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Mistakes Beginners Make With House Flipping

Mistakes Beginners Make With House Flipping (with Ryan Pineda)

Though I’ve always preached about cash flow and passive income, make no mistake: I am NOT against house flipping! There is a legitimate reason for it and a much higher immediate return on investment. Join Ken McElroy and TikTok Star, Ryan Pineda, in a discussion about house flipping and the mistakes that Ryan made along the way. 

Ken Mcelroy:
Hey everybody, today’s guest is Ryan Pineda, who has made a career flipping houses from an early age. And I know a lot of you guys love this. So even though I’m more of a buy and hold guy, as you guys know, I wanted to bring Ryan on and discuss why he liked flipping homes, and he’s made quite a bit of money doing this. So I just wanted you guys to see all options. So Ryan congrats.

Ryan Pineda:
Hey, thanks for having me on, man. It’s a pleasure.

Ken Mcelroy:
Yeah, thank you. It’s great to have you on and, uh, obviously, uh, an entrepreneur from a long, long time. Uh, so you’ve been flipping houses since you were 15. Uh, why don’t you guys, why don’t you kind of start by, uh, how you got started that young… Must have been in high school.

Ryan Pineda:
Yeah, we got to, I think, uh, Jessica or whoever it was, I got started in 2015, not when I was 15. Yeah. I wish I was flipping when I was 15. I mean, my, my, my mom was a realtor, so, uh, she flipped a couple of houses when I was 15, but I’m not going to take credit for them.

Ken Mcelroy:
Nice. So you grew up in the Vegas area, you started flipping houses in 2015. So how did you get it? How’d you get started?

Ryan Pineda:
Well, um, I became a realtor back in 2010, uh, when I was 21 years old. And obviously, you know, it was a tough time back then to sell real estate. Nobody could qualify, everyone’s going bankrupt. And so, uh, I hated that it sucked being a realtor back then. So I kind of fell away from real estate after a couple of years. And I decided I was going to do side hustles and all this stuff. And then it wasn’t until 2015, when it came back around that I realized I could flip houses, um, stumbled upon a website called bigger pockets and you know, started to realize, oh man, I could get hard money. I could wholesale. I could do all of these things if I found a good deal. And so that’s exactly what I did. I, um, ended up finding a good deal. I maxed out all my credit cards to buy that first deal to the tune of about $50,000. And the rest was history. Um, use that as a down payment with a hard money loan and ended up making 25 grand in that very first deal. Good

Ken Mcelroy:
Good job, man. So you put up 50 of your own, all financed through credit cards and you made 25 grand yep. Way to go way to go. So let’s walk through that first deal. Cause I think as you know, um, you know, I know you have an academy now, which is super cool teaching people how to do this, but that, you know, that first step is, you know, people have a tough time with that first step. How did, how did you break through that?

Ryan Pineda:
Well, for me, um, I felt like I had nothing to lose. I mean, I was like 25 at the time and you know, I was like, I’m going to just keep on this path and it’s going to be slow and you know, I might break free from it one day or I’m just going to take a risk right now and accelerate it and live with the consequences either it works and I look like a genius or it fails and you know what, I’m still 25. Like I can recover. It’s not, I don’t have kids and all this. So I think for a lot of people they’re so concerned about the downside of losing that they never take action. Whereas I was like, Hey, you know what? Even if I lose, it’s still not a big deal.

Ken Mcelroy:
Right. Right. And, and, and, you know, it’s, uh, you can never perfect it, right? Like, like don’t you just learn a ton, every deal?

Ryan Pineda:
Dude, you know, I didn’t lose, I flipped hundreds of homes at this point and I did not lose until about like my 80th deal. And, um, I remember that first loss, it was about 20 K and I was like, man, you know, I can’t believe I lost, but I learned a lot from that loss. Like you learn way more from your losses than your wins. And then, you know, I flip, uh, probably like a hundred more, you know, doing well. And then all of a sudden in 20, the end of 2018, they raised interest rates. Uh, for the first time in awhile, you know, 2018 was red hot, just like it is now. So I was like making more money than ever. And you know, these houses, I thought I was gonna make 20 K on. I was making 40 K it’s like deja VU right now.

