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Four Flippin’ Boxes

Four Flippin’ Boxes. Arizona Academy of Real Estate 9 /12/12. Marty Boardman. Owner and Chief Financial Officer of Rising Sun Capital Group, LLC – Gilbert, AZ, licensed Realtor since 2007

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Four Flippin’ Boxes

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  1. Four Flippin’ Boxes Arizona Academy 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: Strategiesfor 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. Four Flippin’ Boxes

  5. Choose Your Own Adventure • 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 Expect from this Class • This is NOT a plan for creating real estate wealth. • This is a blueprint for developing your own plan.

  7. Begin with the End in Mind • What do you want? • 1-3-5 year plan • Cash chunking

  8. Box #1: Acquisition “The problem is we are consistently inconsistent.”- Larry Martel – KPHO TV5 Reporter

  9. Acquisition Topics 1. Strategy (Niche) • Analyzing Deals • Writing Offers • Common Mistakes

  10. Strategy (Niche) • Target Property • Target Neighborhood • Target Price Point • Target Rehab

  11. My Niche • Single-Family detached homesonly • Minimum 3/2/2 • Tile Roof – Stucco Exterior • Valley-wide • $120,000 - $350,000 acquisition price • Light to advanced cosmetic rehab

  12. Analyzing Deals • Every investor 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 • Do it like an appraiser would • Three approaches to analyze property value: • Sales Comparable Method • Income Method • Replacement Cost Method • For residential property, stick with Sales Comparison Method

  17. What Is Sales Comparison? • 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 I Know: • 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 Else I 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 I Don’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: Specs on 4708 E. Thunderhill

  23. Step 2: Find Comps

  24. Step 3: Compare Specs Valuation Adjustments:

  25. Step 4: Normalize Values & Average Adjusted Values: ARV Range Low Value (ARV): $220,272 Average Value (ARV): $246,078

  26. Step 5: Factoring Demand • 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: Factoring Demand (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 Fixed Costs • Selling Costs • Commissions • Closing Costs • Home Warranty • TermiteTreatment • Purchase Costs • Inspection Costs • Closing Costs • Lender Fees • Holding Costs • Mortgage Payments • Property Taxes • Utilities • Insurance

  31. Marty’s Typical Fixed Costs

  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

  36. MPP = $270,000 – $23,730 – $27,000 – $12,025 PUTTING IT ALL TOGETHER

  37. MPP For 4708 E. Thunderhill MPP = $270,000 – $23,730 – $27,000 – $12,025 MPP = $207,245 = 77% of ARV

  38. MPP for 4708 E. 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 • Short Sales (MLS) • Bank-owned • Auction • Unlisted pre-foreclosures • Other motivated sellers

  40. Writing Offers 5 Decisions Prior to Writing Your Offer: • Cash or Financing • Purchase Price • Earnest Money • Closing Costs • Contingencies • Due Diligence Period • Financing Contingency • Appraisal Contingency

  41. Short Sale Offers That 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 That Get 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 the Auction • 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 • Clouds on Title (Auctions) • Assessments • Federal Tax Liens • Deed Transfers • HOA Issues • Getting Financing in Order

  46. Box #2: Rehab

  47. Rehab • First Steps • Team Building • What to Fix • Estimating Costs • Cost Control • Common Mistakes

  48. First Things First • Secure the property. 2. Get insurance. 3. Turn on utilities. 4. Meet with trades. • Determine repairs.

  49. Team Building

  50. What To Fix • Cosmetic Repairs: • Paint • Carpet • Appliances • Lights/Fans • Sinks/Faucets • Door Hardware • Outlets/Switches • Advanced Cosmetic: • Cabinets • Countertops • Doors • Windows • Roof • Gutters/Trim • Major Trim/Design • Mechanicals: • HVAC • Re-Piping • Re-Wiring • Advanced: • Foundation • Mold • Structural / Moving Walls

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