HOW TO FIND, INVEST AND FIX HOUSES FOR PROFIT Thanks for downloading this PDF. At some point in the process of finding, fixing and flipping houses, all investors are going to at least one problem for which their personal experience hasn t prepared them. Experience is the best teacher. We can t predict every problem you ll encounter. What we can do is give you a proven formula, a step by step process and real world advice based on experience. houses is one of the best real estate investing strategies available. WHY FLIP? generates cash. is a short-term venture. works in any market. can be done on the side, part-time. doesn t have to require a lot of your own money. is available to anyone. Continued on Page 2 >>
PART ONE: FIND A good investment property possesses these three elements: 1. The house needs updates or repairs. 2. It is in a desirable area to live. 3. The owner is motivated to sell. It is essential to target the right neighborhoods and become an expert on properties within them. This is where a real estate agent can assist even the best investors can make avoidable mistakes when they invest in unfamiliar areas without doing enough homework. The Five Neighborhood Targeting Criteria 1. Proximity of the neighborhood to your work/home this matters more if you plan on doing the work yourself/ want to regularly check up on the property. 2. What homes in the area are selling for. 3. What approximate percentage of the homes on the market are selling? Days on market (DOM), months of inventory (MOI), return on investment (ROI) market conditions etc. 4. Age of homes in neighborhood. 5. Overall neighborhood appeal (Crime, schools, hospitals, parks, shops, restaurants, transportation etc.) Where to find investment properties? 1. Within your own neighborhood 2. MLS this is where myself or another agent can help. 3. Classifieds/Kijiji 4. Foreclosures The Seven Key Areas of MLS Information PART TWO: ANALYZE 1. Square footage (look at price per square footage) 2. Property taxes 3. Age of property 4. Sales prices (historical) 5. Days on market 6. Features 7. Amenities You want to invest in neighborhoods where a renovated home wont sit on the market for months (given it s priced right). When you do target a geographical area, you ll want to have a great understanding of the active homes for sale, the pending sales in the neighborhood and ultimately understand why certain homes in the neighborhood aren t selling.
I want to quickly talk about the age of a home. If the house is too old, the repairs may be too costly and there may be material latent defects. You want to avoid major structural or environmental issues - examples include: Fire/water damage Lead paint Foundation problems Asbestos Termites That is to say, an older property in an established neighborhood could translate to higher equity. In my opinion, the home should be at least 20 years old. Look for homes that show some signs of aging dated paint, siding, exterior trim, roof, windows, garage, driveways etc. These are great opportunities for improvement! Determine Selling Price 1. Analyze comparable properties recently sold (within the last 3-6 months), only properties in the neighborhood, similar square footage, layout, age etc.) 2. Drive the comps condition, curb appeal, street, proximity to infrastructure. 3. Read the market seller s/buyer s market, mortgage rates, time on market, developments etc. 4. Check with experts myself or another professional can help set the ideal price to bring in maximum exposure. Our expertise and specific knowledge can help you save. Improvement Costs Per Square Feet Three ways to estimate improvement costs 1. Hire a professional thorough, accurate, speedy, costly. 2. Do it yourself good option if you ve done your homework think individual material and labor costs. 3. Rule of thumb rough, quick estimate. The FLIP Rule of Thumb Guidelines Basic Standard Designer 1. Make-Hab $3 $5 $7 2. Rehab $12 $15 $18 3. Remodel $20 $25 $30 4. Restructure $35 $40 $45 For example, with a standard rehab on a house with 1,000 square feet, your rule-of-thumb cost of improvements would be $15,000 (1,000 x $15).
Make-Hab least amount of work. Rehab most common type of construction cosmetic improvements with minimal permitting and inspecting Remodel think replacing. Restructure everything in the first three categories plus major layout changes. Quiet Costs These costs sneak up on you unexpectedly. Things you don t necessarily think of at first that can eat up your profit. 1. Buying Costs the costs to transfer ownership of a house. 2. Holding Costs various costs that build up during the time you own the house. 3. Cost of Money the costs associated with borrowing money (loan amount, duration, interest, terms) 4. Selling Costs the costs of putting your home on the market (agent commissions and closing costs are the main) Determining Your Return on Investment 1. Base Profit 10% of eventual selling price. 2. Rehab Risk Profit improvement costs / square feet. Your risk is tied to the complexity of the project because with complexity comes unpredictability. Eventual Selling price - improvement costs - quiet costs - minimum profit - maximum offer
Financing PART THREE: BUY 1. Pay in full 2. Attract investors must prove the risk they ll be taking is worthwhile and profitable. You need to accurately project costs, selling price, improvement costs, and the overall volatility of the market. Be prepared. 3. Borrow cash needed either borrow from an institutional lender (banks) or private lender. 4. Partner with an investor share the profits by sharing the costs. You may have to figure out percentages if you re investing different amounts, or putting in more work make sure you trust and know your partner. Making an Offer Establishing Trust 7 Ways to Establish Trust 1. Aware of the seller s situation 2. Value proposition 3. Closing ability 4. Improvement costs 5. Quiet costs 6. Expected profit 7. Cost to sell Make the Offer Six Components of Your Offer 1. Purchase price 2. Deposit (usually 5%) 3. Clauses and conditions (very important to understand all the different clauses and conditions based on scenarios) 4. Closing costs (common to pay some of the seller s closing costs) 5. Closing date 6. Acceptance date Close Ten Steps to Closing 1. Set up escrow (a neutral third party holds the money in trust) 2. Arrange for inspections (assess the safety, function and condition of property) 3. Confirm improvement cost estimate (get an estimate from a contractor or do it yourself) 4. Order property survey (boundaries, rights of way, easements etc.) 5. Request settlement statement (amount of money you pay the seller) 6. Prepare financing (pre approved with a bank or mortgage company) 7. Review title search report (free title or whether it is free to be transferred to a different owner) 8. Arrange property insurance (liability, hazards) 9. Prepare for improvements (get started as soon as possible to reduce holding costs) 10. Sign closing documents (not complete until both parties sign documents