Carl Schiovone (631)

Transcription

1 Presented by National Trainer and Performance Coach Carl Schiovone (631)

2 Overview of the Flip cycle Getting prepared for success Creating your business model Developing your search criteria Property viewing and evaluation Determining your offer Creating your rehab plan Execution of your plan Marketing for success Creating your Action Plan Please ask any questions you have along the way!

3 What is Property Rehabbing and Flipping? Purchasing a property and reselling it to a end user or another Investor Usually includes rehabilitation or repositioning of the property

4 From the Investors point of view You can determine how much money you want to make Repetitive business model Personal satisfaction transforming properties and communities

5 It is the closest thing to a new home Property improvements may come with warrantees Don t have the money to improve Cost of capital is low Many buyers would rather buy a higher priced home Don t want to go through the construction phase They lack vision Don t want the stress Don t want the mess

6 Contract Closing Marketing Property Search The Flip Cycle Use Standard Operating Procedures to make this run like a machine Property Eval. Prepare Submit offer Property Rehab Contract Closing

7 Why Audience? Minimizes your Hold Costs Less vulnerable to market changes Minimize the exposure to vandalism and theft You can do more projects More profits for you and your Investors by increasing the Velocity of Capital

8 Flip 1 Flip 2 Flip 3 ($90K) Flip 1 Flip 2 Flip 3 Flip 4 Flip 5 ($150K)

9 Equity Line of Credit 401k loan Savings and paper investments Self-Directed IRA s Conventional loans Private Lenders Hard Money Have Your pre-approval or Proof of Funds ready

10 Capital Spend Plan Strong Resale market Search Criteria Type and Features Location Radius Scope of Work Without having specific criteria, your search will be more difficult

11 Minimum 3 Bedrooms 2 Full Baths No CO violations or open permits No burn-outs No flood zone No Busy road All types of repairs OK No commercial Acquisition price $300,000 maximum Yard comparable with neighborhood Taxes in line Requires a minimum of $45,000 net profit List of towns to focus on or to avoid Motivated and cooperating sellers

12 Waste of your time Waste of your Agents time Impact on your Credibility Missed opportunities Too busy looking at the wrong properties Frustration

13 Considerations: Do you have the required skill? Do you have the time? How will it impact the rehab schedule? What other business tasks are not getting done?

14 Hostile divorce Estate with unreasonable executors Difficult Short Sales Burn outs Non-conforming to building code These could lead to headaches however there are benefits Less competition Possibility better profit margins

15 Competition Level Competition Level Competition Level Low Complexity of the Project High

16 Contractors Have crews readily available They can get material discounts Take projects on to keep their crews busy Other Investors Who are on the listing Agents A list Seasoned Investors with a solid business model Inexperienced Investors who don t know what they are doing!

17 Yourself Not prepared to pull the trigger Slow to react Over analyze Second guessing Fear of failure "Develop success from failures. Discouragement and failure are two of the surest stepping stones to success." Dale Carnegie

18 Why Audience? Prove out your Contractors Requires lower rehab budget and reserves Quicker flip cycle Less Holding Costs Gain experience and confidence to take on larger projects Lower risks Use this time to implement and improve your Standard Work Modules and Procedures

19 What is a Buyers Objection? Issues that may prevent buyers from purchasing property or offering near list price Two Types of Objections Curable Outdated kitchen and baths Roof, siding, and windows at end of life Outdated décor Outdated HVAC

20 Not Curable Objections Busy road Inferior school district Small yard Small bedrooms Poor layout At the right price, any property will sell!

21 Audience? Open floor plan Hardwood floors (not laminated) Large Master bedroom with bath Large kitchen Good counter space (granite or quartz) Stainless Steel appliances Natural light Solid school district Equity Gas heat They don t want to do any work! Air conditioning

22 After Repaired Value (ARV) (high risk factor) - Holding Costs - Closing Costs (two of them) - Profit - Rehab Costs (high risk factor) - Marketing Costs and Commissions = MAO Reduce your MAO further to allow for some negotiation In some cases, you may not be able to do this

23 $350,000 ARV -$12,000 Holding Costs (based on hold time) -$6,000 Closing Costs -$35,000 Profit -$80,000 Rehab Costs -$14,000 Commissions = $203,000 MAO Going through this with Agents can overcome your offer Shock!

