Presented By: Steve Heideman Fix and Flip Real Estate Investing Presented By: Thane Lanz
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Presented By:
Steve Heideman
Fix and Flip Real
Estate Investing
Presented By:
Thane Lanz
• Speculators
–Have no plan
–Buy high and sell
low
–Rely on luck and
the market to bail
them out
Speculator vs. Investor
• Investors
– Do their homework
– Follow a specific plan
– Successfully
calculate risk
– Make their money
going in
Speculator vs. Investor
What happened to the haunted
house?
• Generates cash
• Flipping is a short term
venture
• Works in any market
• Can be done part time
• Doesn’t require a lot of
your own money
• An equal opportunity
investment choice
Benefits of Fix & Flip Strategy
Five Step Process
• Find
• Analyze
• Buy
• Fix
• Sell
Find
• Develop Specific Investment Criteria
– Price
– Condition
– Location
• Create a plan to generate leads
– Fit Criteria
– Don’t fit criteria
OUTCOME: A house with investment potential
Analyze
• Make decisions about which
improvements will maximize
your profits
• Create a thorough and
accurate improvement budget
• Determine what you can sell
the home for once fixed up
Outcome: An offer that
maximizes profit given the risk
Buy
• Make your offer
• Negotiate with the seller
• Bring in professionals to
perform a final examination
• Close on the house
Outcome: An investment house
you own
Fix
• Use improvement budget to
create step by step construction
plan
• Your profit depends on ability to
implement the plan quickly and
thoroughly
• Serious mis-calculations can
diminish or evaporate your profit
• Step-by-step improvement
process is critical!
Outcome: A renovated house that is
ready to sell
Sell
• Set yourself up for success in
the final stage
• Set realistic selling price
• Good marketing
• Add the finishing touches
• Maximize profit
Outcome: Money in the bank!
Step 1:Find
• Define your target
• Generate Leads
• Qualify Leads
Define your Target
• Proximity
• Selling Price
• Sales Activity
• Age
• Appeal
• Safety
Generate Leads
• Prospect– Focus: An Interesting house
– Activity: Searching
– Cost: Low
• Advertise– Focus: An Interested Seller
– Activity: Attracting
– Cost: High
• Network– Focus: People who help you find
interesting houses or interested sellers
– Activity: Connecting
– Cost: Low
Qualify Leads: The
House• In your target neighbourhood?
• In satisfactory condition?– Fire damage
– Lead Paint
– Water damage
– Major foundation problems
– Collapsed roof
– Asbestos
– Major termite damage
– Aluminium wiring
• Not a neighbourhood misfit?– Unusual architecture
– Lot irregularity
– Layout
– House size
– Street
– Neighbours
– Infrastructure
– Scene of a crime
Qualify Leads: The
Seller
• Means to sell at your price
– Equity
– Cash to pay off loan
– Agreement with bank
• Motivation to sell
– Needs to sell quickly
– Doesn’t want the hassle
Qualify Leads: The
SellerFactors that make a seller motivated
– Life Events
• Relocation to another city for job
• Physically unable to maintain the property
• Divorcing and needs to sell
– Financial Hardship
• Can’t afford house payments
• Already moved and facing 2 payments
– Must Sell “as is”
• Can’t afford to fix the house
• Is too busy to fix the house
– Vacancy
• Doesn’t want to remotely manage repairs
• Unable to rent it
Step 2: Analyze
• Identify Improvements
• Determine Selling Price
• Estimate Improvement Costs
• Account for Quiet Costs
• Set Minimum Profit
Identify
Improvements
• What Must I Do?
– What are the problems that
NEED to be fixed
• What Should I Do?
– What is the proper level to finish
out
• Basic
• Designer
• Standard
• Custom
• What Could I do?