Ryan Pineda:
And I just started buying based on appreciation. I’m like, okay, these will go up. These will go up. And then I got caught holding the bag and I bought a bunch of bad deals that didn’t sell. Um, once they raised rates and the market cooled off. So I ended up losing on all those bad deals, about half a million dollars. And that taught me a big lesson because I was like, man, I don’t care how successful I’ve been to this point. Like, you could be a few bad deals away from really just ruining it all. And, um, I’ve kept that in mind as this market has been crazy. I’m like, Hey, you know, I don’t want to make those same mistakes I made, you know, three years ago.

Ken Mcelroy:
That’s some real wisdom there. I think a lot of times, you know, people look at, you know, I always talk about cashflow and, and obviously, uh, you obviously have done both, but a lot of times people don’t talk about, you know, the losses, how they got stuck. So what happened is you had to, you, you had bought a bunch of houses and then you had some interest rate. I know you’re super successful now. And you’ve got a great YouTube presence and all that stuff, but those losses, you learn so much. So what, what, what are some takeaways, you know, as people go out right now and they’re flipping as you know, and this market’s red hot, so what are, what are some things that people can do right now to make sure they don’t get caught the same way you did?

Ryan Pineda:
Yeah. So, you know, last year during COVID, um, you know, we didn’t know how the market was going to go, right? Like everybody’s like, oh man, we’re going to tank other people. You know, I kept buying, thankfully it ended up being a good choice, but I had a rule during COVID. I was like, Hey, we’re only gonna take on deals that are going to be really quick flips. You know, I don’t want something that’s a year from now. I can’t predict what’s going to happen a year from now. So, um, we really stuck to really basic rehabs. We could be in and out of cars, you know, the shorter you can make your time, the less risk. Right. So I think that’s one thing, um, not doing huge projects. Um, too, I would say for us, our bread and butter is entry level housing, you know, uh, maybe middle-class housing, we don’t do a ton of luxury. Um, all that being said, I wish we did right now, because luxury is just crazy. Like it’s my, I have students who are doing some luxury. I mean, they’re making hundreds of thousands more than they thought on each deal. I’m like, this is nuts. But for us, uh, at the end of the day, entry-level housing is always going to be like the safest and easiest to get rid of. So, um, I think those are two things you could do that really limit your risk.

Ken Mcelroy:
Yeah. That makes a ton of sense. Thank you for that. The, um, you know, uh, why do you like flipping more than the buy and hold because you know, it does take a fair amount of work to find something and, um, and turn it, and then you’ve got commissions and capital gains and stuff like that, especially now with this new capital gain stuff coming out. So, um, do you have both or is that your primary driver of revenue?

Ryan Pineda:
Yeah, so I have about 30 rental units right now. Um, you know, I do plant, so right now I’m actually in the process of starting a fund as well. So we are going to be buying, you know, hundreds of units. I would guess I’ll buy a few hundred units by the end of this year with the fund. Um, but I would say up to this point, the reason that I didn’t care so much about rentals was because I mean, here in Vegas, when you just actually look at the deals that we get, it’s like, I mean, you said you, you bought deals in Vegas and you lived here. So I’m not sure if it was like that. Um, then it is today, but like I look at a house that’s $300,000, then I say, okay, you know, I could flip this and make 30 grand or I keep it.

Ryan Pineda:
And there’s literally no cash flow. Like it’s we are cashflow negative here. So it was just always like, why would I keep any of these? It never makes sense. Um, so that, that’s the main thing. I think it’s, uh, a product of being in the market that I’m in. I mean, Cali people and stuff probably feel the same way. Um, but I can tell you, I see the value in cashflow and for me, I guess the, the main thing now is the depreciation is what I’m after, because you know, our flipping business has, um, you know, made a ton, but now as I branch into other businesses like YouTube and education and things that are bringing in a lot of revenue, um, I need to offset that. And I think depreciation is really the best way. Yeah. Yeah.

