Brian Dally is the CEO and Co-Founder of Groundfloor, a real estate investing and lending platform that is open to non-accredited investors.
With hit shows like Flip or Flop and Fixer Uppers, there’s no question that HGTV has normalized the idea and terminology behind house flipping. And I won’t lie — like most, I enjoy watching how a house is transformed from an ugly duckling into a beautiful swan in the span of 60 minutes. Tear down a few walls, throw on some fresh paint, install new tiles, hardware and decor along the way and BAM! The dollar signs flash onto the screen, and anyone can replicate this happy ending. Right?
Working in real estate for five years now, however, I have the learned the vast difference between reality and reality television. One big thing I’ve realized along the way is that the term “house flipper” is quite often a misnomer. In fact, I’d even go so far as to say that it’s an insulting label. Why? Because by calling them house flippers, we are greatly underestimating the individuals who take on this task. Instead, I recognize those who flip homes as entrepreneurs, and their entrepreneurship as worthy of admiration.
Entrepreneurs Understand The Market
To be a successful entrepreneur, it’s paramount that any founder understands their market. This includes macro and micro trends in the industry, knowledge of the competition and what external factors may help or hurt the overall chance of financial success.
Good real estate developers — the mislabeled house flippers — know their markets better than anyone. In fact, our analysis of ATTOM data found that 83% of all house flips happen within 25 miles of the individual’s home. This isn’t just to have a decent commute. This is because a developer gets to intimately know the neighborhood they’re targeting.
There’s a mountain of data to pour over as well, from MLS trends to nearby job centers to the negotiation needed for the right acquisition cost. In many cases, these developers are so well-connected in these communities that they choose to renovate multiple units or even full blocks and can help revitalize an area while maximizing profits. In the entrepreneurial parlance, that’s called scale.
It’s Not The Idea, It’s The Execution
Plenty of us loves the idea of flipping houses. As human beings, we want to make things more beautiful and more sustainable. If we can make a living out of doing that, well, that’s a pretty big draw right there, and that’s how most entrepreneurs get their start — generating an idea that they can build into something more.
Yet, there is a reason why so many great companies are founded on the backs of software developers. Those who understand how to write code, design and build UX are executors at their core. I see this parallel in home flipping every day, as contractors almost always generate the most lucrative flips. Of course, there are bumps along the way, and it’s necessary to hire the right team to help with product, financials, and marketing, but contractors know the bones and DNA of these houses. In a housing market where acquisition and renovation costs are only getting higher, I would bet on the entrepreneurs who understand this execution more than anyone else.
Agility And Runway Are Important Keys To Success
Going back to HGTV, it’s rare that we see extremely serious issues in their house flips, like opening up a wall and finding asbestos or burned electrical throughout the whole home or a sinkhole in the yard. But any tried-and-true real estate developer will tell you that those real-world horror stories exist when renovating a home.
Likewise, any entrepreneur can vividly recall the product that turned out to be crap, the employee who tried to organize a coup or the [insert crisis here] that almost took the company out. As an entrepreneur, one has to expect the unexpected and be ready to respond in an appropriate way. In these instances, remaining agile is key.
In order to be completely agile, though, an entrepreneur must operate within the limits of their financial freedom — or “runway” as we often call it. I see this play out in home flipping as the smart developers don’t invest all of their own equity into their flips, nor do they partner and give away half their profit margin right off the top. For a developer to be truly agile, they must carefully consider and set up their source of capital so they can save some dry powder for whatever may be lurking behind those walls.
So let’s not minimize the extremely smart and capable real estate developers by calling them “house flippers” any longer. Instead, let’s celebrate them for the entrepreneurs that they are.
– Why Real Estate Entrepreneurs Should Retire The Term ‘House Flipper’