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Four Flippin Boxes - 9 12 12
- 1. Four Flippin’ Boxes ArizonaAcademy of Real Estate 9/12/12
- 2. Marty Boardman • Owner and Chief Financial Officer of Rising Sun Capital Group, LLC – Gilbert, AZ, licensed Realtor since 2007 • Real estate investor since 2002 and principal in over 250 single-family transactions in Arizona, Texas, Illinois and Wisconsin. • Accredited instructor for the Arizona Department of Real Estate and national contributor to BiggerPockets.com real estate news website. • Author of Fixing and Flipping Real Estate: Strategies for the Post-Boom Era (not completed). • Husband to Linda and father to Allyson and Audrey.
- 3. Marty Boardman marty@risingsuncapitalgroup.com 602-319-5391 @martyboardman linkedin.com/in/martyboardman
- 4.
- 5. Choose Your OwnAdventure • No two rehabbers are the same. • Successful rehabbers do have: – Drive to Succeed – Integrity to Build a Solid Brand – Discipline to Make Good Decisions – Mindset to Work Hard and Work SMART
- 6. What to Expectfrom this Class • This is NOT a plan for creating real estate wealth. • This is a blueprint for developing your own plan.
- 7. Begin with theEnd in Mind 1. What do you want? 2. 1-3-5 year plan 3. Cash chunking
- 8. Box #1: Acquisition “Theproblem is we are consistently inconsistent.” - Larry Martel – KPHO TV5 Reporter
- 9. Acquisition Topics 1. Strategy(Niche) 2. Analyzing Deals 3. Writing Offers 4. Common Mistakes
- 10. Strategy (Niche) • Target Property • Target Neighborhood • Target Price Point • Target Rehab
- 11. My Niche • Single-Familydetached homes only • Minimum 3/2/2 • Tile Roof – Stucco Exterior • Valley-wide • $120,000 - $350,000 acquisition price • Light to advanced cosmetic rehab
- 12. Analyzing Deals • Everyinvestor has their own “rules” for evaluating a deal • Most tools are built to help determine the investor’s Maximum Purchase Price (MPP) • A common rule is The 70% Rule: MPP = (ARV * 70%) – Rehab Costs • Most successful investors want something more detailed to help avoid potential losses
- 13. THE FLIP FORMULA MPP = ARV – Fixed Costs – Profit – Rehab Costs • ARV is the conservative resale value • Fixed Costs are all the fixed costs you incur • Profit is your desired profit on the deal • Rehab Costs are the costs to renovate
- 14. Example: 4708 E.Thunderhill MPP = ARV – Fixed Costs – Profit – Rehab Costs What is our MPP?
- 15. MPP = ARV– Fixed Costs – Profit – Rehab Costs ESTIMATING ARV
- 16. Estimating ARV • Doit like an appraiser would • Three approaches to analyze property value: 1. Sales Comparable Method 2. Income Method 3. Replacement Cost Method • For residential property, stick with Sales Comparison Method
- 17. What Is SalesComparison? • Value based on what similar properties in the vicinity have sold for recently. • Vicinity = Preferably same subdivision or ½ mile. • Recently = Preferably past 3 months. • Similar = Age, Style, Size, Condition, etc
- 18. Here’s What IKnow: • 4 bedroom homes are more valuable than 3 bedroom homes to most buyers. • 3 car garages are more valuable than 2 car garages to most buyers. • Homes with pools are more valuable than homes without pools to most home buyers. • Single-level homes are more valuable than two-level homes to most homebuyers.
- 19. Here’s What ElseI Know: • Normal Sales - $112.38 $/SF • Short Sales - $76.58 $/SF • REOs - $78.42 $/SF *Source – Cromford Report, 9/12/12
- 20. Here’s What IDon’t Know: • How much more value will a homebuyer and/or appraiser see in a property with these desirable features? • How much more value will a homebuyer and/or appraiser see in a home that’s not a short sale or REO?
