Monday, October 7, 2013

Blog Post 1

In Chapter 1, we learned the reasons as to why real estate markets are inefficient. When deciding on whom I wanted to conduct an interview with I wanted to choose somebody who has had success in this market. Our family friend Darrell Herzog has been flipping houses for the last 5 years and has been earning generous profits from the deals. Darrell is also a property manager of a set of apartments and also works in the construction field so he has a variety of experience in this market. Even though he does not have a real estate license I figured he was a good candidate for my interview and someone I could learn some valuable information from.

When did you get started and how did you get involved in flipping houses?
I had a friend who was flipping houses, which is buying a house that needs work, fixing it up and then selling it to make a profit, and he actually asked me for a loan. I told him I don’t want to make a loan but we can be partners and split everything 50/50. That’s how it all started. So basically I put in the money, we make the decisions together, and he helps out with some of the manual labor.

What type of houses do you prefer to flip?
We look houses that are run down. Most of them are houses that no bank will loan money on and we buy them with cash. At the beginning we use to purchases houses around $120,000 but now we are buying more expensive houses in nicer neighborhoods because we have found them to be more profitable.  

What certain characteristics do you look for when purchasing a house to invest in?
We like houses that are on a quiet street and we look for neighborhoods with nice surrounding houses and kept up appearances. What would make us not want to buy a house is the exact opposite, houses on busy streets and neighbor houses that are run down. I have noticed that people don’t even like houses if their backyard is on a busy street.

What are the main and major things you fix when working on a house?
We try to spend as little money as possible but we have to change what is needed. We typically like to redo the roof when needed, put in new flooring, replace windows that are energy efficient, and update bathrooms and kitchens to give them a more modern look. We paint inside the home almost every time and outside if it looks necessary. We also like to work on the front landscape. We try to make it look brand new.

How risky is your job?
Well there is a certain amount a risk and the economy plays a big part.  Banks have to be willing to loan money on the houses to buyers for us to sell it. Also the appraisers who set the value tend to vary. One appraiser can be really low and then another can be way higher. Just the way it is.

How long does flipping process take?
We aren’t that fast because this is not our primary job. We both have full time jobs so it takes us longer to complete a house then some other people. 3 months is a good average.

How do you know how much more to sell the new equipped house?
It basically is set by the market and by what the comparable houses in the immediate neighborhood has sold for.

What is the best part of the job?
The best part is when you sell it and get the money that you made.

What is the most difficult part of your job?
When my partner and I argue about important decisions. I think we should do A and he thinks we should do B, but I always win because I’m the moneyman.

I enjoyed interviewing Darrell Herzog. He was very honest, easy to talk to and straight forward. I think what he and his partner do is great and they are fortunate to make profits. Not everybody has the time, cash, and logic to be able to accomplish this. He mentioned multiple times that the quantity of the profit depends on the market. This makes flipping houses risky but so far they have been pretty lucky. It is definitely something that is very interesting and appealing to me.   

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