housing market corrections

Deni interviews Courtney Poulos, hos of Season 2 of The American Dream TV, a former member of the Forbes Real Estate Council, and a recurring panelist at Inman Connect, Awesome Females in Real Estate.

Courtney explains the pros, cons, and risks of property flipping in a cooling real estate market.

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What short-term fix-and-flip loan options are available nowadays?

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We compare several buy-and-rehab lenders and several long-term landlord loans on LTV, interest rates, closing costs, income requirements and more.

live off rents podcast transcript

Deni: Welcome everyone to Spark Rental Facebook Live and podcast. Brian is having technical issues, as we all do lately in this tech world that we live in. I am really excited though today! We have a guest. We have Courtney Polos and we are going to be talking about flipping houses and this kind of cool or cooling, I should say, home market. If you guys have any questions, anything, please just throw your comments in the chat. This is a very relaxed format, as everybody knows me. Courtney and I were speaking about our dogs. And you have anybody who’s been watching this long enough has seen my dogs or heard my dogs barking in the background.

Courtney: Anything could happen. And a dog situation any moment.

Deni: It’s so true. So before we move on, I want to let everybody know about you. Courtney, you’re very impressive. You have you currently co hosts a podcast called Under All is the Land. Is that weekly or…

Courtney: It is weekly. We are just about to start season two. We’re recording our first season too. So this Friday it’s available on our YouTube channel and then all of the other [platforms]: Apple, Spotify and all the other jazzy distribution networks out there. But our YouTube channel is YouTube.com/ACMERealEstate.

Deni: Okay. And I am going to be putting Courtney’s website address. is this information there as well?

Courtney: Yeah. Yeah, there are links to the podcast on the website as well.

Deni: Perfect. Perfect. And then you host season two of the American Dream TV.

Courtney: The American Dream. Do you watched it?

Deni: I think I have seen it. Yes, that’s crazy.

Courtney: Luckily, like, you know, there’s an LA show, there’s a Philly show, there’s a miami show. So it’s all over the country. And they take five real estate and lifestyle experts and they give us free permission to pursue whatever kind of interviews we want all over the city and really get get allow viewers to get an inside look at things that you might not see from a real estate agent on their day to day Instagram or social media.

Deni: Right! Wow. Very cool. Very cool. Oh, there’s so much. There’s so much. But I want to get into our subject. If you guys really you have to visit the website. I’m actually going to pop it up now. And you know, when we’re done here, check Courtney out. There’s a lot, a lot to her. I find it interesting we were talking to beforehand. We all know that I’m a most of us know most of you know that I’m a realtor. But Courtney also is a… You’re a broker actually.

Courtney: I am. Yeah.

Deni: And you’re in Florida and California.

Courtney: That’s right. So in Florida, I have a co founder who’s a broker in Florida, Heather Unger. So we have Acme, Florida. And then I run the LA office, which has 60 agents and two locations in LA. And the reason why I love our podcast topic today is because we actually started during the last crisis recovery, right, when people were very uncertain about the market and I built my business on renovation resale. So I worked with a lot of flippers and you know, in a changing market. So kind of a similar circumstance that we’re having right now.

Deni: I love that.

Courtney: [Inaudible: Response when Deni’s dog is barking]

Deni: No, don’t even worry about it. The other thing that I really like, Courtney, is that you have a passion for empowering women to achieve financial independence, and I’m seeing that increase more and more. I have friends that are in the business in different facets and they too are catering to women because, you know, it’s good that we all do this to empower. It was a man’s field I started way back in the eighties, so I’ve been in for a while. And I remember when I first entered into real estate, it was a man’s world.

Courtney: Well, it’s interesting because in California, especially, there are more female licensees than male. But the amount of people who are actually broker owners as females is very, very small. So, you know, so that’s one part that’s changing in our industry environment. But when it comes to actual financial stability, this is the transition from what I call like the Cinderella story that maybe our grandparents narrative, we wait to buy a house until we get married and we have kids and dah and we stay in the same house for 30 years and we pay off our mortgage. That mentality of normalcy era thinking has been what we’ve been living on for many years, probably until the seventies, when women could actually get a loan without a husband. Cosigner. Thank you, Ginsburg! But now we’re in this moment where most women for probably the past 30 years that I know are capable of buying earlier in their professional careers, sometimes straight out of college and we shouldn’t wait. I think that starting your real estate investing, even if it’s just buying what you can, where you can, allows you a better platform. When it comes to choosing partners, when it comes to making bigger decisions about your future, you want that dream house. Maybe you don’t come from money, don’t know how to get it. And home ownership feels very out of reach for many people. It still does, right? But starting where you’re at when you can allows you to incrementally get there. And that’s something that I think has been lost on the narrative, especially in reality television. Real estate shows. You see people who have the money, but you don’t see how the people got there, you know? And it does take a little effort at the beginning and and it’s achievable. I don’t know any other thing you can do in America right now reliably to make hundreds of thousands of dollars just scraping $200 out of your paycheck every week isn’t going to do it. You know…

