Flipping | revnyou.com

Case Study: Flipping Property for Profits

November 9, 2012 by Karysa

Motivated by a huge desire to create a business that would allow her husband to quit his job, Crystal decided nothing would stand in her way any more. Visions of fun family activities were dancing in her head – thinking of all the fun she would have with her husband and son once they were in control of their time and their financial situation.

When Crystal came to us in late 2011 looking for real estate coaching, the one thing that stood out for both myself and my husband Dave was her sheer belief that she was going to make it happen.

She didn’t have any real estate investing experience, she wasn’t that comfortable with computers – especially Excel Spreadsheets, and she had been looking at becoming a real estate investor for awhile without buying anything.

She was really interested in flipping property but was petrified of speaking to a contractor about doing renovation work.

“In the past I had looked at properties to invest in and if it required more than paint, I wouldn’t even consider buying it. I was truly terrified of renovations.”

Terrified? Yes! Paralyzed? Not even a bit.

Surrounded by support and people with experience and expertise, Crystal Rael, Victoria, BC real estate investor, dared to tackle her greatest fear – she took on her first fix and flip project and pocketed $45,000 in profit for her and her partner in 2012.

The money is great, but even greater than the financial pay day is the confidence she gained by diving head first into the one thing that scared her the most.

Once that project was complete she knew exactly what was next. She’s taking her investing south to Phoenix. The deal was barely closed and she was packing up her son and husband and heading to Phoenix to get to work. She sees that their money can go much further down there and getting out of the grey winters in BC is a big bonus for them too!

One month later she has lined up a few joint venture partners, set up her team and is just working through a few of the details around financing and corporate structure before she makes a move on one of the deals she has her eye on.

With her greatest fear overcome she is on fire. She now knows that she can do what she sets her mind to and is going for it.

Her first flip was a success – especially in a slowing real estate market – and she learned some important things she wanted to share with others that might be thinking of flipping.

Crystal’s 2 Big Things Learned on Flipping Property for Profits

Networking Pays Off – It Really Is About WHO You Know

“The numbers never work in Victoria” is something we often here. Yet someone Crystal met at a REAG Meeting brought her the deal.

It was a great price for the area so Crystal didn’t even hesitate. “I never thought I shouldn’t do it. I wanted to do a flip and it showed up. So I did my due diligence but never questioned it.”

But the deal never would have found her if she hadn’t been out networking and meeting other investors.

Double Check Your Budget

In her initial plan she had factored in the cost for 2 kitchens but forgot to transfer the costs for the second kitchen into the spreadsheet she was using to track the budget. She also had not planned on paying for an electrician because her husband is a ticketed electrician and was going to do the work. Unfortunately he was so busy with his own work that waiting for him was was going to throw everything off schedule (which would have messed up the drywallers and painters), so she had to hire that out which was an extra $5,000 not accounted for.

“If we’d had these numbers in the budget we would have been right on. We had budgeted $50,000 for the renovation and spent $57,000 so not too bad for my first one.” Crystal explains.

So what were the numbers on this property flip exactly?

Purchase Price: $372,440

Renovation Costs: $57,000

Closing costs, carrying costs and Selling Costs: $38,000

Selling Price: $512,000

Net Profit: $45,000

Not bad for 3 months of work!

Crystal says they planned for this project to take 6 months including time to sell but the renovation stayed right on schedule and the home sold fairly quickly with a fast possession so it was just over 3 months!

The worst part?

Crystal said the waiting was the most painful part of the whole process. “Once everything was done and it was listed on MLS and there was nothing left to do but wait for an offer to come in. Thankfully we priced it right and didn’t have to wait too long.”

If you’re thinking of tackling a flip, Crystal has 5 big lessons on flipping property she learned from this experience to share:

1. Find the right deal. This deal worked for her because it was under it’s market value, was in a great area and where there is a demand for properties with a suite. She also had a back up plan of renting it out if it didn’t sell (and with the suite she would be able to cover all her costs as a rental).

2. Make sure you get the right mortgage so you are not paying big penalties when you sell it so quickly.

3. Leave something on the table for the buyer. They priced it aggressively for a quick sale. If they were willing to wait longer to cash out they may have made more money but instead they priced it well and buyers recognized that and grabbed it.