24 Sales price 500,000 Purchasing closing costs Cal cash on cash return Attorney fees $1,000 Profit adjustment with commissions added Down payment % Title Insurance One Side Both Sides Insurance/Yr. Tiltle survey $3,000 $4,100 $8,200 Total mortgage required Tax escrow refund Total Adjusted Profit Monthly PITI Recording fees $44,100 $48,200 Down Payment Transfer tax $2,000 Selling and closing costs as a FSBO Finders fee Attorney fees $1,000 Mortgage tax Advertising $0 Repair material and paid labor costs $90,000Termite Inspection Transfer tax $0 Project Duration (in months) 8Total Purchasing Closing Costs $6,000 $0 Investment return (profit) $40,000 $1,000 Cash Return on Investment 11% Selling and closing costs with Broker commisions Estimated ARV (conservative) $410,000 Attorney fees $1,000Notes Transfer tax Carrying costs per month Mortgage $1,000Total selling Closing Costs $1,000 Taxes $660broker commission $16,400 Electric $100 Fuel oil $200 Water Total working capital required $352,600 Homeowners Insurance $208 Monthly carrying costs $2,168Maximum Allowable Offer $239,256 Total Monthy carrying costs over project term $17,344Offer Gap to list Price $260,744 Market Statistics Senario 1 Senario 2 High Price Number of Points ,400 0 Low Price Interest rate/yr , ,000 Median (middle) list price Loan to Value Mean (Average) list price Loan amount $70, ,000 Count Total cost of Investment based on project duration 7,000 4,667 Median taxes Adjusted offer price $232,256 $234,589

25 How to do this? Audience Review Comparables On the Market Closed transactions Expired listings Number of Days on the Market Price reduction history Mean and Median prices

26 Leverage off of other Investors experience Your own experience On-line research Realtors (your peers) Seeing Inventory Going to Open House events Driving the neighborhood Knowing the market will give you the ability to respond quickly!

27 This is the area where things can go seriously wrong! Help from your Contractors Get estimates Some may charge you Having layouts priced utilize home improvement store services Leverage from prior project costs

28 Have a Standard Price list Small, medium, large kitchen Roof replacement by model Cabinets (per foot) Countertops (per square foot) Appliances Electric upgrades Note: your Standard Price List may have a few levels based upon the various markets you are in.

29 Reuse style and colors from previous projects Saves time selecting materials You know the how your choices will look You may be able to use leftover materials from past projects Easier to estimate rehab budgets Make sure to stay current in your design selection You may want to enlist the assistance of a Interior Designer

30 General Contracting fees Materials Equipment and appliances Labor Design and drafting Inspection Permitting Expediting

31 Insurance Cost of money (interest payments to lenders, Partners, or Investors) Real estate taxes Utilities Accounting services Security Payroll Maintenance Lawn and landscaping Snow removal

32 The time between the Closing on the purchase and the Closing on the sale of the property The longer the hold time the higher the Hold Costs Total Hold Costs = Monthly Hold Costs x # of months held Time really does cost you money in this business!