Deni: You know, it’s interesting too. I think that we have a lot of fear, men and women. And when we hear about flipping and, you know, I think so often we focus on the possibilities of what could happen. Bad. And I think that it’s good to hear good, positive stories because there are many of them, obviously, because people do.

Courtney: This is not for the faint of heart. This is where people get confused. Somewhere along the line when it’s kind of a seller’s market. And really seller’s market just means interest rates are low. There are more buyers than there are inventory and sellers feel like they have some power. These flippers were making money hand over fist quality or not when it comes to their product. So, you know, that is something that happens with every cycle whenever the conditions are like that. That’s why I actually think it’s an amazing time to buy right now for buyers, they have more power than ever. But when it comes to the flippers, yes, they are going to have to adjust a few things in order to accommodate the fact that now buyers do have some inventory to choose from. Their money is more expensive, so they’re going to be making different choices. The quality of the renovations that you put in the house are going to matter more, and they’re still hunting for the perfect house. So in fact, your opportunity to deliver a high quality product is really high. Flippers make a mistake in this market when they think that they can cheap out because the returns are not going to be as high. I think it always takes about six months for sellers to accommodate a change in interest rates. That’s dramatic, you know, so buyers 2% got you one thing a couple of months ago and now it’s 6%. So it doesn’t go as far.

Courtney: So, of course, you’re not going to be paying the same price for that house if you don’t have to write your monthly payments going on. So sellers might have to take a little bit less profit on the homes they have listed right now, where they were using six months ago projections for the future market value. But as you go into this next moment, you are able to acquire homes more easily now too, because a lot of investors have gotten out of the market. So now you can get a better acquisition price and you have an opportunity to choose and make a more unique, beautiful home that’s going to attract those buyers who are being picky. And that’s where the money is. It’s in quality. So it’s the exact opposite space of what most… I don’t mean to offend anybody, but I’ve learned in my 17 years of doing renovation resale that there’s a masculine mindset to bottom line numbers for a lot of flippers, and they don’t look at the emotional touches that make buyers fall in love. I feel like a lot of women make buyer’s buying decisions for families, but a lot of the work, contracting work and flipping kind of investment stuff is done by men. So the most successful flips are the ones that marry those two, no pun intended, that actually have a sensibility about spending, but a design sensibility that accommodates making a unique product, that has an emotional composition, you know?

Deni: Yes, that’s that’s a great point. And out of curiosity, just in California, I mean, I know the prices there are completely different than where I am and people complain about how high they are here. So how do you find, you know, a worthwhile flip in California.

Courtney: So they’re actually everywhere. People will tell you it’s very hard. I mean, obviously, I don’t work all of California, so I’m just looking at Los Angeles. There are a lot of opportunities that are sitting on the MLS. So I look for hidden value. That means big lots that are underutilized, extra spaces like detached garages that can be converted into accessory dwelling units. I look for properties that are duplexes that are vacant that could potentially be combined to make one house because a lot of flippers forget to look for duplex.

Deni: Wow!

Courtney: Yep. I look for properties that have a hurdle that is jumpable. So one thing you want to stay away from and they’re usually the cheapest properties on the market are the ones on busy streets or the ones that are adjacent to commercial or where you hear some kind of noise, some kind of freeway noise or busy street noise or something. There’s some kind of distracting noise. Those hurdles buyers can add 100,000, 200,000 value, too. So we want to stay away from those. But if there’s a hurdle like an underutilized backyard that I know could be magic, if we just added a fence to go to add some privacy, or if we planted some olive trees or added a hot tub and some twinkle lights or something to make it feel magical and it jumps the hurdle. Those properties are opportunity properties, also properties that are listed with like shitty photos. Love those!