- 21. Estimating ARV –An Inexact Science • Lack of supply • School District • Family • Busy Streets • Barking Dogs
- 22. Step 1: Specson 4708 E. Thunderhill Year Built 1993 Condition Excellent Square 1,951 Footage Beds 3 Baths 2.5 Parking 3 Car Garage Pool Yes Levels 2 Subdivision Desert Breeze
- 23. Step 2: FindComps
- 24. Step 3: CompareSpecs Valuation Adjustments: 38 Thunderhill 13402 38 13223 th th Bighorn Year Built 1993 1988 1988 1993 Condition Excellent Excellent Excellent Good Square 1,951 2,204 2,204 2,145 Footage Beds 3 4 4 4 Baths 2.5 2.5 2.5 3 Parking 3 car garage 3 car garage 3 car garage 2 car garage Pool Yes Yes Yes No Levels 2 2 2 2
- 25. Step 4: NormalizeValues & Average 13402 38th Adjusted Values: 13223 38th Bighorn SALE PRICE $285,000 $300,000 $242,000 $/SF $129.31 $136.11 $112.82 SF Difference: - 253 - 253 - 194 Adjustment $252,363 $265,600 $220,272 Low Value (ARV): $220,272 ARV Average Value (ARV): $246,078 Range
- 26. Step 5: FactoringDemand • How many active listings for sale in the vicinity? • How many active listings like this property are for sale (i.e. normal sale, 3 car garage, pool, excellent condition)? • How many like listings are pending? • How long were these listings active before they became pending?
- 27. Step 5: FactoringDemand (cont.) • NO active listings for like properties in the entire zip code of 85044 • Only one PENDING listing for like property in the entire zip code of 85044, $275,000 after 19 DOM
- 28. Example: 4708 E.Thunderhill MPP = $270,000 (ARV) – Fixed Costs – Profit – Rehab Costs
- 29. MPP = $270,000– Fixed Costs – Profit – Rehab Costs ESTIMATING FIXED COSTS
- 30. Categories of FixedCosts Purchase Costs Selling Costs Inspection Costs Commissions Closing Costs Closing Costs Lender Fees Home Warranty Termite Treatment Holding Costs Mortgage Payments Property Taxes Utilities Insurance
- 31. Marty’s Typical FixedCosts PURCHASE COSTS: Inspection Fee 155 Closing Costs 1000 Lender Fee 900 Total: 2055 HOLDING COSTS: Mortgage Payments 5400 Property Taxes 600 Utilities 450 Insurance 300 Total: 6750 SELLING COSTS: Commission to Buyer's Agent 6750 Commission to Listing Agent 4050 Closing Costs 3400 Home Warranty 400 Termite Treatment 325 Total: 14925 Total Fixed Costs: 23730
- 32. MPP = $270,000– $23,730 – Profit – Rehab Costs DETERMINING PROFIT
- 33. How Much Profit? • Profit Trade-Off: – Too much, unlikely you’ll get the deal at your MPP – Too little, introduces risk and lowers your income • Most investors tend towards 10-20% of resale price, with a minimum • Marty’s Criteria: 10% of ARV, 15K Minimum
- 34. MPP = $270,000– $23,730 – $27,000 – Rehab Costs ESTIMATING REHAB COSTS
- 35. Rehab Costs INTERIOR Trade Task Labor Materials Total Demo Basic cleanup 100 100 200 Electrical Lights, Fans 150 600 750 Plumbing Kitchen Sink 100 100 200 Paint Walls only 1400 100 1500 Cabinets Refinish 900 300 1200 Countertops Granite 400 1500 1900 Flooring Clean carpet, tile in bathrooms 300 300 600 HVAC Maintenance 150 0 150 Appliances Install appliances 200 1100 1300 Supplies Blinds, door hardware 200 1100 1300 Cleaning House cleaning 200 0 200 Staging Kitchen, master bath, pictures 300 0 300 INTERIOR TOTAL: 4400 5200 9600 EXTERIOR Trade Task Labor Materials Total Roof Repair back patio 200 200 400 Paint Repaint exterior 1400 100 1500 Landscaping Cleanup, plant shrubs, trim 300 0 300 Garage Paint garage floor 50 175 225 EXTERIOR TOTAL: 1950 475 2425 TOTAL: 12025
- 36. MPP = $270,000– $23,730 – $27,000 – $12,025 PUTTING IT ALL TOGETHER
- 37. MPP For 4708E. Thunderhill MPP = $270,000 – $23,730 – $27,000 – $12,025 MPP = $207,245 = 77% of ARV