33 Attorney fees Points Bank charges Real Estate Taxes Credits Fuel re-imbursement Transfer Tax Mortgage Tax Recording fees

34 Percentage of Investment Return on Investment = Profit / Capital Invested Profit Example: 10% (ROI) = $20,000 (profit)/$200,000 (Capital) Fixed Dollar Amount Based on complexity of project Level of Risk Economics of Scale Low investment lower return expectations High investment higher return expectations

35 Real estate commissions (always add these costs in your MAO calculations) Earn sales commissions on your own investments You should always list your own properties when practical Advertising Hard paper ads Website Video and Photos

36 Start to develop your rehab plan Break it down to specific milestones Develop design layouts Secure your Contractors Shop for your insurance Pick out material Initiate a tax grievance if applicable Start any building permit applications These tasks should be part of your Standard Operating Procedures

37 Secure your insurance Arrange for utility service and account changeover Have your Contractors ready to Hit the ground running Walkthrough Inspection Has anything changed since Contract

38 Secure the Property Add a security system and exterior warning signs Change all locks Make sure windows can be secured Check on the property often Meet the neighbors, exchange contacts Try to avoid making the property look vacant

39 Why is this important? Audience Helps to identify if you are performing to plan Provides the visibility to adjust the plan as required Essential for coordination among Contractors, material deliveries, and inspections

40 Word Statement of Work (SOW) Letters Lists Excel Reports Graphs MAO spreadsheets Project Project Scheduling and Management QuickBooks Financial Tracking Taxes

41 Why? Audience Helps with your tax preparation Your Investors or lenders may require it Provides you with the visibility to make sure you are performing to plan and to adjust accordingly If over budget You may have to reduce the scope of other work Hit your reserve budget or profit You may need to consider sweat equity Need to bring in more un-planned capital If below budget You may want to add in some of the improvements from your Like to Do list Wait until you have passed the critical tasks first

42 When possible, do all demo at the start of the project. The sooner you know about unexpected work scope growth, the better Typical Surprises you may find WDO damage Mold Poor insulation Unsafe electrical Plumbing not to code or bad

43 Electrical Rough-in Outlet layout per cabinet plan Lighting layout per plan Appliance power feeds Plumbing Rough-in Water feeds and drain locations Make sure you have base cabinet drawings Shower body Toilet bowl drain flange location Framing Rough openings for doors and tubs Cabinet layout check ceiling for level Wall modifications

44 Will be used in the development of your Credibility Package Videos can be uploaded to sites like You Tube Used to attract your Investors Can be helpful in locating wires and plumbing Helps to justify you do not need a permit Showing your buyers the full scope of work completed You may not want to show some initial pictures to buyers Will assist with Appraisal on the back end Justify large variance in price from when you purchased it Justify price sales based upon comps

45 Use recommendations Conduct your Due Diligence Make sure they are licensed and insured Check references Contact local government and the Consumer Protection Agency for complaints Conduct an internet search Use Contractors who are members of national trade organizations (like NARI)

46 Using a General Contractor They will coordinate and supply all of the various trades Provide you feedback on schedule and milestones Good option for Investors who lack time or skill May cost you a premium (10-20%) Your role is managing the General Contractor Self-Manage You will need to select, deploy, and coordinate all of the trades Knowledge of the construction sequence is essential Must have time availability (you or partner) May take you longer to complete project Blended variation You are directly managing only a portion of the work scope

47 Does their work quality meet your expectations? You can address problems in real time Eliminate rework or accepting a bad job Many Contractors lower their quality bar with Flips Are they performing to schedule? Do you need to adjust downstream Contractors (pull in or push out) See who is actually on site Provides an opportunity for the contractors to speak with you on any issues Helps to build a solid relationship

48 Try to work things out Always be respectful don t loose your cool! Meet with contractor management to discuss issues Let them loose How to reconcile payment due Get receipt of payment/lien release An itemized statement of work is essential here Have a back-up plan You may need to use your second or third choice contractor Take legal action

49 Make them per Contract (per milestone) Pay promptly Next phase may not start without payment You must inspect the work prior to payment Pay only after town inspection is completed if applicable If anything requires rework, hold back progress payment No final payment until everything is completed and inspected! Pay by check when possible Get a Lien Release from all Prime and Sub Contractors If paying by cash, have a signed receipt Cost accounting/tax preparation

50 Lists the work scope you want to have quoted Break it down to logical tasks Add any expectations (start date, schedule, debris removal, etc) Have it itemized Makes it easier to compare quotes You know how much to subtract if you decide not to do the specific task

