From Corporate Job to Flipping 8 Houses in 1 Year with Elisa Covington

This transcript was generated automatically with Otter, there may be some grammatical errors.

Sean  0:00

Hey everyone and welcome to another episode of The everything real estate investing show with Sean pan today will be interviewing Elisa Covington, at least as a real estate investor in the Bay Area, and has recently completed eight flip projects within one year of leaving her full time job. In this episode, you’ll hear her secrets to success as well some tips to make sure your projects are extremely profitable. She’s a rising superstar in the community. I’m honored to have her on here. So without further ado, here’s Elisa, thank you so much for coming by and doing this with me go back and tell people like how did you start in real estate and what made you want to be a real estate investor.

Elisa  0:36

So I started from purchasing my first home. It was a two bedroom, two bath condo in South of Market San Francisco. And I purchased it as a short sale. And the building also was had pending litigationwhich made the the p rocess pretty interesting. It took a whole six months for me to eventually get the place.

Sean  1:06

Was it six months of closing your first property?

Yeah. Short Sale? Yeah. Was it during the recession like 2011.

Elisa  1:14

end of 2011, early 2012. It was like the bottom of the market. So I got a really good deal. Because it was a short sale and the building had pending litigation. So I was able to acquire the place for about 20% below market price,

Sean  1:33

like that market price to you. Right.

Elisa  1:34

Right. Right. Yeah. Because short sale, a lot of people don’t want to touch it because of the long, lengthy process. And it’s just a lot of documents, a lot of bank, raw currency. And pending litigation. What happened was the condo Hoa was suing the developer for some water in intrusion in the building. So there’s some risk with that if the HOA lose on the suit. So they may not be able to get money from the developer or not enough money to from the developer to do all the repairs, then Oh, the owners of the condo complex would have to put up money for the repairs.

Sean  2:27

So your building was built? Like pretty recently, too, right? Because I think developers only liable for 10 years or so.

Elisa  2:34

It was built in 1998. It’s I think it’s probably longer than 10 years. Okay. Because it was 2011. And the building was built in 1998. So it’s already more than 10 years. Yeah,

Sean  2:48

got it. That’s kind of scary, right. As a developer, you’re on the hook for something for such a long time. But you thought Oh, I saw. Like, yeah, but no.

Elisa  2:59

Yeah. So the, it was a three story condo building. The third story had a lot of water intrusions. Because of the pending litigation, very few lenders are willing to lend on those purchases. That’s why the lenders available are charging much higher rates. I think I had to pay like a 1% higher than the regular interest rate. And that’s why that’s also why I was able to get the place for so much cheaper than the market price.

Sean  3:37

Is there anything special about short sale? loans? Because I thought for sure said you have to buy with cash. But obviously that’s not true.

Elisa  3:43

No, no, that’s not true. So

Sean  3:46

you bought the same 20% down or

Elisa  3:48

I put 20% down? Yeah, but I think you can put less, if you put less than 20% down you just have to pay insurance.

Unknown Speaker  3:59

The mortgage structure with PMI right?

Sean  4:02

Yeah. Okay, cool. Yeah, I thought you guys, I thought choice here was kind of like foreclosure where you go there, you pay cash. And

Elisa  4:07

yeah, that’s what options gotcha.

Sean  4:10

Okay. Yeah. See, there’s something new today, too.

Elisa  4:13

Yeah, so that’s

after purchasing my first home, I did a remodel, because it was in very bad shape. And I also did house hacking, so I lived in part of the one bedroom, one bath, and they rent out the the other bedroom. From there, I learned that owning rental properties is just so awesome. Other people are helping you pay down the mortgage. At the same time, you are getting a lot of tax benefits. It’s just so sweet. I was getting monthly rent. And then at the end of the year, when I was doing taxes, I was had a loss every year

Sean  5:03

paperless

Elisa  5:04

losses. Yeah, depreciation and like even half of the HOA was able to be deducted on HOA dues. Yeah, it was great. That’s how I realized the power of real estate. My property also appreciated in value by a lot after the litigation was resolved, and also after the market was picking up after the recession. So it’s just such a great way to accumulate wealth.

