Jarod Machinga is a seasoned real estate investor and entrepreneur. He started flipping and renting out investment properties during college, where he earned a Bachelor of Science in Engineering. Since then, he has built up four businesses under the brand JAMAC including the parent company, JAMAC Construction, JAMAC Electric, and JAMAC Plumbing. When it comes to flipping houses, Machinga knows both the joys of success and the struggles of the learning curve.
“The most important thing to remember when considering flipping a house as an investment is to do your research,” says Machinga. There are four “classes” (as investors often refer to them) of neighborhoods with corresponding price points and pros and cons to consider. Class A would be your most expensive market usually catering to established professionals with high net worth. Class B refers to solid middle-class neighborhoods where homes are still pricey, but perhaps not at the top bracket. Class C refers to working class homes that are modest but stable. Finally, Class D would be homes or neighborhoods catering to low income individuals. Do your homework and know which type of investment you would be making on any given home. Machinga suggests starting your house flipping journey in either class B or C, where the cost of investment isn’t quite as high as class A but the risks are lower than in class D.
Develop a Business Plan
Once you have an idea of the type of house you’d like to flip, write up a business plan, says Machinga. It is highly unlikely you will be able to finance the whole project on your own and there are loans specifically tailored to a home flipper, many of which will cover most of the cost of the purchase and all of the labor costs in the beginning. Making the sale and the profit in the end will be up to you. But in order to qualify for these loans, you need that business plan. It should include information such as the scope of the project, a budget outlining exactly what costs you expect, and a projected return based on the numbers and not based on ideals. “It’s important to go through this exercise not only for the loan aspect, but to really understand what you’re signing up for,” says Machinga.
If you are truly interested in flipping houses, the work starts long before you begin looking for the right property to flip. “Networks of contractors, plumbers, electricians, and handymen are essential for any flipper,” Machinga explains. While he wouldn’t recommend taking on a project that involves structural, plumbing, or electrical problems on your first project unless you have the expertise, having the contacts and good relationships with them is key. “You need a network of people you trust, even if you don’t plan on using them on every project,” he says. You never know when you might need them, even if you plan on doing the work on your own.
Find the Right Property
Once you have decided on the class of investment you want to make, the numbers involved in making the project a success, have the loan lined up, and are backed by a network of trustworthy professionals, it’s time to start your search for the right property. “Don’t be surprised if you make offers on dozens of houses before you find the right deal for you,” says Machinga. You are looking for a fixer-upper in the right neighborhood ideally below market value in order to make your numbers. This can take time, which can be frustrating, but it is important to have patience.
“House flipping is about doing quality work quickly to make a profit,” says Machinga. “In order to do that, you have to do your homework, be prepared, and have a plan that is realistic and achievable.”