- 38. MPP for 4708E. Thunderhill Sales Price: $269,900 Acquisition Price: $200,000 Fixed Costs: • Commissions $10,800 • Mortgage Payments $ 5,100 • Utilities/Insurance $ 700 • Closing Costs $ 5,000 Rehab Costs: $14,700 Total Profit: $33,600
- 39. Acquisition Strategies 1. ShortSales (MLS) 2. Bank-owned 3. Auction 4. Unlisted pre-foreclosures 5. Other motivated sellers
- 40. Writing Offers 5 DecisionsPrior to Writing Your Offer: 1. Cash or Financing 2. Purchase Price 3. Earnest Money 4. Closing Costs 5. Contingencies • Due Diligence Period • Financing Contingency • Appraisal Contingency
- 41. Short Sale OffersThat Get Approved • Days on Market Doesn’t Matter • The BPO (broker price opinion) is key • Provide BPO agent with comps • Document repairs
- 42. REO Offers ThatGet Accepted • On the market less than 3 days or more than 3 months • Offer at least 80% of list price • $5,000 minimum EM deposit • Need at least 5K in repairs • Low due diligence (3-7 days) • Have an agent on your side (either Buyer’s Agent or Listing Agent)
- 43. Buying at theAuction • The MPP formula still applies • Use a bidding service • Check title • Drive Report • Don’t get emotional
- 44. Unlisted Pre-Foreclosures • Direct Mail • Door knocking • Website • Voicemail
- 45. Common Mistakes • Cloudson Title (Auctions) – Assessments – Federal Tax Liens – Deed Transfers • HOA Issues • Getting Financing in Order
- 46.
- 47. Rehab 1. First Steps 2. Team Building 3. What to Fix 4. Estimating Costs 5. Cost Control 6. Common Mistakes
- 48. First Things First 1. Secure the property. 2. Get insurance. 3. Turn on utilities. 4. Meet with trades. 5. Determine repairs.
- 49. Team Building OPTION #1 OPTION #2 GC Electrician Plumber HVAC Carpenter Painter Flooring Cabinets Landscaper Glass/Window Handyman
- 50. What To Fix CosmeticRepairs: Advanced Cosmetic: Mechanicals: Advanced: Paint Cabinets HVAC Foundation Carpet Countertops Re-Piping Mold Appliances Doors Re-Wiring Structural / Moving Walls Lights/Fans Windows Sinks/Faucets Roof Door Hardware Gutters/Trim Outlets/Switches Major Trim/Design
- 51. Make It Pop • Air fresheners • Appliances • No caps • Lots of Lighting (no caps) • Staging
- 52. Under Improving • Cheap fixtures (sassy brass) • Worn carpet • Vinyl • Dead grass
- 53. Over Improving • Flooring – Tile • Appliances • Landscaping • Granite Countertops • Door Hardware
- 54. Controlling Costs 1. Paint 2. Carpet 3. Supplies • Light Fixtures • Ceiling Fans • Blinds • Door Hardware • Appliances
- 55. Contractor Negotiating Tips • How Much? • How Long?
- 56. Common Mistakes 1. Takingtoo much time 2. Paying too much 3. Sub-standard finished project 4. Attention to detail 5. Over Improving 6. Under Improving
- 57. Box #3: Sales “Coffeeis for closers” – Alec Baldwin, Glenarry Glen Ross, 1992
- 58. Sales 1. Marketing thehome 2. Contract Analysis 3. Talking with Lenders 4. Influencing appraisals 5. Low appraisals 6. Settlement Statements (HUD) 7. Common Mistakes
- 59. Marketing the Home 1. Find an agent with investor experience. 2. Not an REO or Short Sale 3. Quick Response 4. Staging 5. Agent Bonus 6. Furniture
- 60. Contract Analysis • Purchase Price • Closing Date • Down Payment • Closing Costs • Type of Financing • Title Company • Home Warranty • HOA
- 61. Talking With Lenders 1.Do you know this is a flip? 2. Bank? 3. Loan type? 4. Have you done many of these before? 5. Buyer well qualified?
- 62. Influencing Appraisals 1. Listof Improvements 2. Comparables 3. Meet appraiser at the home. 4. Leave comps at the home.
