ocjamaat-flipping houses

FLIPPING HOUSES

Knowledge FoundationBooks: “Flip: How to Find, Fix and Sell Houses for Profit” by Rick Villani “Find It, Fix It, Flip It!: Make Millions in Real Estate-One House at

a Time” by Michael Corbett

TV Shows: Flipping Boston Property Brothers Flip or Flop

Agenda

1. Part 1: How to Find the Right House2. Part 2: How to Fix the Property3. Part 3: How to Flip the Property for

Profit4. Part 4: New Local Flipping Fund

Part 1: How to Find It

Where to Look: Neighborhoods “Buy the worst house on the best block” Target neighborhoods and become experts in them

Should be close to you for travel purposes Definition of good neighborhood: Good schools, well-maintained front

lawns, garbage under control, low crime rate, 15-20% of homes recently fixed up, R-1 Zoning (single family, no apartment buildings), lots or real estate activity, more than 75% of sales to owner occupants, accessibility to stores and services, strong homeowners association

Also try: Fringe neighborhoods to good neighborhoods Neighborhoods in Transition (New stores, renovation projects, etc.) Older neighborhoods

Be wary of houses in newly developed cookie cutter communities (hard to make your flip stand out and not enough to need big improvements)

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Source: “Find It, Fix It, Flip It!”

Types of Houses“Cosmetic Fixer”

“Teardown”

“Downright Ugly House”


• Structural problems that are beyond repair economically (Foundations not on slab or concrete, Major shifting, bad floor plan requiring room addition, truss damage to the roof, major fire damage, illegal room additions)• Geological Problems that you can’t overcome (severe earthquake damage, unstable hillside near house, slipping or shifting due to soil erosion)• Environmental problems to run from (asbestos ducting, mold, faulty septic system or long sewer line to street, high levels of radon)

• No curb appeal, but lots of potential• Great bones• Little or no landscape• Maybe a few structural problems (i.e. sagging foundation)• Dark interiors with drapes/blinds• Upgrades needed in house systems• Dated kitchens/bathrooms• Rotting subfloors• Leaks in roof• Lots of small rooms

•Just needs a bit of cleanup, paint, landscape, redo the floors, scour the kitchens/bath with new appliances


Flipper’s Target

Doing the SearchMLS (Realtor Access Only): Identify average price per sq. foot and

the range of prices for different houses

Check expired/canceled listing report Days on market report – target houses

that have been on market for a while Do a keyword search on relevant

keywords: “handyman special’, “needs work/updating/TLC”, “Repair allowance”, “Assumable”, “Undervalue”, “Deal”, “As is”, “Motivated Seller”, “VLB (Vacant on lock box)”, “Estate sale”

Set up daily alerts (need to get before others)

Other: Searching in classifieds (such as

craigslist.org): Look for keywords like: “Handyman special”, “Vacant”, “Motivated seller”, “Must sell”, “As is”, “Needs work”, “Fixer upper”, “Estate sale”, “Needs updating”, “Great neighborhood”, “Charming”

Search the Internet for “For Sale By Owner” and then your city to see other listing sites

Hit the streets and note down any vacant or run down properties and look up the property owner and contact information in Tax Rolls/property tax records and contact directly with letter or phone call


Source: “Flip: How to Find, Fix and Sell Houses for Profit”

How to Choose the Right House Calculate your Profit Up Front:

Estimated Final Flipped Price: _________- Purchase Price of Home: _________- Purchase Closing Costs: _________- Estimated Fixit Costs: _________- Carrying Costs: _________- 10% Buffer: _________- Sale Closing Costs: _________- Capital Gains Tax: _________

End Profit: _________



Final Flipped Price In order to figure out the final selling price follow four steps:

1. Pull the comps Find similar houses in MLS that were: 1) sold recently (last 3-6

months), 2) same neighborhood, 3) same size (+- 500sf), 4) same age (+- 10 years), 5) same bed/bath (+- 1 bed/bath)

2. Drive the comps Based on visual factors rate each comparable with +1 (better than

ours), -1 (worse than ours) or 0 (same).