51 Firm Fixed Price Price is established before work is started Could have contingencies for unexpected work growth Time and Material (referred to as T &M) Price based on the time and the cost of materials Oversight is critical here Make sure you understand you know how they charge You may not know your final cost until the job is completed Is a good option when addressing many small tasks

52 Always try to have your Contractor include it They take liability You may want to select and purchase the designer items (Plumbing fixtures, lighting, tiles, appliances, etc) Avoid special order items when possible Inspect materials upon delivery Try to coordinate deliveries when materials are Actually needed They can be in the way Prevents damage Avoid risk of theft

53 Replace Outlets, switches, and covers Heating Baseboard use blanks or vinyl Worn molding Worn carpet and flooring Doors and knobs Cabinet knobs Shutters Front door Garage doors Paint tired or bad color rooms Seal Driveway Add plants and flowers Add fresh mulch Paint tired or bad colored rooms Seed lawn Cut back or remove overgrown shrubs Power wash siding, deck, and driveway Clean tile grout Update faucets Update/add lighting Copyright 2015 by Carl Schiovone, all rights reserved

54 Leaders and gutters moving rain water away from foundation Grading of soil Broken or missing windows and screens and sealed correctly All electrical outlets and switches working and properly grounded Doors close and lock properly Having a home inspection done when you purchase the home can be very helpful Mold and Asbestos Plumbing leaks Insulation insufficient WDO Foundation cracks HVAC end of life Faulty wiring Roof end of life Chimney flashing and pointing Remove any safety issues Loose railings Broken walkways or stoops Copyright 2015 by Carl Schiovone, all rights reserved

55 FSBO If you are a RE Professional, make sure your Broker is OK with selling on your own (remember to disclose) Using a RE Professional Make sure to offer competitive if not higher commissions Offer bonuses Make sure they do Broker and public Open Houses

56 Effective marketing Exposure On-line Listing databases Accessibility to show Pre-sell High quality photos and videos Sell on the monthly payment Generate a flyer (have your legal Board Rep. and Broker review this) Compare with renting

57 Offer buyers a home inspection report (savings to buyer) Have an appraisal on hand This is a great way to show buyers equity Buyers standing by from your general marketing Interested Buyers Left-over from prior projects Make sure your Buyers are solid Pre-approval by your Bank Take back-up offers Offer not considered accepted until in full contract

58 Priced below the market competition You can have the listings of other homes available Offer to contribute to Closing Costs Offer a home warrantee

59 Rehabbed homes are vacant Some buyers can t visualize room size and layout Can have a wide cost range You can also add inexpensive touches Towels Shower curtains Place settings Stools

60 Benefits Great way to reduce Hold Time Possibly eliminate sales commissions (lower price or more profits) Can have buyers select final touches Caution! Will they like the final product quality? Show them a completed project or photos You must be in Contract before agreeing to special requests Make sure special requests will be acceptable for open market Make sure they are a strong buyer and pre-approved for a mortgage (watch out for approval deadlines)

61 Add sign on property to Pre-sell the property (if you are not ready to show it, just collect names) Attract Investors Get more deals Home For Sale Pardon Our Appearance While We Renovate this Home For information on how you can invest in real estate call us Today! We Will Buy Your Home For Cash and Fast Closings (631) Your logo/your website Seller is a LSA

62 Record your Deed from your purchase as soon as possible Pay to have it expedited Understand seasoning requirements of your buyers bank before entering into Contract You may have to show rehab receipts Take plenty of before and after photos Multiple Appraisals may be required

63 Have your Attorney and Realtor monitor progress Push to get that appraisal done as soon as possible May need to renegotiate sales price Seller may be willing to take short appraisal (with bank approval) May kill the deal Suggest the buyers use the Title company you used on purchase (can save them money and time) Work on issues from Home Inspection results Keep property looking good Check on it frequently Keep those toilets flowing!

