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Flipping 101 - Is it time to quit your day job?

Contributed by Team Hazzi

For my very first article I felt it made sense to write about something that has had the biggest impact on my own life financially and that’s the fine art of flipping houses.

Many of you have seen those “Flip This House” shows on the real estate channel and thought to yourself, “I could do that!”

The fact is many people just like you, right here in Kelowna, do this as their primary source of income. In the real estate flipping business, an eye for what looks good, some DYI skills and of course a little investment capital can be put to extremely good use.

This is without question my favorite aspect of the real estate business to consult clients on, as this is something I have not only grown up with thanks to my folks, but have engaged in for over a decade in numerous projects every year personally. I find acquiring and rehabbing property incredibly rewarding and it’s my pleasure to share what I’ve learned.

What is a Fixer Upper?

For those unacquainted with the term, a fixer upper is real estate bought from distressed homeowners, fixed up (hence the term fixer upper) and sold at premium prices. In a way it is like finding a jewel in the rough, polishing it, and sending it back to the market for a profit.

Many have gone on to be millionaires from this kind of venture. If you look at it, theoretically, it makes a lot of sense. However, no matter how attractive it may seem to be, this type of business isn't without its risks.

Fixer Uppers involve a fair chunk of money, assumptions and risks. You assume that the real estate you are buying can be fixed up and sold at a higher price. You also assume that the house can be brought up to a state where it is attractive to those seeking a home to move into. This is why having a qualified expert on your team is so incredibly vital to your overall success.

1. Goals – You will have to set realistic goals for your business. Fixer upper homes can earn a good deal of money, but it wouldn’t hurt to set a conservative figure as you learn the ropes. Sometimes conservative is good – especially when you are just starting to get the hang of a venture.

Some people set unrealistic goals, like aiming for $100,000,000 at the onset, hoping they can hit a home run with one extensive project and sell at an incredible return. However, it would be better to keep with a realistic expectation. Most fixer uppers will agree that $100,000 is a good amount to expect per year in a fixer upper venture. This figure is taken by considering the sale of 3 fixed up houses with a cut of $30,000-$35,000 per house.

You will also have to consider what this business will mean to your life. Will you give up your day job just to focus on this business? Will you do this on your own free time? Or will you try a little of both to see where you do best?

Here is an illustration of a successful flip:

The tried, tested and true formula for successful flipping

First, there are 3 ingredients to successful flipping
1. Cash- Funds available to you for down payments and renovations
2. Credit- Your ability to obtain the necessary financing for the project
3. Competency- The actual design and skilled labor

If you don’t have all three, partnerships are a great idea when it takes more than one person to complete the 3C circle.
Eg: Party 1 has Cash + credit, Party 2 has competency
Party 1 has Credit and 1/2 cash, party 2 has Competency and 1/2 cash
Party 1 has Cash and party 2 has competency and credit

Know your numbers
1. Aim for a minimum profit margin of 10% of the Purchase price
2. Budget 10-15 dollars per sqft. of the property
3. Include professional fees 3.5-4% of future sale price
4. Carrying costs = Interest cost + utilities + property taxes for holding period                                             
5. Property transfer tax is 1% on the first 200k and 2% on the balance

Then use these numbers and work backwards to find the appropriate purchase price

Illustration of Success
Sales price $244,000
Reno 10$/sqft $13,000
Professional fees $12,500
Carrying costs $ 3,000
Land Transfer tax $ 1,800
Profit $ 33,700

Purchase Price $180,000

This is really just the tip of the Iceberg. Castanet and Vantage West Realty have partnered to bring as much value and as many resources to our readers as possible.

Free Downloadable PDF’s include: Project estimator work sheets, The 50 steps to flipping, and tips on where the biggest return on investment can be found for various renovations.

More Investment Real Estate articles

About the Author

AJ is the owner of Kelowna’s downtown boutique firm, Vantage West Realty. The firm prides itself in breaking the mold when it comes to how they practice real estate. Taking a consultant's approach rather than the tired, old-fashioned sales approach of selling kitchens and baths, they pride themselves in having a level of expertise not found in a classroom.

Having been a student of real estate through two market cycles, AJ has come to see an absence of truly qualified professionals specializing in investment real estate. This has become AJ’s role within the firm and the community, to consult clients on foreclosure sales, flipping, positive cash-flow, the benefits of lease option and other creative avenues that most agents completely ignore.

AJ is a firm believer that the current market is rich with opportunity and that there is a real need for a consultant who 'speaks the language' of the investor large and small, and understands their wants and needs. For example, many realtors would squirm from having to make low-ball offers, worried about insulting sellers and tarnishing their own reputation. AJ consults his clients to make the offer that makes sense to them based on their goals. If it’s a flip, then the mathematics on the firm’s handy 'profitable project work sheet' sets the max dollar. The same for cash-flow, if a client has a rate of return in mind, then that dictates the price.

With a well-deserved reputation as a real estate renegade, Hazzi is definitely an out-of-the-box thinker; a proactive agent willing to get creative and produce a solution during challenging transactions. He is very excited about the market we will see in the next 10 years, and feels that it will lend itself very well to his unconventional style.

AJ is an agent who practices what he preaches. He has built his own real estate portfolio up to include development property, resort property, rentals, fix and flips and cash flow properties. Arming his clients with the knowledge and confidence to invest has enabled many of them to build impressive net worth and passive income. His goal is to impart on people especially of the the X and Y generation, that depending on RRSP’s and Government Pension Plans to look after us down the road is risky business. Most people don't realize that as little as one or two properties added to your real estate portfolio now can provide a safe, cushy retirement in the future. The sky really is the limit.

AJ's past clients and business relationships are his largest asset. His business has been grown almost exclusively by referral. To hear what AJ Hazzi's clients have to say about his service view the testimonials.

For more details or to reach AJ Hazzi, please visit www.vantagewestrealty.com
Contact: [email protected]
cell: 250.864.6433

The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

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