Ken Mcelroy:
I agree. That’s, that’s been my big thing, as you can imagine with, you know, the deals we, we, we, we, uh, pretty much most of the cashflow we have gets wiped out with depreciation. Yep. Yeah. It’s a, it’s a big difference. So, okay guys. So we’re going to take a quick break. We’ll come right back and talk to Ryan. And, uh, why he’s buying during the pandemic.

Ken Mcelroy:
So, Hey guys, we’re back with Ryan. So Ryan let you are one of the few that continue to buy during the pandemic. Now I know a lot of people hit the brakes, even I said, okay, we’re going to head to this crash. Cause I really did think so. I didn’t, you know, obviously know the government was going to throw all this money at us. Um, that worked really well for you. Uh, congrats on that. Uh, w what was the thinking when you said I’m going to continue to buy

Ryan Pineda:
Well, for me, um, I’d like, like you, I was, it’s not like I was like a hundred percent certain. I was making the right move, reminded me of 2013 when I started where I was like, you, what? Let’s just try, you know, whatever, I’m still young. Right? So, um, now I looked at it and I saw the facts and I looked and I said, well, what do I, think’s going to happen here? And as they started to roll out the stimulus and stuff, I said, I think we’re going to be fine. I just don’t believe they’re going to foreclose. I think we’re going to get all this money. I did not think it would be the way it is today, but I thought worst case scenario, I think the market is staying kind of where it’s at. And, um, mainly because going into the pandemic, it was kind of like, it is now, like inventory was at Lowe’s, the market was red hot.

Ryan Pineda:
So I’m like, dude, you know, I don’t know how bad this is going to be, but I feel like worst case with all the stimulus with they’re going to stop foreclosures, I think we’re going to be okay. And that was kinda my mindset. And the other thing was up to this point, you know, we were buying that, you know, 80 to 85% of ARV, um, and we’re cool making 20 K a pop that’s kind of our, um, MO and these deals I was getting, I mean, they were like 70% ARV, which is unheard of in today’s world. I’m like, if this deals pencils out to make 50 K on a flip, it what’s the worst case that happens the next couple of months. Like it goes down and I make 20 K. So that was kinda, my mindset was we adjusted our buy box to buy only really deep deals and ended up working out really well, because it ended up being a bunch of really fat deals that we got.

Ken Mcelroy:
Really wise. Uh, so, so that was one of the ways that you mitigated your risk during all this, uh, you know, cause you had heart, obviously you had some hard money guys out there and you had some buyers out there. Were you concerned about the exit?

Ryan Pineda:
Um, I mean, like I said, it, I was focused too on quick flips. So, um, even if the market was going to turn, it would take some time. And so hopefully I could catch it before that happens. Um, we also wholesale too. I mean, we still had buyers who are willing to buy wholesales. So, you know, we source the majority of our deals direct to seller. So, um, we, we have a lot of exit strategies with all of our deals and for me, um, it was just like, if I’m going to buy this deal, that’s 70% of ARV. It’s really hard to lose. Like I don’t care what the market’s doing. Yeah.

Ken Mcelroy:
Especially when you have, uh, a bunch of people in your pocket, that’ll take it, right?

Ryan Pineda:
Yeah. Yeah.

Ken Mcelroy:
Good for you. Good for you. Okay guys. So now I’m going to ask Ryan about how flipping in this market. These are bonus questions for the premium guys. So if you want to sign up, go to KenMcElroy.com/Premium To get started. Wow. I tell you what, uh, I, it’s been fun to watch you and it’s been fun to watch your social media. So, uh, congrats on all your success and, and, uh, you know, we’re gonna, we’re gonna also do a podcast, uh, on your social media stuff and your academy next. So for those you guys who want to hear a little bit more about Ryan and his success, uh, make sure that you jump over to that. So, uh, Ryan, thank you so much and congrats on everything you’ve done.

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