This is the second episode in our seven part course: ELEVATE Your Flip with Derek Marlin.
We’ll tackle real time Denver market trends this winter and ways it affects your flipping strategy. We will also discuss the key investment metrics to use every time a prospective deal is evaluated, so you are driving in the best lane for success.
This episode covers:
- Keys to success: Acquisition price & ARV
- Investment Metrics: ROI, $/Day, Net Profit, Daily Burn
- ELEVATION Deal Analyzer spreadsheet – Free download
- Returns vs. Goals: Buying with cash, line of credit/ HELOC, or hard money
This post is part of the ELEVATE Your Flip Course. The course gives you an introduction into fix and flipping properties in Denver.
Three Learning Options:
- Listen to episode “#128: Flip #2 – Denver Flip Market Overview & Deal Analysis” on the Denver Real Estate Investing Podcast
- Watch the YouTube video at the bottom of the page.
- Read the blog post.
Quick Denver Market Overview
- Still strong sellers market
- Entering cyclical seasonal slower time
- As a buyer, waiting for the right deal for you is important
Note: Our plan is to do a quarterly podcast to review one or two deals and discuss curent Denver market updates.
Keys to Success
How do you set yourself up for success? This is largely determined by the price you pay for your property (acquisition price) and what you sell it for on the backend (ARV – after repair value – price). We use comps to determine what a fair ARV will be for a property.
Our 4 key guidelines or investment metrics that define a good deal are:
- ROI (Return on Investment on a % basis)
- Net profit
- Daily burn – how much are you spending every day?
- $/day – what is your net profit every single day for how long you hold a property? This helps you decide which property to keep and which property to sell. It is the estimated net profit divided by the total number of days you hold the property (close to close).
The common rule of thumb flipping formula of “purchase price = ARV x 70% – repair costs” doesn’t work in the Denver market. You can be successful and flip in every market if you refine your business model for that specific market. You don’t ever want to enter into a bad deal just to be busy. You need to be analytical and realistic in current market conditions. General one-size fits all rules aren’t practical.
Deal Analyzer Spreadsheet
- Download our fix and flip deal analyzer spreadsheet
- Color coded green, yellow and red to give quick visual cues
- There are multiple parts to the spreadsheet including
- Investing metrics
- Rehab and financing costs
- Real estate costs
- Example flipping property #1
- Bought 2,150 square foot townhome property in May
- Originally scheduled to finish in late June (90 day hold)
- Actual hold time: 110 day project close to close (4th of July holiday and fell out of contract once)
- Figured $33/square foot for renovation cost (SF is closer to 35-40/square foot)
- $70,950 was rehab budget (2,150 x 33)
- Need to stay on top of current market trends (labor costs are increasing in Denver)
- Purchase price = $289,000
- ARV estimation = $390,000
- 5-15% contingency budget
- Looking at the four metrics
- ROI: looking for 12-14% on a per project basis. This example was 11.19%
- Actual profit: $39,096 on this property.
- Anything over 35,000 is green for us for townhomes/condos
- Anything over 50,000 is green for SF homes
- 25,000-35,000k profit range is townhomes/condos yellow zone
- 40,000-50,000K profit is SF yellow zone for us
- Daily burn was $58 for this property. This is how much money you’re spending divided by how many days you have the project (close to close). This is an important metric for more expensive homes.
- $/day = $355. This is the net profit divided by days property is held (close to close); 110 day project (estimated at 90 days). Over $400 per day is green for us.
High level quick rules of thumb
- $100,000 spread between purchase price and ARV for condos/townhomes is green for us
- $140,000 spread for SF. (1,500-2,000 square foot; 3-4 bdrm; 2-3 bath) spending ~40-70K in rehab. Try to stay below $500,000 for SF ARV. Sweet spot is $450,000 or less.
- If a property at initial glance appears to create this spread, we move on to the next step..
- Plug property into spreadsheet and factor in length of time
- The important data is buy price, sell price, rehab cost, and how long the project will take.
- If the property still looks good, then we look at comps to dig into our estimated ARV.
- If comps support our ARV, then we walk the property. If property is on the MLS, we will try to get it under contract before we look at it.
Having a frank conversation with the listing agent is key. We may give them a range of where we think we will submit an offer to find out if we are even close. If the price is firm, we may ask the agent to keep our number and call us if something changes. We also try to find out what else is going on with the seller. Is there a problem we can solve for the seller? This type of conversation and willingness to help solve problems for the seller have paid off for us in the past.
That does it for the second webinar in our seven part course. The next one will cover finding deals in Denver.
Go to the Denver Fix and Flip Investing Consultation page to learn and more and schedule a call.
Webinar recording – Watch it here or listen on the podcast.