64 Conduct your After Rehab Open House Nothing is better than seeing results in person Review project scope and results Overview of your business model and goals Post before rehab pictures Invitees Bankers Your personal and business network Realtors Potential lenders and Partners Take pictures and videos of event

65 What to do with the big closing check! Repayment of Lenders and Investors Pay down lines of credit Pay final bills Pay down credit cards Invest in marketing Reserves for the next project Invest in your skills development Invest in business development and equipment Your profit

66 Appliances in working order Heating and cooling systems functioning Confirmation that any repairs found during the Home Inspection was completed (you may want to have this reviewed before final walkthrough if significant) Seasonal features operational (may not have been operational during the home inspection) Sprinklers Pools Spas Don t forget any final readings of fuel

67 Wrap up the financial books Better to do this now than wait for tax time Great opportunity for implementing your Standard Work Make sure any insurance refunds are received Make sure all final utility bills are paid and confirm utilities are out of your name Cancel or switch over any service contracts

68 Review and document your project Lessons Learned What went well that you want to repeat What specifically needs to change on the next project Continue to do the right things Update Procedures and documents accordingly Send thank you letters Contractors Attorneys Realtors Bankers Buyers Thank them for a smooth transaction Request referral letter Ask for help in locating other properties

69 Attract More relationships More investment opportunities Investment capital and loan providers Partners The Power Brokers Before and After Rehab Open House Events are a great way to build your Credibility

70 Includes: Business Resume Financial performance of projects Include in-process and completed projects Before and after rehab pictures Business Plan Testimonials and Letters of Reference Must be professional looking

71 On Your Own Flip 1 Flip 2 Flip 3 Flip 4 Flip 5 Flip 1 Flip 4 Flip 7 Flip 10 Flip 13 With The Help of Others Flip 2 Flip 5 Flip 8 Flip 11 Flip 14 Flip 3 Flip 6 Flip 9 Flip 12 Flip 15

72 Using the wrong Contractors Overestimating the ARV Underestimating hold time or costs Poor project management Underestimated rehab budget Bad marketing Buyers not qualified Too many buyer objections Market slow down

73 Having the right support team Reach out for help and advice Take back up offers from buyers Use conservative numbers in your estimates with proper safety margins Maintain constant Project Management oversight Have back up options for your Contractors Have an Early Exit strategy if needed Have capital reserves Deep Due Diligence

74 Property Insurance Builders Risk Vacant home Liability Building Your Business Shield Determining your business entity How you are taking Title? Could have loan implications Make sure to Consult with your Insurance Agent, Accountant, and Attorney

75 Purchase Price Estimated at time Actual $223,000 of purchase Rehab Costs $75,000 $84,072 Holding Costs $15,600 $13,891 Resale Price $360,000 $385,000 Legal, $21,400 $20,986 Commissions Profit $25,000 $46,900 Return On Investment 14% annualized 26% annualized Copyright 2015 by Carl Schiovone. All rights reserved

76 Schedule Milestone As Planned Actual Purchase Closing Date June 1 st June 1 st Rehab phase completed and October 1 st October placed on the market 12 th Accepted offer and in Contract November 1 st October 26th Expected Closing January 1 st December 1 st Number of days on the market 31 days 12 days Total Project cycle 7 Months 6 Months Copyright 2015 by Carl Schiovone. All rights reserved

77 Create your Business Plan Get your capital in place Identify your targeted market (based upon spend plan) Create your skills development plan Create your Daily Action Plan Assemble your Contracting team Assemble your Professional Support team Get your SOP s in place Statement of Work MAO worksheet Project Management tools Property Checklist Start to see properties and make offers

78 No need to re-invent the wheel! Success leaves clues! Leverage off the experience and knowledge of successful Investors, Coaches, and your Support Team

79 The tragedy of life is not in the fact of death, but in what dies inside of us while we live. -Norman Cousins Embrace your full potential and start your change today!

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