– What is the untapped potential
Determine Selling
Price
• Determine the Eventual
Selling Price
– Pull the comps
– Drive the comps
– Read the market
– Check with experts
Estimate
Improvement Costs
Consequences of Missed or
Miscalculated Improvement Costs
– Increased Cost
• Direct cost of improvements
• Cost of the extra holding time
• Downward market pressures if
extended into unfavourable selling
season
– Increased Time
• Time of performing additional
improvements
• Extra time caused by scheduling
conflicts
• Longer time to sell due to seasonal
forces
Estimate
Improvement Costs
3 Ways to Estimate Improvement Costs
– Hire a Professional• Thoroughness: Excellent
• Accuracy: Good
• Speed:Good
– Do it Yourself• Thoroughness: Good
• Accuracy: Good
• Speed:Poor
– Use Rules of Thumb• Thoroughness: Poor
• Accuracy: Fair
• Speed:Excellent
Note: Use a 5% Contingency when estimating costs
Estimate
Improvement Costs
4 Broad Cost/SQFT Categories
• Make-hab: +/- $5/sqft
• Falls between just cleaning the place up and a rehab
• Rehab: +/- $15/sqft• Mostly Cosmetic with minimal
permitting and inspections
• Remodel: +/- $25/sqft
• Replacing is the key word
• Restructure: +/- 40/sqft
• Major layout changes & structural repairs
Account for Quiet
Costs• Buying Costs
– Costs incurred when you buy the house• Closing Costs
• Holding Costs– Costs incurred while you own the house
• Utilities
• Maintenance Costs
• Taxes
• Insurance
• Cost of Money– Costs related to borrowing the money
needed to purchase and improve the house• Principle
• Interest
• Selling Costs– Cost incurred when you sell the house
• Real Estate Agent Commissions
• Closing Costs
Set Minimum Profit
Average Profit = 10-20% of
Sale Price
• Base Profit
– A percentage of Eventual Sales
Price that you should receive for
every flip
• Rehab Risk Profit
– Additional profit that you should
receive based on the complexity
of the improvements
Set Minimum Profit
• Recommended Rehab Risk Factor: $5/sqft
Improvement Cost/Rehab Risk Factor=Rehab Risk
**Add Rehab Risk to Eventual Selling Price
Step 3:Buy
• Arrange Financing
• Present the Offer
• Close the Purchase
Arrange Financing
• Pay in full
• Attract Financial Investors
• Borrow the Cash
• Partner to Get the Cash
Present the Offer
• Establish Trust– An Awareness of the Sellers Situation
– Your Value Proposition
– Your Ability to Close
– The Improvement Costs
– The Quiet Costs
– Your Expected Profit
– The Cost to Sell at Market Value
• Make the Offer– Purchase Price
– Deposit
– Closing Costs
– Closing / Condition Removal Date
– Acceptance Date
**See Sample Letter
Close the Purchase
10 Steps to Closing a Home
• Find a good Real Estate Lawyer
• Arrange Inspections
• Confirm Improvement Cost
Estimate
• Order Property Survey (if land)
• Request Settlement Statement
• Prepare Financing
• Review Title Search Report
• Arrange Property Insurance
• Prepare for Improvements
• Sign Closing Documents
Step 4:Fix
• Plan the Work
• Assign the Work
• Work the Plan
Plan the Work5 Components of a
Construction Plan
• Scope
– What work needs to be done?
• Specs– What materials are needed?
• Budget
– How much will the work cost?
• Sequence
– When to schedule the work?
• Trades– Who does the work?
Assign the Work
3 Ways to Get the Work
Done
• Hire a General
Contractor
• Manage Work Yourself
Through Specialized
Trades
• Do It Yourself with the
Help of Individual
Workers
Assign the Work• Hire a General Contractor
– Predictability: High
– Cost: High
– Personal Involvement: Low
• What a Good General Contractor Should Do:– Manage the entire rehab project
– Consult with you on your improvement plan
– Collaborate with architects and designers
– Draw up a comprehensive scope of work and material specifications
– Create a budget and timetable
– Pull permits and schedule inspections
– Schedule, order, and make payments for all materials
– Hire, schedule, and make payments for all trades
– Ensure adherence to budget, schedule, and quality
– Manage risk and solve problems that arise
**Plan to Spend 25% or more for a GC’s markup
Assign the Work
• Manage the work
yourself through
specialized trades
– Predictability:High
– Cost: Medium
– Personal Involvement:
Medium
Assign the Work
• Do it yourself with individual labourers
– Predictability: Low
– Cost: Low
– Personal Involvement: High
Assign the Work
Assign the Work
• Finding Contractors
– The best way is
networking!
• Real Estate Investors
• Construction Professionals
• Real Estate Related
Professionals
• Friends, Neighbours,
Relatives, and coworkers
Assign the Work
• Qualifying Contractors
– 7 Factors
• Longevity
• Licensed & Registered
• Real Estate Investment
Experience
• Insurance
• Business References
• Customer References
• Competitively Priced
Assign the Work
• Use Contracts to Set
Expectations and
Protect Yourself
Work the Plan
• Stay on Schedule
• Stay on Budget
• Ensure Quality
Work the Plan
• Stay on Schedule
– Sequence
• The order in which work gets done
– Lead Time
• The time it takes to start work
– Duration
• The time it takes to complete work
Work the Plan
• Stay on Budget
– Execution is Key
• Manage rough work
• Manage labour
• Manage scope
• Monitor spending
Work the Plan
• Ensure Quality
– Link payment to performance
– Monitor and measure progress often
– Address problems immediately
– Prepare for the work• Work is clearly defined
• Job site is clean
• Prerequisite steps are completed
• Materials are on site
– Manage rough spots
– Pay for predictability
Step 5:Sell
• Prepare to Sell
• Make the Sale
Preparing to Sell
• Decide who will handle the sale
– You (FSBO)
– Real Estate Agent
• Commission
• Term
• Agent Bonus
• Set the Selling Price
– DO NOT try to erase mistakes by
raising the sales price, you will be
adding to your misery
• Stage the House based on it’s
design level
Make the Sale
• Put the home on the market
• Consider offers
• Close the sale
MONEY IN THE BANK!!
3 Biggest Mistakes in Flipping
• Paying too Much for
a House
• Over or Under
Improving a Property
• Doing too much of
the Work Yourself
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