4. Listen to your gut. Your brain might try to talk you into or out of something but listen to what your gut says.

5. Believe you can do it – then do it!

Her biggest surprise in this adventure was that she had all the tools she needed. She is part of REAG and Rev N You’s VIP Coaching program so she’s surrounded by support and expertise. All she needed was to believe that she could do it. When she got that, she committed to doing it, had the right support and mentors around her, and everything else fell into place!

Crystal is excited for the day that her husband can quit his job and work with her full time so they have the time and financial comfort to hang out as a family more. That goal probably isn’t that far away with such a compelling motivation and the strong belief in herself that she now in what she can accomplish. GO CRYSTAL!!

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How to Make More Cash with Real Estate

September 24, 2014August 8, 2012 by Julie Broad

Think Buy and Hold real estate is your ticket to early retirement?

For the odd person with luck and good timing on their side, it can be. For most people, unless you’re talking early retirement in 15 – 20 years, it’s not.

Buy and hold rental property is a critical component to every real estate portfolio. I think it is THE greatest wealth creator over time, but if you want to live off your real estate without waiting to pay off the mortgages or working your butt off to buy 100 houses, then you’ll need to find a way to bring in some cash today.

Besides holding down a job to pay your bills which is a great strategy if you like what you’re doing (it will be MUCH easier to get financing for your deals if you have a job!) most real estate investors create their cash today using one of the following five strategies:

Wholesaling or assignments
Flipping
Becoming a realtor
Creating a property management business
Adding a strategy like rent to own that will increase your cash flow on a monthly basis. (this is what we did when I quit my job four years ago).

So what are each of these strategies?

Wholesaling to Make More Cash with Real Estate

Wholesaling is basically where you do all the leg work to find under market deals and get them under contract. Then you assign them to someone else for a fee.

Traditional wholesale models are where an investor just wants to be assigned a profit producing property. You put in the effort to market, filter and negotiate the great deals and build a network of investors that will buy the deals off of you, and then when you have a good deal you assign it to an investor.

This model is a great way to add thousands of dollars to your pocket ever deal you do. Of course, the challenge with wholesaling is you always have to work your funnel of deals and build your investor network so you have supply and demand for the product. It is a lot of work – but it does help fill your bank account once you get your systems in place.

Flipping to Make More Cash with Real Estate

Most people think they know what it takes to flip a house thanks to all the tv shows on the subject.

Ian Szabo, a guy who knows what it takes to make $50,000 – $150,000 on a flip (he does 2 or 3 like that a year), author of From Renos to Riches, and creator of FlipSchool.ca says he flips houses in two ways:

Buys a derelict house in a great area, fixes it up, and sells it for a juicy profit.
Buys a house that needs work, adds a legal suite, refinances to pull out all his money and some profit, and then rents it out to make cash flow.

Flipping is a high-risk strategy, however, and even Ian doesn’t recommend anyone approach it without a back up strategy in place.

With the right strategy, the right house and the right plan, most flippers starting out can make about $30,000 on a flip, according to Szabo. And that’s about right! One of our VIP Coaching Clients just finished her first flip & made pretty close to that too.

With that kind of profit potential, you’d only need to do one or two a year to really fill in your ‘cash today’ needs.

Becoming a Realtor to Make More Cash with Real Estate

We don’t have an official survey or anything but I’d venture to say this is one of the most common ways real estate investors make their cash today. When you’re an active buyer of real estate, it doesn’t take too many deals where you see your agent make $10,000 in commission for doing minimal work, to begin to see the value in working as a realtor on your own deals. When you also consider that you can help a few of your investor friends and make a bit of commission on their deals too, it can be very appealing for you to become a realtor to satisfy your needs for cash today. Plus you’ll get access to all the MLS data for your area.

That said, it IS a distraction. No matter how little you do as a realtor it takes time and money to have your license. We’ve considered it but ruled it out because we think that it will distract us from our primary business which is buying real estate. There are some other challenges with being a realtor and an investor such as ensuring you follow disclosure and other licensed realtor rules. Further, there can be considerable ongoing brokerage and marketing costs to stay licensed as a realtor.