3. Read the market Future changes in housing prices

4. Check with experts Average your comps to get an approximate $ per s.f. and

average selling price



Other Variables Purchase Closing Costs:

Title insurance, inspection, survey, appraisal and documentation Usually ~1.5% of purchase price

Carrying Costs: Property taxes, insurance, utilities and maintenance costs Usually ~1.5% of purchase price

Sale Closing Costs: Real estate agent commissions, closing title, survey, appraisal, etc. Usually ~7% of selling price

Profit: Should be 10 to 20 percent of final selling price Plus risk associated with rehab complexity (generally base 10% profit

plus 1% for each $5/s.f in improvement costs)



Tax & Legal Costs Work with an Accountant:

Pocket up to $500,000 in profit tax free if married couple hold your property for two years or more and it has been your primary residence

Keep up to $250,000 tax free if you are single Less or even no capital gains on $250-$500K if you move from your

primary residence before 2 years due to special circumstances Own home for a year and a day, capital gains rate goes down Using Federal 1033 tax-deferred exchange program, sell a property

and roll your profit into the next one not matter how short a time you’ve stayed there, and pay no tax on it

One business setup (i.e. LLC) for all your flips or new business setup (i.e. LLC) for each flip



Your Dream Team Key professionals needed:

Real estate agent Lawyer Accountant


Part 2: How to Fix It

What to Fix? Divide improvements into Must, Should and Could:

Must: Absolutely required to sell Should: Usually flooring, countertops, trim, tile, lighting and paint Could: Amenities, openings, room conversions, additions, layout changes

When choosing what improvements to make need to identify what improvements are available in market and pricing constraints. Each improvement can be done at different design levels: Basic, Standard,

Designer or Custom finish level (www.flipthebook.com)


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Cost Approximations ($/sf)

Basic Standard Designer

Make-Hab $3 $5 $7

Rehab $12 $15 $18

Remodel $20 $25 $30

Restructure $35 $40 $45

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Basic Areas of ImprovementOutside: Curb appeal Landscaping Flowers Front Door Exterior painting Pathways and driveways Garage door Outdoor lighting Backyard & Grounds

Other Internal: Kitchen Master Bath and

Bathrooms Floors Walls & Ceilings Painting

Internal Systems:

Electrical Plumbing Heating and

Air Roof Windows

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Potential Lifestyle Upgrades Bad flow Underdeveloped living space Worst view Very little natural light An unwelcome entrance Undefined property lines No security system No backyard boundaries Noise Undeveloped structures

Hidden square feet Bad kitchen layout No outdoor living area Cement yard No income potential Borderline neighborhood Tiny master closets No home office Underutilized storage spaces No privacy Wasted yard space

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Your Dream Team General Contractor (licensed, insured and bonded) Subcontractors (Electrical, landscape, plumber, roofer, painter

etc.) Handyman (can work under GC license, otherwise you will need to

file with city for home owners permit yourself and get work signed off)

Design (sometimes get free help from home improvement stores) Yourself (limit to demolition, cleanup, landscaping, spot painting,

wallpaper removal, change out switch faceplates, replace door hardware; let other professionals do the rest)

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Estimates & ContractsTips on estimates: Difficult initially, then gets easier Pay contractor based an hourly fee

for walk through if required Call subcontractors

Interview three, pick one If they don’t show up to interview or

not responsive, find someone else Refer to Marshall & Swift guide (

www.marshallswift.com - $11 used on Amazon)

Make sure contractor bids include:

1. Line item bid of costs2. Material and labor

breakdown3. Materials detail4. Any exclusions5. Statement of insurance and

bonding6. Debris removal7. Completion time frame8. Contractor payment terms

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http://www.marshallswift.com/

Budgeting & SchedulingBudgeting Tips: Create more refined budgets as you

go. Initial at Big – 10% actual / 90% guess, Offer accepted - More refined, get

contractor/subcontractor input during escrow close

Final – Take your offer accepted budget and add an “Actual” column to track variances and overages/underages.

Update budget at least twice a week

Scheduling Tips: Plan ahead Order materials ahead Confirm your delivery

dates Keep contractors in

sequence (use HomeFixers 50 steps to rehabbing a house: www.flipthebook.com)

Only use in-stock materials

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Design Tips: Key Principles Keep it simple (traditional styles to not alienate anyone) Stay consistent (same styles all rooms and

indoor/outdoor): Cabinetry: same style and color throughout the house Countertops: same styles in kitchen and bath Carpet Window treatments: same style in all bedrooms Hardware: Door knobs and door hinges Lighting

Keep it neutral

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Design Tips: Lighting Lots of natural light Avoid window treatments (cost, less

light) Use dimmers (not just on/off) Use halogen bulbs Replace all switch plates, light switches

and electrical outlets

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Design Tips: Painting Type:

Flat: Walls, Celing, Stucco, Cement Semi Gloss: Kitchen Walls, Bath Walls, Woodwork, Cabinets, Wood siding,

wood trim Gloss: Doors

Ceilings: Always a shade of white, makes room look bigger Interiors: Choose one base color of neutral tone, then choose one shade

darker and one shade lighter than base color. Most walls will be painted lightest shade. Accent walls and adjoining rooms with one of the two darker shades (for example kitchen in medium shade and living room in darker shade).

