Fix and Flip Real Estate Investing Presented By: Steve Heideman Presented By: Steve Heideman

Speculators Have no plan Buy high and sell low Rely on luck and the market to bail them out Speculator vs. Investor

Speculators

Have no plan

Buy high and sell low

Rely on luck and the market to bail them out

Investors Do their homework Follow a specific plan Successfully calculate risk Make their money going in Speculator vs. Investor

Investors

Do their homework

Follow a specific plan

Successfully calculate risk

Make their money going in

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

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

Five Step Process Find Analyze Buy Fix Sell

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

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

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

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

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!

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

Generate Leads

Qualify Leads

Define your Target Proximity Selling Price Sales Activity Age Appeal Safety

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

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 neighborhood? In satisfactory condition? Fire damage Lead Paint Water damage Major foundation problems Collapsed roof Asbestos Major termite damage Aluminum wiring Not a neighborhood misfit? Unusual architecture Lot irregularity Layout House size Street Neighbors Infrastructure Scene of a crime

In your target neighborhood?

In satisfactory condition?

Fire damage

Lead Paint

Water damage

Major foundation problems

Collapsed roof

Asbestos

Major termite damage

Aluminum wiring

Not a neighborhood misfit?

Unusual architecture

Lot irregularity

Layout

House size

Street

Neighbors

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

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 Seller Factors 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

Factors 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

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

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

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 unfavorable selling season Increased Time Time of performing additional improvements Extra time caused b scheduling conflicts Longer time to sell due to seasonal forces

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 unfavorable selling season

Increased Time

Time of performing additional improvements

Extra time caused b 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

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

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

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

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

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

Present the Offer

Close the Purchase

Arrange Financing Pay in full Attract Financial Investors Borrow the Cash Partner to Get the Cash

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 Earnest Money Closing Costs Closing Date Acceptance Date **See Sample Letter

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

Earnest Money

Closing Costs

Closing Date

Acceptance Date

Close the Purchase 10 Steps to Closing a Home Set Up Escrow Arrange Inspections Confirm Improvement Cost Estimate Order Property Survey Request Settlement Statement Prepare Financing Review Title Search Report Arrange Property Insurance Prepare for Improvements Sign Closing Documents

10 Steps to Closing a Home

Set Up Escrow

Arrange Inspections

Confirm Improvement Cost Estimate

Order Property Survey

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 Work

Assign the Work

Work the Plan

Plan the Work 5 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?

5 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

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

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

Manage the work yourself through specialized trades

Predictability:High

Cost: Medium

Personal Involvement: Medium

Assign the Work Do it yourself with individual laborers Predictability: Low Cost: Low Personal Involvement: High

Do it yourself with individual laborers

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, Neighbors, Relatives, and coworkers

Finding Contractors

The best way is networking!

Real Estate Investors

Construction Professionals

Real Estate Related Professionals

Friends, Neighbors, Relatives, and coworkers

Assign the Work Qualifying Contractors 7 Factors Longevity Licensed & Registered Real Estate Investment Experience Insurance Business References Customer References Competitively Priced

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

Use Contracts to Set Expectations and Protect Yourself

Work the Plan Stay on Schedule Stay on Budget Ensure Quality

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

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 labor Manage scope Monitor spending

Stay on Budget

Execution is Key

Manage rough work

Manage labor

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

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

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

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!!

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

Paying too Much for a House

Over or Under Improving a Property

Doing too much of the Work Yourself