Mark Ferguson is living the real estate dream. A flipper, landlord, and real estate agent, he has rehabbed over 130 houses and owns 19 rentals in the Colorado area. He has a wildly popular podcast and blog where he shares his wisdom amongst an audience that numbers over 100,000. Additionally, Mark has nearly 27,000 YouTube subscribers who voraciously watch his insightful videos. In this Q&A he offers advice and shares the secrets to his success.
APPLIANCES CONNECTION: I notice that you have 20 flips currently in progress and have completed 155 in your career. What is your primary source of funding for these flips?
MARK FERGUSON: I use a variety of funding methods from banks to hard money. I have a local bank that I have used for more than 5 years. They will lend 75 percent of the purchase price and no repairs, but the rates are around 5 percent. I don’t need an appraisal on loans less than $150,000 with them.
I have multiple private lenders as well who are real estate investors themselves. I pay them from 7 to 11 percent based on the terms. They finance from 100 percent of the purchase price to 100 percent of the purchase price plus repairs. I use some hard money lenders but they are my least favorite. I pay them from 8 to 10 percent but they have many more fees and require appraisals.
AC: How do you manage to stay on top of so many projects simultaneously?
MF: I have a lot of help! I have an awesome project manager (Nikki) who manages the contractors, invoicing and design. I have a bookkeeper and agents in my office who list the homes. My primary job is to find deals.
AC: How would you recommend someone with limited funds (e.g. $10K-$20K) get involved in flipping houses and how can they scale up?
MF: It is tough to get started with that much money. There are so many costs that the television shows don’t talk about! I would suggest looking for a partner who can fund most of the deal. To find a partner you need to know the business inside and out and show that you know how to get deals, fix them, and manage them.
AC: A contractor can make or break a flip. How do you find yours?
MF: Contractors are so important! We use a mix of subs and handymen. We look on Craigslist, Thumbtack, Facebook, and many other places. We talk to local box stores and ask anyone we meet for referrals. We also go through a strict interview process and start them on a small job first.
AC: Generally, when you are flipping houses what price points are you looking to purchase at or does it vary? After spending money on the rehab, holding costs, closing costs, etc. what percentage profit are you usually looking at?
MF: We usually stay in the low end of our market. I am in Colorado and the low end has gotten pretty expensive. We used to buy houses for less than $100,000 all the time and now we are lucky if we buy them for less than $200,000. We tend to sell houses for 50 to 75 percent more than we buy them for. The costs tend to be about 30 to 50 percent of the purchase price. The percentages are all over based on the scope of work.
Typically I want to make at least $30,000 on a flip I buy for less than $200,000 and the profit margin increases from that point up. The bigger a project the more profit I want as well because more can go wrong.
MF: We usually spend about 10 percent of the budget on appliances but a larger project could see that drop to 5 percent.
AC: Many flippers have their go-to guys for cabinets, floors, and tiles, often shopping at warehouses but go blindly to the big box chain stores when it comes to appliances when they could be saving a lot of money by shopping online (especially at AppliancesConnection.com). Why do you think they have a blind spot?
MF: When you are doing a lot of flips it is easy to go to one local place to get all your materials. It can save time and confusion. A lot of us don’t have the time to shop at new places and reconfigure our systems. However, delivery and other problems often arise with these tactics.
AC: Are there any brands or type of appliances you always use in your flips?
MF: We usually goes with the cheaper options since we are doing starter homes for the most part. We always do stainless steel and flat top stoves.
AC: Do you think induction stoves will play an important part in rentals in the future because of the non-risk of fires and gas leaks or is the technology too expensive to be feasible at the moment?
MF: Honestly I think they are too expensive for rentals at the moment. Almost all of my rentals have electric stoves which help with the safety issue.
Walkthrough of a completed full-house renovation by Invest Four More
AC: Do you offer washers and dryers in your rentals?
MF: We do not. It is typical in Colorado for the tenant to buy their own.
AC: Again because of gas issues ventless electric dryers have started to become popular in many higher end rentals in different parts of the country. Is that something you could see translating to rental units generally?
MF: I could see this happening based on the risk. Dryer vents being clogged us a risk and something landlords should be aware of.
AC: Many landlords and flippers install baseboard heating which is generally a lot cheaper than a new HVAC system. But the downside is that utility bills tend to be very expensive. Mini split systems now are very efficient without much reconfiguring of walls for ducts etc. What do you use?
MF: Almost all of our rentals have HVAC systems and they can be expensive to install. But with proper maintenance, they should last a long time (30 years).
AC: You have 19 rental units. What does your portfolio consist of?
MF: I have 14 single family residential units and five commercial units. One of the commercial units is a 68,000 square foot strip mall where my real estate brokerage is located.
AC: On many real estate investing blogs and podcasts, people talk about being cash positive by $2-300/month on rentals. But one leaky toilet, which happens quite often, and all the cash flow is gone. What is a realistic method for an investor to generate real wealth with rentals without over-leveraging and stressing out about repairs all the time?
MF: I think you should have that cash flow number after assuming there will be maintenance and vacancies. I account for 5 to 10 percent of the rents for maintenance and 5 to 10 percent for vacancies. The tricky part is finding those properties as they don’t exist everywhere.