For many investors though it’s been the ticket to freedom. If you can stay focused on your investment business and build a successful side business as a realtor, this seems like a very popular way many real estate investors make cash today.

Creating a Property Management Business to Make More Cash with Real Estate

At one point, with property all over Canada, we were working with 6 different property management firms. When we quit our jobs and began to spend more time evaluating our cash flow, we began to spot a lot of cash leaks.

To plug some of the holes, we began bringing our property management efforts in house. With the money we saved on property management expenses each month we could afford to hire someone to help us. By doing most of our own property management, we find that we make more money every month and spend less to do it.

Many other investors come to this conclusion as well. And if they do their own property management well, their investor friends take notice and ask for help managing their properties.

But it takes a lot of work and it’s not exactly fast cash. You also should take note that some provinces require a Property Management license to manage properties that are not your own.

Rent to Own to Make More Cash with Real Estate

Rent to own is when a tenant rents your property with the option to purchase it. You set their purchase price at the beginning, they pay a fee for the option to purchase it in the future, and a portion of their rent is a credit which builds up over time towards their purchase.

It generates more cash flow because the tenants are paying a higher than market rent for their property in exchange for credits that build up towards their purchase and they are responsible for basic maintenance. You also don’t typically need property management because of the quality of tenants that move in and because they are responsible for taking care of repairs up to a certain dollar amount ($300 in our case but many other investors have their tenants handle up to $500 or even $1,000).

When I quit my job, we evaluated all of the options for cash today. Wholesaling requires constant marketing and funnel management. If you’re not constantly finding sellers and buyers you aren’t making money. Flipping is stressful and higher risk. It also requires you consistently be working on a flip or you won’t be filling your cash needs.

We felt being a realtor would reduce the focus from our own deals and since we were planning to do a deal every month or so, we knew we’d need a lot of focus for that. And property management is not something we really enjoy, so we didn’t want to create a business around it.

That left us with rent to own as the best solution for us.

By changing a few of our existing rentals to rent to own, and adding just a handful of rent to own properties to our portfolio we were able to boost our cash position with the option fees and the increased cash flow to a point where we felt comfortable financially from our real estate holdings. We also like the fact that rent to own helps good people get into home ownership. Our rent to own tenants give us big warm hugs, invite us for dinner, make us handmade thank you cards and invest in fixing up the homes.

We do have to continue to add properties in order to keep the cash flowing because rent to own deals do turn over every 12 – 24 months after purchasing them. That has largely been the reason we so aggressively added property to our portfolio in the last three years adding 10 – 12 new properties a year. But we like rent to own because if we want to take a month off from working on our deals, we still make money. We can’t say that about any of the other strategies.

And for us, our real estate business has been created so we can live the life we want. For us we wanted to maximize our freedom and minimize the amount of ongoing work that has to be done in order to generate the income we need.

Regardless of how you do it, if you want to become a full time real estate investor, you’ll need to find a cash today strategy that works for you so you don’t have to wait 10 years before you can call it quits.
Image Credit: © Sorin Alb | Dreamstime.com

Flipping Real Estate: A Rev N You Reader’s Tale

December 11, 2012March 29, 2009 by Dave Peniuk

Susan* and her two partners hit the streets in Toronto earlier in 2007 to find a payday by flipping real estate. Their mission: to find a really beat up house in an up and coming Toronto neighbourhood, fix it up and sell it within 5 months.

The three of them wanted to gut the property and renovate just about everything in the house. They expected to do all the big jobs from ripping out walls, redoing the plumbing and wiring, to putting on the finishing touches! Unfortunately, Susan tells us the “planning” was A LOT easier than the “doing”.

Flipping Real Estate Sounds Easier Than It Is

This wasn’t their first reno project. Susan and her two partners had undertook a smaller project in early ’06. With that experience under their belt, they decided to take it up a notch with this project. The house they found was in need of a large scale renovation. They purchased it using some cash and an Open Variable 5 year mortgage (the rate and payment floats with the Prime rate and there is no penalty for paying the mortgage out within the 5 year term). They anticipated it would take approximately 4 months to complete the work and a few weeks on the market to sell – it was going to be a masterpiece!