Sean  5:37

Yeah, that’s a great story. And a great way to get started with real estate. So recently transitioned from just being you know, buy and hold investor into flipping properties. And actually, last year, you flipped eight projects. Yeah, that’s amazing. So talk a little bit more about that, like, how did you get from the buyer side to the flipping side? And how did you guys do a project one year, which is amazing for a newer person?

Elisa  6:03

Sure. So basically, after my first home, I use because the home was appreciating, so crazy, I was able to get a heel lock from that. Home to purchase my first rental property. And I had to do a full hour remodel of the condo, before I could rent it out. And after I did that, I was watching HGTV. It sounds like a cliche, but I actually learned a lot from watching the show. And I realized that you could really do it as a business, the house flipping remodeling and then resale resell the houses. So I it was like a light bulb just went down through my head, like

Sean  7:07

the thousands of millions of people who watch the same show, and how do you actually go out and do it?

Elisa  7:13

I yeah, I was inspired by them a lot. And I decided to look into this business. That’s how I started taking classes and going to networking events, hanging out hanging out with experienced investors just taking them out for coffee or for lunch, to learn about how what they do and how they structure their business, things like that. And after that is just taking massive actions, and really just do the dirty work. Yeah, do that. Make it happen? Let’s talk

Sean  8:00

about the dirty work. What? Like what is that? What is doing the dirty work? How are you going out there and hustling?

Elisa  8:08

Sure. So how I find deals is mainly I get all my deals through real estate agents. What I offer them is if they bring a property to me, I purchase the property with them. And after I rehab, I sell the properties with them again. So they get at least double commission. That’s how they are motivated to work with me. So in in order to to build a network with real estate agents. I was I call it call agents. While I was still doing my full time job, I just set aside a few hours a day.

Sean  8:58

I can barely do 10 minutes a day you do hours.

Elisa  9:02

I like I said it’s hard work. It’s not. It’s not. You just oh, you get excited and you do 10 minutes of work, then you start doing deals, it’s not like that you have to put in the work. It’s a lot of hard work. And you probably hate it when you do it. But if you really stick it out, you can see the results very quickly.

Sean  9:26

So how many agents do you think you’ve called over your hours of cold calling?

Elisa  9:31

I have a spreadsheet to keep track of all the agents that I’ve contacted. And I have hundreds of agents hundreds, yes, more than 500. Fewer than 1000. So somewhere around there.

Sean  9:48

And then you started meeting with an in person, right? So just calling them. So how many do you actually met in person?

Elisa  9:53

I’m starting last year because I started to do the business full time. I invited some agents to meet up either in their office or for coffee. And I think I’ve met probably 100 agents or so. In like, two, two months.

Sean  10:17

That’s hard work.

Elisa  10:20

Yeah, yeah. It’s a lot of hustle. Yes. Yeah.

Yeah, in the beginning, it’s really scary before making every phone call, I have to, like really prep myself up and kind of like running like, oh, the questions. They could

Sean  10:44

ask all the scenario on your podcast, you were the responses to these kind of like, we

Elisa  10:51

don’t really have a script, but I have all the all the questions. And after each phone call, I would kind of reflect on what I did. Wow. And what questions I I was not answering very well. So I would think about basically you put yourself in their shoes, you think about if you were an agent, what do you care? Why would you want to consider working with an investor like us, you want to you want them to feel comfortable to trust you. And you also want to offer them the benefits offer them the a good reason for them to to look for deals for you.

Sean  11:44

Well, let’s talk about your designs too, because you’re you’re posting content on social media and your houses look amazing. And you’re the ones who designed your tire house, right? You don’t have to mean you. So talk about that work. Where do you? How do you know this looks good? Or how you know, this is the style right? Now? Why would you put this countertop on instead of something else.