- 63. Low Appraisals • Cash to cover the difference • 2nd appraisal • Lowering closing costs • New bank • Cancel
- 64. Settlement Statement (HUD) 401 – Contract Sales Price 509 – Credit Closing Costs 511 – County Taxes 703 – Commission 1102 – Closing Fee 1304 – County Taxes 1305 – Additional Exhibit
- 65. Common Mistakes • Assessments • HOA Dues • Federal Tax Liens
- 66. Box #4: RaisingCapital
- 67. Create a TrackRecord 1. Leverage the success of your mentor/partner. 2. Raise your own capital. 3. Build your own real estate investment business. 4. Attract other investors and/or partners
- 68. Building Trust • Promote the system • Schedule a field trip • Provide financials • Be authentic
- 69. Where is theMoney? • Warm Market • Networking • Social Networking • Work – School - Church
- 70. Partners • Joint Venture Agreement • LLC with operating agreement • Prom Note
- 71. Self Directed IRAs • $3.7 Trillion in IRAs • Anything allowed by law • Membership interest in an LLC • Prom Note • Grows tax free
- 72. Hard Money • Property serves as collateral • 25-30% Down • 12-18% interest • Monthly interest payments • Personally guaranteed
- 73. Managing Expectations 1. Whatkind of ROI are you looking for? 2. How much do you plan to invest? 3. How long can you keep your money invested?
- 74.
- 77.
- 78. Marty Boardman marty@risingsuncapitalgroup.com 602-319-5391 @martyboardman linkedin.com/in/martyboardman
Editor's Notes
- #3 MARTY PRESENTS
- #6 MARTY PRESENTS. There’s no “one size fits all” in rehabbing (this is a recurring theme throughout the presentation). If you have the basic mentality, we’ll give you the framework to create a solid plan.
- #7 MARTY PRESENTS. There’s no “one size fits all” in rehabbing (this is a recurring theme throughout the presentation). If you have the basic mentality, we’ll give you the framework to create a solid plan.
- #8 MARTY PRESENTS
- #10 MARTY PRESENTS. We’ll cover all these things, but because we’re limited in time, we’ll focus on #2 – this is what investors tend to be most interested in.
- #11 MARTY AND J PRESENT. Discuss the fact that there is no one right way to evaluate a deal and even successful investors are going to approach it differently. Also, talk about the fact that “the 70% rule” just isn’t detailed enough.
- #12 MARTY AND J PRESENT. Discuss the fact that there is no one right way to evaluate a deal and even successful investors are going to approach it differently. Also, talk about the fact that “the 70% rule” just isn’t detailed enough.
- #13 MARTY AND J PRESENT. Discuss the fact that there is no one right way to evaluate a deal and even successful investors are going to approach it differently. Also, talk about the fact that “the 70% rule” just isn’t detailed enough.
- #15 J PRESENTS.Let’s go through an example of a house I recently purchased.
- #19 Mention that it’s a balancing act – You want to make your offer attractive to the seller but you also want to cover your ass.
- #20 Mention that it’s a balancing act – You want to make your offer attractive to the seller but you also want to cover your ass.
- #21 Mention that it’s a balancing act – You want to make your offer attractive to the seller but you also want to cover your ass.
- #27 Mention that it’s a balancing act – You want to make your offer attractive to the seller but you also want to cover your ass.
- #28 Mention that it’s a balancing act – You want to make your offer attractive to the seller but you also want to cover your ass.
- #29 J PRESENTS.Let’s go through an example of a house I recently purchased.
- #39 Mention that it’s a balancing act – You want to make your offer attractive to the seller but you also want to cover your ass.
- #42 Mention that it’s a balancing act – You want to make your offer attractive to the seller but you also want to cover your ass.
- #43 Mention that it’s a balancing act – You want to make your offer attractive to the seller but you also want to cover your ass.
- #44 Mention that it’s a balancing act – You want to make your offer attractive to the seller but you also want to cover your ass.
- #45 Mention that it’s a balancing act – You want to make your offer attractive to the seller but you also want to cover your ass.
- #50 Talk about the two ways to do things – hire a GC to manage everything or hire subs directly. Various trade-offs (costs, permits, time, involvement, attention to detail, etc).
- #51 Start at the left with your first investments and progress towards the right as you get more experienced.