Well Murphy’s Law was busy during this project. The basement flooded due to shoddy, unlicensed “plumbers” cutting the water main line inside the house. The dumpster bin outside the house was being filled by neighbours while the walls were ripped out over a painfully slow 3 weeks (and the neighbours didn’t help pay for the extra costs of the garbage). And the best part, during the delays and stress, the workers were playing the partners against each other! One would say “Jack said it was okay that we do this with the wiring”, while Susan was trying to say “this is not how we agreed to do this”! And when they finally were done most of the work, and were almost 2 months past their planned completion date, the building inspector went on vacation leaving them to wait a couple of more weeks for his return.

Six months after they started work on the house, they were finally ready to sell the property. But, thanks to delays, the sale landed smack in the middle of summer which is just about the worst time to try and sell a house. Every day the house remained unsold meant additional carrying costs (financing, hydro, heat, taxes, insurance, etc.), so waiting for the fall market to hit was financially not an option. As for the neighbour who agreed to split the cost of a beautiful new fence that separated the two properties? Let’s just say Susan and her partners are still trying to recoup the neighbours half of the fence. Unfortunately, our “word” no longer is good enough. Get it in writing folks!

It was stressful, time intensive and a lot of work. So, why bother with doing a flip? Well, Susan says they did make a decent profit (about a 10% return on investment in about 8 months). And, she enjoyed the opportunity to be creative and handy! Susan said she loves interior decorating and seeing the fruits of her labour. Turning an ugly duckling into a shimmering Swan is a thing of beauty. It also gave her ideas as to what she would like to do with her own home. And, for those who like shopping – be it for doors, windows, faucets, door knobs or curtains – it’s a great excuse to check out all the latest trends at Home Depot, Ikea, or Rona!

Susan gave us 4 Do’s and Don’ts of Flipping Real Estate:

Do’s

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Have a detailed, set budget with a healthy contingency;
Get 3 or more quotes on all jobs;
Get permits for all work to be completed; and
Have a detailed partnership agreement from the beginning.

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Don’ts

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Don’t sell in the Summer or launch on a long weekend;
Never assume that a carpenter can do drywall taping or plumbing;
Do not let the trades people pit the owners against one another; and
Don’t get greedy when selling…often the first offer is the best!

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It wasn’t a bomb, but it was a bigger challenge with a lower pay out than she expected. Will Susan complete another Flip project?

She has every intention to, although it may be a few months or a year until she is ready to jump back into it. Besides her great advice above, she said it is very, VERY important to hire the right people. Just because General Contractor X is cheaper than General Contractor Y doesn’t mean you will profit more in the end because you “saved” some cash. The old phrase exists for the housing industry just like anywhere else – you get what you pay for!

9 Tips for Success with Flipping Real Estate

by Julie Broad

If we are going to go to all the work to renovate a place, we want to reap the benefits for years to come. When we renovate we do it with renters in mind, not future home owners. But, if we were going to pursue a hobby or business in flipping here are some things we would consider when looking at a house:
My requirement for a home to live in, and a good rental property would probably hold true in this case too: Find the Starbucks area
Find the ugly house on a street of well maintained homes.
Know your prospective buyer – are you fixing the house up to suit a young family, an urban couple, or someone whose kids have left the nest? Figure out who is most likely to move into that area, and renovate to suit their needs.
Where is your biggest place to add value? If you can easily enlarge the kitchen or make it more functional then you can add a lot of value to the home quickly. You can also consider adding a bathroom or creating more storage as ways to add value.
Inspect the house carefully. Have there been renovations done on the property? You will often pay a premium for previous renovations, and in so many cases you will end up having to redo what was done before so it costs you more for the house, and to do the work.
Determine your budget, and then add an additional 30 – 40%. Things always cost more and take longer than you expect.
Find a real estate agent that has flipped houses themselves, or that has a few clients that have done it. And, ask for references. A good agent will go a long way to helping you understand the needs of your prospective buyers, and in getting the price you want for your house.
Talk to a mortgage broker about your financing options. There are plenty of financing options to suit a flipper purchase.

*Not her real name. She has asked to remain anonymous, but will answer questions through us if you are interested in learning more.