Elisa  12:05

So I’m really interested in the design part. I think that’s the most fun part of the business. So before I start a rehab actually go through comps in in that area to make sure that I know exactly what’s trending in this neighborhood, and also what finishings the comps have. So when I rehab my project, I know what kind of the standard that I’m going for. And I check, I use Pinterest, and also house.com houzz.com to get inspirations. I sometimes do some image searches. And I read online about the what’s trending in like kitchen and bathroom designs. So that’s also it helps me to decide what I want to do with the properties.

Sean  13:17

So when you look at comps, do you actually go in the houses? Are there other open houses, just look at the pictures?

Elisa  13:23

mainly just look at the pictures. Sometimes if I happen to be driving around the neighborhood, and I see there are open houses, then I may go in to take a look just out of curiosity, but I don’t do that a lot. Cool.

Sean  13:40

Nice. Huh? So when you’re doing your deals, like what is your Buying Criteria? How do you know? All right, this one looks good are now past Next one.

Elisa  13:49

So, um, my regular criteria is mainly just about 10% return on projects on each project. But currently, because the market has shifted, and there’s a lot more risk than before, I’m looking for at least a 15% return on the project. And I’m trying to do shorter projects, meaning I could a project that I could turn around in two, three months, from close to close. So between the two, three months, it’s very unlikely for the market to drop more than 15%

Sean  14:31

knock on wood.

Elisa  14:33

It’s it is because real estate market reacts much slower compared to stock market or or any other market. Especially. Yeah, I think it’s there’s just the risk is limited when you are working in such a short time frame and you have a good margin CO in your projects.

Sean  15:01

And just to clarify, when you say 10% return, you’re saying 10% of the entire final value of the home should be

Elisa  15:08

the money in invested in the project or

Sean  15:11

the money invested. So all the money you put in like down payment, you’re holding costs and your

Elisa  15:16

money, the all the money borrowed and all the money I put in,

Sean  15:21

right? Oh, even the money you borrowed you want to 10% of that? Or okay.

Elisa  15:27

Yeah, all the money invested in the project.

Sean  15:30

So if you just do numbers, for example, imagine you sell the property for a million dollars. And if you want it only 10%, then you expect the profit to be 100 grand, right?

Unknown Speaker  15:40

Some Yeah, something like that. Right? Pretty much.

Sean  15:43

Yeah. So then like when it comes to construction costs that say 75 grand, I don’t know which which obviously cost center. But there’s a guesstimate 75 grand holding costs, you know, waiver magic fingers, say 25 grand. So basically you need to get the house for Oh, and then your closing costs, right? When you sell it. You pay the listing agent and the selling agent. So 7% there 70 grand, and then I can’t wait do math. But let’s just say you had to purchase it for what? 700 ish?

Elisa  16:15

Yeah, most of my projects are at least 25 to 30% below the ARV at least

Sean  16:24

25 to 30% less than the final value?

Elisa  16:29

Yes, cool. It depends. A lot of it depends on the size of the project. Because if you purchase something for 500,000, it’s definitely different than if you are doing deals that are 1.5 million, right? The larger the project, the smaller the

margin will seem. But it’s kind of

so for bigger deals, I’m looking for a higher number of return, but the percentage wise is the same.

Sean  17:08

Gotcha. Yep. And would you ever buy anything that’s like functionally deficient, such as no garage or one bathroom?

Elisa  17:18

I’m a lot of this can be can be fixed when you are doing the rehabs. So if if a house only has one bathroom, if the footprint allows, you can add a bathroom without having to do an addition. Right? You just add it in the existing footprint. If there’s no garage, but there’s a carport, then you can convert a carport, carport to a garage. So I would try to fix those issues if I can, but if I really cannot, then I would definitely discount those properties.

Sean  18:01

How much i a lot, what’s a lot.

Elisa  18:03

Um, if it’s just one bathroom, then you evaluate the deal based down houses comps that are only have one bathroom to write. And if not that you discount by at least 100,000. Because one bathroom, bathroom houses don’t function the same as two bathroom houses. And a lot of buyers when they are looking for their whole home to purchase. They may set their criteria to three bedroom, two bath, so they wouldn’t even see your listing.

