When we get a lot of calls from investors looking to flip houses, often after watching TV shows or youtube gurus from other countries – there are a lot of harsh realities we have to hit them with. Now, a coaching company we always want to be motivational as possible while also giving customers the straight goods on what the business model actually looks like.
Firstly, the key is to get the property below market value. Yeah yeah we have all heard that before….well my point here is that below market value does have a range, who decides how low is good? I would suggest to you that it depends on your flip type.
We like to break flipping into 3 categories:
Level 1 – mostly cosmetic changes, appliances, trim, fixtures and some minor overhaul of bathroom components
Level 2 – some structural changes such as removing a wall to create an open concept or updating plumbing and electrical, and finishing a basement.
Level 3 – Fully gutting a house, adding additional square footage through additions/second levels, adding an ensuite, carriage houses, workshops.
These are all flips, but take very different levels of capital, experience, holding costs and require very different skill sets. Lastly, they are going to be sold to different end user market segments.
This factor is an often overlooked element of flipping, who is your buyer going to be? If that pool of buyers who will pay top dollar for the renovated product is small you may have longer holding costs and have to discount the price further for a quick sale.
So, first thing is the get the property below market – a good goal for that is to have 50-100% of your renovation cost discounted on the price, which is a good argument for value when speaking to sellers because those things need to be updated, fixed, or changed.
The second thing is to pick a scope of work and budget and stick within it -that also includes a time budget, if your project goes longer than expected that can break your deal or crush your profit margins. Having the work done on time is equally important to keeping it on budget, sometimes more important if you miss the busy season in your market where buyers are most active. (terrible time to sell is nov-jan especially in any cold climate areas)
Lastly, the flipping business model is about volume not so much about the margin per deal. If you are going to look at this like a business your job as investor is to get product, improve it, and sell it as fast as possible. One of the biggest mistakes I see new investors make is they get emotionally attached to both the property and it’s target profit – targets are just that something to aim at….you don’t always hit the bullseye but you keep shooting.
Keeping the property for sale at the wrong price will slow down the velocity of your flipping business, sell it fast for the best price you can get and get onto the next one. I am not saying sell at a loss, find a way to rent it or do a rent to own if the market turns against you. The business model is about doing a bunch of deals in a year, not waiting for the 100K profit deal that may never come, or if it does you might only do 1 deal that year, when you could have done 10 deals at 50k each which would be 500,000 – which would you rather have?
If you have questions about how to get into flipping houses in Calgary/other markets (the skills are the same) or how to expand your flipping business contact us to book a discovery call we are here to help.
To your success,
Tim Reid
-Respect the Hustle