Deni: *Giggling*

Courtney: And getting Flipper. I’ll be honest. Crappy flips are a great place to start! So if you see a house that’s been sitting on the market because buyers are pickier now. Right. And it has laminate floors and cheap finishes, Home Depot fixtures and whatever. And you think, hmm, this place could benefit even though it’s been remodeled, like the systems are all done right. It just needs cosmetic help. Then you have an opportunity to save a lot of money because that systems work is what takes $60,000 to $80,000 worth of renovation budget. And you can just focus on the cosmetics, right? That allows you to flip that flip. And believe it or not, the buyers will come for high quality design. That’s what I learned during the last cycle, and that’s the most important lesson for going into the flipping market right now.

Deni: Now, tell me something that a flip that you have, I’m assuming you’ve been involved in flips yourself.

Courtney: I don’t do a ton of flips myself, believe it or not. We just represent them. I’ve done them. I’ve done one. I mean, I’ve done 1/2, but I don’t compete with my clients. We really focus on finding them deals, giving them design guidance, project management and then resale.

Deni: I love that you add design guidance in there as well because a lot of people need that and it’s nice to have that piece.

Courtney: It’s the most important piece. It’s the most underutilized piece. And I think, again, like you have to understand as a real estate agent, you know, because we’re on the ground, we hear what buyers are saying when they’re walking through houses. They’re not saying, oh, I wish I had a mirror in the like in the bathroom that had fluorescent lights on it. Nobody’s saying that. They want a kitchen where they can prep food. They want a family room that’s open. So if they have kids, the kids are running outside to the yard. They can watch the kids while they do the wash by washing up the dishes. Or something it’s functionality of key piece of design that gets missed on finish that someone decided this is what they think a flip looks like. But let me tell you, nobody likes laminate floors, nobody likes them. They’re bouncy, they’re cheap, they feel cheap. And the difference between a good engineered floor and a laminate floor for a flipper should be nominal. You know, you should have access to people who are giving you wholesale deals. You should be buying in bulk so you can use those hardwood floors on multiple different properties, but get good quality floors. It matters. It just makes it look like you. You care more.

Deni: It’s funny, as an as an agent myself, it’s one of the first things people notice when they walk into a place. You know what I mean? It’s just I mean, I still see really horrible carpeting. And I as soon as it turns, it turns. It could be a great house. But that.

Courtney: Just because a lot of buyers don’t see beyond what is actually there. That’s why when I’m advising my clients and they have a small third bedroom, but it still fits a full bed. Like, don’t say it as an office, stage it as a bedroom. Anybody can look at a bedroom and say, I could use that as an office, but a lot of people can’t look at a room that’s staged as an office and think, I can see that as a bedroom. So you have to remember what buyers are looking for when they’re walking through the property. And if you see a hurdle as a buyer, which is what your reptile brain is trying to tell you, to see all the things that could be wrong. Right? Like we don’t want to make any bad moves. Nobody wants to be made a fool of by the buying process. You know, you see dirty carpet or you see carpet anyway and you’re like, Oh, we’d have to do the floors. Like, that’s just going to cost too much money, you know, or something. It just checks off something in your head like, Yeah, that’s not going to work. I can’t move right in there. It’s a really simple fix.

Deni: It actually is. It’s probably one of the more simple ones. So you have a client brand new wants to flip never has done before. What is the first thing that you do?

Courtney: Well, the first thing we do is we figure out how much money they have. So I’ve had people come to me where they say they want to flip, but then I ask them how much money they have for the renovation and they don’t even have 20% for the down payment on the loan. Not that you have to have 20%, but remember this is a non owner occupier loan that you’re probably getting if you are a flipper. So that means that there are different down payment requirements. You might want to go into hard money financing, which is high interest rate, short term loans where they’re some of them are kind of like construction loans where there’s a distribution situation. Like as you proceed through construction, some of them want to see that you have a track record. So we have to make sure we understand the financing first.

Deni: Right. There are ways to get in through those barriers, even with I’ve seen it with FHA and whatnot to buy a duplex, live on one side, flip the other.

Courtney: Thaht’s a very good point! That’s a good point. With FHA, you have to technically live in one and then you, of course, could renovate the other. Fha has an owner occupier renovation loan, so there’s nothing stopping you from doing a three and a half percent down 203k loan, getting it, renovating it, living in it and then deciding to sell it. I mean, that’s okay too. But for most flippers that come to me, they usually have some maybe they have some money set aside. They have some money for the acquisition cost and some money for the renovation. So then we look at what their budget can get them and where. Looking at comps when you are working with a flipper is a skill that a lot of real estate agents actually don’t know how to do. So we’ve learned over the years how to accurately project what a good looking product in a particular area will net by being able to read the comps in between the lines. So the mistake a lot of people make is that they comp the fixer. Well, there’s no sense in being the fixer because it doesn’t matter really what you acquire it for. What matters is how much work it needs, what your budget is, your good contracting team, and how much it will potentially resale for. How much value can you add?