Exteriors: Neutral earth tone base color for large surfaces such as walls, contrasting but complementary color for trim and accent moldings. Rich, strong third color for very select accent items such as front door

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Design Tips: Floor Plans Open floor plans Adjust non-load bearing walls Increase kitchen size if required Bigger master bath if possible Walk-in closets in master bedroom

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Part 3: How to Flip It

Staging Adding furnishings to make visitors associate with home:

Gives buyers a visual blueprint of what life will be like Makes empty space feel warm and inviting Creates proportion in a big room through groupings Makes a tiny room feel larger through right furniture Showcases positive features and downplays negatives

Tips: Keep classic and simple Make more expensive then everyday home furniture Bring your won, borrow from friends, second hand stores or hire a

professional stager

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Part 4: New Local Flipping Fund

Niyat

1. Help OC Mumineen start new businesses

2. Allow Mumineen with money in banks to earn a return on the money while taking risk and helping other Mumineen start businesses

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Management TeamManagement Team: Mulla S. Takhtawala:

Engineering background Experience managing $5M+ Masjid construction project

Mulla H. Kothari: Business background Real estate license/experience

Administrator: M. Khambaty:

Business/financial analysis background Landscape architecture construction experience

Construction Advisor: Mulla T. Campwala:

Licensed general contractor Multiple construction project experience

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Timeline

Start Offer Accept

ed/ Escrow Started

Escrow Closed

House for Sale

Offer Accept

ed/ Escrow Started

Escrow Closed

1-2 Months 1 Month 2-3 Months 1-2 Months 1 Month

6-9 Months

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Starting Housing Search Leverage realtors in Jamaat to help with housing search:

A. Hussain S. & R. Khambaty A. Sabir S. & S. Sikora

Possibly set 2 week proposal period then evaluate alternatives

Focus on off MLS listings (“Worst house on best block”) Target Neighborhood: Corona, Ontario, Chino, Pomona

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Target Neighborhood Corona, Ontario, Chino,

Pomona

Target

Area

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Sample #1: 1103 Francis ST #G

Condominium located in Ontario, CA (1,051 sf, 2 bed & 2 bath, built in 1980) – Listed at $111,000

Eventual Selling Price: $125 per s.f ($131,000)

Other Costs:Purchase & Sale Closing Costs: $11,000Carrying Costs: $1,500 Fixit Costs (need to confirm): $10,000

Potential Profit @ $10K: Max Offer of $98,000

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Address Square Feet Selling Price $/sf2321 Magnolia AV #14D2125 Magnolia Av2078 Mountain` Av2220 Smoke Tree Ln2033 Magnolia Av2321 Magnolia Av #10d2052 Mountain Av1602 Mountain Av #F1604 Mountain Av #9C

104610601200134610601146120010641064

$95,000$102,000$120,000$150,000$158,000$160,000$160,000$163,000$163,000

$91$96$100$111$149$140$133$153$153

Average 1132 $141,222 $125

Sample #2: 734 Saint Paul St.

Single family residence located in Pomona, CA (1,289 sf, 3 bed & 1 bath, built in 1949) – Listed at $161,200

Eventual Selling Price: $175 per s.f ($226,000)

Other Costs:Purchase & Sale Closing Costs: $13,700Carrying Costs: $2,400 Fixit Costs (need to confirm): $20,000

Potential Profit @ $20K: Max Offer of $170,000 if @$160,000 offer, potential profit = $30,000

= 15% return in 6-9 months (30% annualized)

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Address Square Feet Selling Price $/sf1429 Farrell AV 1321 Alvarado ST 1002 Colmar ST 980 Colmar ST 779 Saint Paul ST 954 Karesh AV 1002 Colmar ST 1356 Brewster DR 1076 Karesh AV

153312231223122510841254122313661254

$246,000$197,000$202,000$205,000$216,000$218,000$275,000$230,000$239,000

$160$161$165$167$199$174$225$168$191

Average 1297 $227,300 $175

Terms & Conditions Use existing LLC 50/50 Profit split between investors & management team

Referred to as norm in reference books Expenses paid for management team but no salary All decision making with management team

Investors are silent partners One flip at a time, then dissolve Minimum $20,000, no max. Profit payout based on % of

fund. Target Min. Fund: $200,000 Monthly feedback meetings for investors on progress

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Discussion Topics Using realtors (terms & conditions) Investment amounts Investor say-so

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