065: Flippin’ in So Cal

SHOW NOTES FOR EPISODE 065 –  FLIPPIN’ IN SO CAL

Some say Southern California prices are too high and there’s little margin for fix ‘n flip profits, but for 20-year fix ‘n flipper veteran Joe Homs, business is great!  In this episode, we discover the secrets of successful flipping in an economy with compressed CAP rates, sky high home prices and limited inventory.

What You Will Learn

• How he has created a successful cash flowing business with a combination of buy ‘n hold and fix ‘n flip strategies
• What is the criteria for a good flip deal
• How he survived and thrived through 3 real estate bubbles in Southern California
• How to make money up to a 30% return per year flipping houses in Southern California
• How to create a legacy for your family
• How a self-directed IRA can be an invaluable tool for your real estate investing success

About Our Guest

Joe Homs

Joe began his investment career at the age of 20 when he made his first home purchase.  Shortly thereafter he purchased his first investment property that he still owns today.   He then decided to get his real estate license to better educate himself about his investments.  Joe was taught the real estate business from his father who owned several rentals and built 4 homes in his lifetime.

Joe went on to make many purchases and sales of homes using creative financing, no money down, equity share, HUD auctions both online and live, and many other ways, including purchasing homes at the court house steps.  Joe has a large portfolio of “buy and holds”, but is currently flipping homes for a living.  He is teaching his daughter and son-in-law the business as well as others on bigger pockets who reach out to him.

Joe has meet with over 200 bigger pockets members in the last two years with a goal of teaching and educating the next generation of investors.  He is here to share his over 40 years of real estate experience and knowledge from the trenches in Orange County California where he is still finding deals out there.

More About Joe

• Purchased first home at 20
• Got married a few years later, both another house
• Found local condo for sale for $50,000. Divorce situation.  He assumed loan. Still owns it today.  Loaned remained in seller’s name.  Later condo went up to $100K, down to $50K, up to $200K, down to $100K.  He bought 10 condos at $100K in the same development.  They are currently worth $300K and will start selling in 2017.  He may do 1031 exchange or put money into his flip business
• He has gone through three bubbles.
• High inflation in California so when bubble bursts, prices come crashing down
• He has a good sense as to when to buy and when to sell. Thinks market is going down soon.  The key indicator of a downturn is when large companies start doing massive lay-offs or a massive up-tick in interest rates

Fix and Flip Business

• Because market fluctuates so much, he does fix and flips for cash flow
• His buy and hold business produced so much cash he needed to put it somewhere so he started buying distressed businesses he found on the MLS and through bid on the courthouse steps and fix and flipped houses
• He started marketing with direct mail, bandit signs
• Average house is around $500K
• Makes about $50k per house – Goal is 8-10% per flip
• Can do about 2-3 flips per year
• Bought one home for $550K, sold for $750K the weekend it went on the market
• A lot of cash buyers in Orange County
• Home must be “move-in” ready

Creating a Legacy

• He learned real estate from his dad
• Used to go into homes his dad bought and they would do 80% of the rehab or “sweat equity”
• Would paint the place
• He has been training his son-in-law and daughter for the last 3 years ago
• First three houses they did together – first home sold made $80K profit
• Son-in-law quite his job
• Now they do 4-6 flips per year but with contractors – son manages
• They are waiting for the next bubble to burst and then will buy more homes then

Biggest Mistake

• Early on, never accepted money from investors
• Decided to partner with an inexperienced friend
• Put too much in the house
• Overpriced the house
• Also had hard money loan
• House sat for a while
• Ended up losing $40k
• Learned an important lesson: You need to know the ARV (after repair value) before you buy the house
• Now they drive a area, collect at least 3 recent sales comps
• Rehab takes 6-8 weeks
• Sell within first couple weeks after that

Biggest Success

• First flip with son-in-law
• Did 80% of the work
• Made 80% profit

Advice to Those Thinking of Fix and Flipping

• Be cautious with your money
• Educate yourself first
• Know where you are in the real estate cycle
• After the bubble bursts is the time to buy
• Find a mentor with the expertise
• Do your due diligence
• Do flipping when the market is going up
• Put funds in a self-directed IRA
• Can write checks
• Has buy ‘n holds in his IRA but all income must go back into IRA
• Align yourself with someone that is actively doing what you want to do who can give you specific information on each property
• Because he is an experienced agent, he has strong knowledge to estimate ARV, closing costs and other important factors for profitability and success

Future for His Business

• Loves real estate but also takes a lot of vacations
• Building up his business for his kids
• Passing on his legacy is important
• Also is “giving back” by teaching other young investors
• Teaching more – just started a wholesaling class with about 15students

His Current Buy ‘n Hold Properties

• Will sell and funds will go into self-directed IRA
• Will not be taxed until he starts taking distributions
• Doesn’t have to take out until 70 ½
• He may sell his condos and do 1031 exchange to purchase senior Residential Assisted Living homes following the baby boomers bubble

Rap-it-Up

• Favorite real estate book: The Power of Money Dynamics by Venita Van Caspel
• Favorite business books: Rich Dad Poor Dad series by Robert Kiyosaki
• Favorite quote: “Buy the ugliest house in the best neighborhood.”
• Favorite website for success: MLS for finding properties and comping properties
• Favorite app: Property Radar
• If he only had $1,000 and he had to start over: He is a very conservative investor. Educate yourself.  Find a mentor.  Find a deal.  Get family in friends to fund you.

How to Reach Joe

• Website: joehoms.com

Until our next podcast, keep moving forward and God bless!

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