I’m a Real Estate Investor: Why Flipping Houses Is a Great Way To Build Wealth
Written by
Jordan Rosenfeld
Edited by
Amen Oyiboke
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When it comes to investing, most people tend to think of playing the stock market or purchasing investment products like CDs. Yet, according to Ejiro Ajueyitsi, founder of Brooklyn Funding Group, the only Black-owned private lending brokerage in the U.S., “We all know that the number one wealth builder in the United States is real estate.”
Better yet, flipping houses-that is, buying, renovating and reselling-can be an excellent way to build wealth quickly if you know how to approach it.
Ajueyitsi said that flipping houses is a lot easier than people think as well, and recommends the following steps for getting started building wealth in this way.
Get a Good Real Estate Agent
You don’t have to be an investing expert to get started flipping, Ajueyitsi said. You need to start by getting a real estate agent. People want to do it by themselves, but he said that is a mistake.
“I had a frat brother of mine who said ‘do I really need a real estate agent?’ I said, dude, I know you could change a light bulb, but if you need to rewire the socket, you’re going to hire someone. So, yes, you need a real estate agent.”
Get a Good Contractor
If flipping is your goal, you need a contractor, he urged. “Some people don’t want to flip, they just want to keep a house and have rental income,” he said, which is fine. But for those who want to flip, he said getting a contractor can be the trickier part because contractors can be notoriously flaky, and often expensive. However, the renovation is where the property value will come up enough to make the resale value worth it, he explained.
When Ajueyitsi’s company is lending money to people for their house flipping projects, he said they only give them the money once they’ve secured a solid real estate agent and a reliable contractor.
“We don’t just drop $50,000 into people’s pockets for a rehab budget. We give it to them in phase two.”
Run the Numbers
After you’ve completed steps one and two, number three, Ajueyitsi said, “You have to be willing to do the research on the property yourself. Yeah, you’re going to get information from your real estate agent, you’re going to get information from the contractor in terms of the work, but now you’ve got to sit down with the calculator and see if it makes sense.”
Running the numbers isn’t complicated, he said. “Say you’re buying it for a hundred thousand dollars. You need $50,000 to fix it and how much are you going to sell it for? $200,000? It’s profitable.”
Don’t Get Analysis Paralysis
However, he warned that while on the one hand, you can never be too prepared, you also don’t want to get stuck in the “analysis paralysis stage.”
“Don’t jump without a parachute, but it’s really not rocket science,” he explained. So long as you’ve done the work of appropriately estimating the costs, so you know what you’re working with, then your numbers should add up.
Consider a Private Lender
If you aren’t sure you can get a bank loan, or you’re worried that their interest rates aren’t going to be great, he recommended you consider private lenders like his company, because they often are willing to take greater risks.
He said people often come to him wanting to flip houses but having financial issues that might scare off a regular bank, like high debt from student loans, or late payments on a prior mortgage.
“First thing is I don’t look at your debt to income ratio. As a matter of fact, I don’t even look at your income. I don’t need a pay stub. I don’t need a W2. I don’t need a tax return.” What he’s most interested in is whether or not the investment will be profitable.
He said that he takes each project on a case-by-case basis and so far has never had a client default. He gets detailed information about the project and trusts his instincts.
“If you have late payments or credit card debt and stuff, then it’s fine. I’ll lend to you if you just give me a reason and if I believe you.”
For private lenders, there are a lot of risk-mitigating factors that make it easier if anything goes wrong for them to acquire the property back.
Don’t Over-Leverage
If you’ve built the confidence and have been successful at flipping your first house, it’s easy to get a little over-confident and over-leverage yourself, Ajueyitsi said. “Don’t be somebody who’s buying three and four properties at a time, and you only have one contractor,” he said. Be strategic, responsible, and only take on as much as you can realistically accomplish.
Partner Up
If you can’t come up with the downpayment to buy a house to flip, Ajueyitsi recommended you partner up with someone or several people to invest together.
“Don’t always try and do it yourself. That way you can share the risk, you can share the responsibility, you can share the profit. That way there’s no burnout, especially if you’re not doing this full-time.”
While house flipping isn’t complicated, he said it isn’t a “set it and forget it kind of situation.” You have to be involved. “So I would say that splitting the responsibility financially and physically is the best situation for people starting out.”
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