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Creative House Flipping For 2014

By Brian Kline | November 29, 2013

There are many ways to make a killing in real estate. There are even multiple ways to do it by flipping houses. You can partner with silent investors, you can partner with realtors, or you can wholesale houses to others that rehab them before the flip. However, one of my favorite ways of flipping houses is partnering with a general contractor.

Advantages of Partnering With a Contractor

Partnering with a general contractor works particularly well when you are struggling with the 70% after repair rule. That's when your maximum allowable offer is 70% of what the house value will be after repairs are made.

The idea here is to bring in a trusted general contractor as a partner in exchange for making the repairs. This might be a 50/50 partnership if he provides the materials and labor. Or it might be something less if he only brings his labor to the deal. Either way, your costs to rehab the house go down considerably, meaning you can skirt around the 70% rule.

© Alfonso de Tomás -

© Alfonso de Tomás -

Always Run the Numbers

Regardless if you are partnered with a general contractor, you still need to stay within the 70% rule. It's just calculated differently. Let's say you find a house in a good neighborhood that is darn decapitated. The after repair value is $175,000 but the cost of repairs will be $50,000 if you have to hire a general contractor. The seller will let it go for $80,000 but not a penny less.

The $80,000 selling price plus $50,000 in repairs totals $130,000. This makes the sales price plus repairs at just shy of 75% of the after repair value. Normally you'd have to pass on the deal because it exceeds your 70% rule. But if you can bring in a general contractor to make the repairs in exchange for part of the profits, the deal can go forward.

By your estimates, the repairs require $30,000 in materials and $20,000 in labor. The $20,000 is the general contractor's contribution to the deal. Your costs are now the purchase price and the materials for total investment of $110,000. That is 62.9% of the after repair value. Well within the 70% rule.

The contractor's labor contribution is 18.1% of the value of the deal. You're going to need to sweeten that amount a little to make it worth the contractor taking part of the risk. Otherwise, he's be better off just doing the work and being guaranteed of collecting the money. You might offer to partner for between 20% and 25% of the after repair sales price. At 20%, the contractor would walk away with $35,000 on a $20,000 investment. A good deal for the contractor. As the investor, you walk away with $140,000. That's about a 32% profit on your investment. You stayed within the 70% rule and shared the investment risk. Always run the numbers but partnering with a general partner can make deals doable that otherwise you would have walked away from.


Author bio: Brian Kline has been investing in real estate for more than 30 years and writing about real estate investing for seven years. He also draws upon 25 plus years of business experience including 12 years as a manager at Boeing Aircraft Company. Brian currently lives at Lake Cushman, Washington. A vacation destination, a few short miles from a national forest in the Olympic Mountains with the Pacific Ocean a couple of miles in the opposite direction.

Brian Kline has been investing in real estate for more than 30 years and writing about real estate investing for seven years with articles listed on Yahoo Finance, Benzinga, and uRBN. Brian is a regular contributor at Realty Biz News
  • 4 comments on “Creative House Flipping For 2014”

    1. There is still a lot of money do be made in flipping homes. I have found in my past experiences in flipping homes that the hardest part of is finding reliable laborers. So, partnering with a reliable contractor makes a whole lot of sense. Not only does it cut down on the cost of the labor itself, but having a general contractor who's got skin in the game will help with the reliability factor as well.

    2. Hello,
      Yes, I have partnered with a contractor before , back int the mid-nineties and this deal went very smooth.indeed. When I became friends with some of my hard money lenders, I partnered with a couple of them and it wasn't my most pleasant deals but they did make money.

      1. Raden,
        I agree. Partnering with a contractor is better than working with hard money lenders. You essentially become the hard money lender in that scenario. However, you don't always have a choice about who is interested in a particular deal. The important thing is running the numbers and always being sure both partners will make an acceptable profit.

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