Sean  18:38

That’s true.

Elisa  18:40

And houses that don’t have a garage, it depends depends on whether the neighborhood like if a lot of houses have a garage or not. For example, in downtown San Jose, I did a project which didn’t have a garage. But all the neighbors don’t have garages either. So I I was okay with not having a garage for that house. But if your neighbors have garages, and that’s what what’s expected by the buyers, then you should try to do something about it. Or at least content. Yeah, I would discount by it also depends. A lot of factors you have to take into account like, what’s the sale price that you’re looking for? If it’s a higher sale price area, like $1.52 million, chances are that people are going to have nice cars that they want to park in the garage. So you would have to discount your property by maybe even more. That’s that’s really like, there are so many things. So that’s why I think property value nation is a very subject matter. It’s not like if you present one deal to a lot of few investors, everyone’s going to give you the same number. No, I think everyone’s going to evaluate it differently based on their experience based on their comfort level.

Sean  20:19

Yeah. And you like you have to know who your end buyer is going to be to. Like you said, Oh, $2 million. guy like they probably have a nice car. You know, some people don’t think about.

Elisa  20:31

Yeah. And

really check out the comps. comps can tell you a lot the lifestyle in a certain neighborhood, what buyers are expecting in the neighborhood. Yep, that’s good point.

Sean  20:47

So let’s wrap it up. I think you’ve given me some amazing knowledge. But what advice would you give to someone who’s a newer investor, who wants to start out and be you someday?

Elisa  21:00

Thanks and flattered.

Like we mentioned earlier, I think the first step is you just have to take massive actions, there’s no shortcut to success, you have to do the dirty work, and you have to be determined to really put in the effort. And also, to any new investors out there. It’s very helpful to if you could find an experienced investor to partner with you on your first project. That’s what I did. When I first started. And it was really beneficial. It helped me avoid a lot of mistakes I could have made. I also learned so much more so so much faster, because someone was guiding me through the process. So that could be a very good way for anyone to get started.

Sean  22:02

And like so how did you go and approach this more experienced investor? Like, why would he give you the time of day to even help you

Elisa  22:08

out? Um, I think a lot of investors experienced investors are actually very willing to give back. So what I did was I just, I saw my mentor, he was speaking at a meetup event, a real estate networking event. So I just I got his business card, I didn’t even get to talk to him there because he was surrounded by by other investors are newbies. So I just got his business card. And the next day, I called him and we spoke on the phone for over half an hour. He was telling me how to get started, what to what to expect. And I just know that he’s really a great person and really generous, really genuine. And we kept in touch. So he was guiding me on how to get started, and also how to approach agents, how to find deals, pretty much everything. And then we partnered on the first deal I did. We had an agreement. So he gets a percentage of the profit from my first project. And he gave me advice throughout the process. It was amazing. The question. So the first point you said was putting in the hard work, like you said, You must have called over 500 agents. And you’ve actually met with over 100 people for either in their office or for coffee. How many of them actually, you deals?

I’ve worked with probably almost 10 agents. Wow. So far. Nice. Yeah.

Sean  24:11

Yeah, that’s a lot of work.

Elisa  24:12

Yes, some agents started to bring me deals repeatedly. Just since, like the second half of last year. Yes. It’s so look for the agents that are top producers. Yep. They sell a lot of houses each year. So they, they have a much better chance of bringing you

business repeatedly.

Sean  24:45

So good point. Good point. So how can people get in contact with you? And you know, you have a great social media profile. So you’re going to share that too?

Elisa  24:53

Sure. So my you can check out my website. There’s a contact as page. The website is transform real estate. com. It’s my transform. Real estate is my business name. And I also have a Facebook page. It’s transformed real estate, Instagram, it’s the same transform real estate.

Sean  25:17

Yeah, check out the Instagram pages. super sweet. Thanks. Alright, so that’s it. Thank you for being on the show.

Elisa  25:24

Sure. Thank you for having me.

Sean  25:26

All right. Bye bye.

Transcribed by https://otter.ai