more passive. We do both and would recommend the same. A large percentage of the cash created in our flipping business goes toward the acquisition of rental property. Doug and I often say “We flip to hold... we hold to live.” The two investment strategies can work together nicely if done right.
Doug: I sell many homes to end users as well as investors. A well-maintained updated property that is priced right will always sell faster than its competition. I want to get a deal on the property in today's dollars and not purchase a property on speculation that the market will go up. I simply get a far higher return on investment by flipping. Nothing else can touch these kinds of returns. A rental property may appreciate 10 percent in a year but you can often make closer to 100 percent on your money if you can turn deals every 90 days of less.
RealtyTrac: What advice would you give to a new investor interested in flipping foreclosures in this market?
Mike: At a young age I had the opportunity to learn one of the most valuable real estate lessons. I ask a very successful real estate investor what his key to financial and real estate success was. His response: “Understanding value. If you can understand value... there is a lot of money to be made.” One of the most common mistakes that first time investors make is that they don’t take the time to understand their specific market place. Doug and I research and scout hundreds of homes before we actually move on one. The trick is being able to say “no” to a deal so that when the right deal comes along you can say “yes” and move on it very quickly. Being able to recognize a good deal comes with practice and time. The best in the business have learned to master the art and it has paid off big financially.
Doug: Don't jump right in! Learn how to do title searches, lien searches, and monitor the auctions for a while before you purchase. Learn who in your area is a professional and watch what they purchase and track their performance. When you are finally ready, purchase something cheaper than you can afford to leave room for error. The first few deals will likely take twice as long and need twice the budget you expected. Start slow, learn from your mistakes, expect the unexpected and you will do just fine.
RealtyTrac: What were some of the lessons you learned during this season of flipping properties, both in terms of mistakes and successes?
Mike: There are two lessons learned that come quickly to mind in thinking about the homes we dealt with on Season 2. First of all learning to be patient during the rehab process. At the beginning of every rehab, it seems as though projects go backwards for a period of time throughout the demo period. This can be both frustrating and expensive, but is a necessary step. If all the demo isn’t handled well up front it can come back to cost you thousands of dollars in the future. Nobody likes to take more stuff out of a house than is necessary, but often I find myself wishing more was taken out in the first place to have higher quality job in the end.
Secondly, understanding what potential buyers are going to want, expect and pay more for in given market place. Over the years we have found that buyers love and appreciate garages or extra space to be able to securely store personal belongings. Doug and I went out of our way to make sure that the homes in Season 2 all had garages even if it meant tearing down and rebuilding structures. Giving the market place what buyers like has allowed us to sell homes more quickly and for more money.
Doug: Never expose behind the drywall of an exterior wall unless you absolutely need to. Often times if you open up an exterior wall local code enforcement will force you to update every exterior wall in the entire house to the most current stud spacing and insulation requirements. Fixing one little area of mold, or fixing a hole in the drywall could suddenly become a $10,000 exterior wall redo, I have seen it happen more than once.
On the positive side, we rarely put in garages, but this season we decided to put in several garages where it made sense. In one case we had a house that someone had covered the garage to make more living space. You could easily tell it used to be a garage so we converted it back to a garage (by driving a bobcat strait through it). It gave the house the correct look again and the property received eight offers in three days. On another property we used a pre-manufactured garage. It was a two-car structure that took the company only one day to construct at a cost of $10,000. That garage upped the appraisal on that property by $18,000. The property moved in two days for $20,000 more than we had anticipated.
RealtyTrac: Could you share one or two of the flip stories that viewers should look for in the upcoming season of Flip Men on Spike TV?
Mike: When Doug and I first approached Spike with the idea doing a reality TV Show, the original pitch idea was a show that was a cross between, Hoarders, Cops and Extreme Home Makeover. We felt like those three existing shows exemplified the things we see in the real estate market on a frequent basis. Season 1 was a good warm up to what people will see on Season 2. Season 1 can best described as Doug and Mike vs. House. Season 2 is Doug and Mike vs. Mean House. Each one of the houses in Season 2 seemed to have a personal vendetta against us and provided some of the biggest challenges we have ever had to face. I don’t think I have ever had to deal with the aftermath of nature and the negative affects it can have on vacant and abandoned homes more that we have had to deal with them in several of the Season 2 episodes. Look for Doug and Mike vs. Mean House with a huge dose of nature trying to take us down.
Doug: Every professional flipper wants to avoid the old city inspector dropping by unannounced. I was caught off guard by one who essentially told me that half of my living space was unusable. He seemed upset at my attitude and was probably off his normal routine from seeing so many people and cameras in a house and we preceded to enter into a heated discussion. Needless to say it cost us! The lesson here is that you are never really going to win a fight with a city code enforcer, but I seem to occasionally lose my cool and try.