Deni: So you have to project.

Courtney: …Have to project. So we start with what their numbers are and then I look at where what emerging neighborhoods could be good fits for that budget. On the acquisition side, given those individual properties that I find, I look at each one and say, Could this have an ADU added? Could this have an extra 300 square foot master bedroom addition at it? Could we bolt those ceilings? Is this a historic home? Does it have any regulations? Is it an iPod? Does it have a court ordered probate? Like what is it specific conditions? Does it have a tenant in it? What’s what’s its trouble? And then I say, okay, can we solve this? And if we do solve this, how does it look now? It’s a two bedroom, one bath. How does it look as a32 in this neighborhood and renovate it renovated. Okay, then I back it out. So there’s a formula that I use to assess whether or not there’s money in the deal. So you take the future market value, essentially, you multiply it by we usually use like 7% commission and closing costs as a rough conservative like more than enough estimates. So say I multiply the future market value by 93%, then I deduct the acquisition cost, the carrying costs and the projected renovation costs and add a 10% contingency for change orders. So if you’re doing it with permits possible, the inspector could come in and say, Look, I know you wanted to save this ductwork, but it has asbestos, can’t save it. You’ve got to go to that. Whatever. So add that and then and then at the end of that, that should be your profit.

Courtney: So if in a hot market, there were some flippers who were looking for a 200 or 300,000 minimum return on any property, now it might be a quantity game, so maybe you’re going to make 50 to $100,000 but you can do a shorter flip, like carry it for six months instead of a year. So you have to figure out like what you’re carrying costs are and how that eats into your profit. Because really time is what costs most flippers, the most amount of money. It’s the carrying costs and the high interest home renovation loan or loan. So if they can make 50 to $100,000 on multiple houses, that’s probably the easier way to get through a changing market. If you’re kind of doing your first one with first, first time flippers, I think you should start gently. Like I said at the beginning, it is not for the faint of heart. People don’t understand how much anxiety renovation causes, even for flippers. You cut open the wall and you’re like, What’s in there? Know, it could be old wiring, it could be something. Fire hazard, dead animals, who knows what? But timeline’s matter. Contractors quit. You have to have a good contracting team, the backup team. You have to order your materials so far in advance because of supply chain challenges. That’s another place where a lot of flippers get stuck. They wait till the last minute to order their light fixtures and then they’re not able to get the ones they want. And then they settle for something at Lowes.

Deni: Which is this, that also has been more of an issue after COVID. I hate to say it, but…

Courtney: Yeah, and remember, wood prices have been going up and then the door and there are all kinds of of increased costs associated with supply chain problems and COVID problems, supposedly. I don’t know how much longer we can blame stuff on COVID. I think by now people need to get their shit together, but there are things that are out of people’s control. So you have to have a good plan at the beginning and really execute on multiple levels at once. And a lot of flippers don’t do that. They want to focus on construction, but they forget the bigger picture planning. So that’s definitely, I think that like for beginning flippers, if they can find a house that is kind of a unicorn, but a house that maybe has had some systems updates over the years, like the roof still has some life in it. You know, the electricity was updated in 96, something like that. And then they can improve on what’s already there as opposed to doing a teardown or having to do a big addition. Then you might find yourself getting more familiar in so that you can get comfortable with doing the heavier renovation projects. When people dive head first into teardowns, they. Frequently lose money or get super overwhelmed and stressed out, and they didn’t realize what they were getting into. So, yeah, people out of that.

Deni: That’s a whole different ball game.

Courtney: A whole different ball game!

Deni: Well, I mean, we’re running out of time, so I just wanted to let everybody know that if you have any questions or you want to get a hold of Courtney. Her website is in the chat box and you can always reach out to Brian or I or Tara and we will make sure and put you in touch. I want to thank you, Courtney, for all the information.

Courtney: And thank you so much for having me!

Deni: Yeah, and maybe we could do this again on another subject. I would love to do that!

Courtney: That would be great. That would be wonderful!

Deni: Thanks, everybody! And I’ll see you next Tuesday and have a good day.

Courtney: Bye!

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