- Hey, welcome back to Nollan Mathias.
And today we are discussing flipping houses
and essentially how to analyze a flip in Canada.
And this is a topic that is something
that's real for us right now
because we have delved into flipping homes.
And this is something that we've
we've dealt with quite a bit with customers.
We finance them, we've worked on them
but we've never really actually gone into it ourselves.
And there's a few reasons why
and I'll tell you about that in a minute.
And at the end of this, I'm going to actually
take you through a real property
that we have actually bought.
And we're going to do a flip on
show you all the numbers, show you how we found it
show you how we analyzed it and show you why
we think this is gonna be a great long-term investment.
But before we get into those details,
do me that favor hit that subscribe button,
hit the notification bell
and please hit that like button, some more people
like you can see this video and leave me your questions
and comments about flipping houses
because this is a new topic for our channel.
This is something that we haven't gone through before
and I think it's going to be exciting.
So let's get into it, let's talk flipping houses.
So obviously longterm real estate has been
something that has been on my mind for quite a while.
We've done some seminars on this.
There's some videos from the past
couple of years on long-term investing
and my wife and I are really long-term
conservative investors, so our goal is to buy
as many properties as we possibly can
over the next 10 to 15 years,
put good quality renters into them
and have them paid off by the time
we're ready for retirement.
Basically what we're doing is we're creating income
in the future by taking a small down payment,
purchasing a property and then allowing
somebody else to pay off the mortgage.
Eventually we're going to end
up with properties that are free and clear
and once they're free and clear
the income that they generate is pretty much all gravy.
And then once they're frankly
or the income that they generate is going to
be what allows us to do what we wanna do
for the rest of our life, a good friend
of ours Lorry Kendall down in Fort Collins, Colorado.
He calls this wake up money
because you get to wake up
and do whatever you want in the morning.
So we've been an advocate of purchasing real estate
as an investment for a long time
but flipping houses was something that we never delved into.
And I'll be honest about that.
The reason why we never really
went into flipping houses was because I was scared.
You know, it's a pretty hefty proposition.
You're buying a property that is maybe
not in the best condition.
You're putting some renovations into it
in hopes that it's worth a higher value
three to four months down the road to me,
anything but long-term investments is risky investments.
And this just wasn't something,
I could wrap my head around.
And then on top of that, you had to find the deal
and people say, you need to find the deal
at 20% off market value for it to be worth it.
Then you had to have a good reliable contractor
which was something that until recently
I didn't even know existed.
And then on top of that, you just had to have the ability
and the cashflow to be able to purchase a property
renovate it, and then be able to sell it
and do that without ending up underwater on your mortgage.
So what changed? Well, what changed
is a whole bunch of things aligned.
First of all, we saw that there was opportunity.
And the reason why we saw opportunity
was because there's a lender in Calgary here
that is across Canada.
We operate across Canada, they operate across Canada
but there was a lender here in Calgary
that was giving case studies.
And what they were showing was real live flips
in the Calgary market and the Toronto market
of what people had bought, the kind of renovations
they did and how much they were able to profit.
And this particular lender, it's a private lender.
It's a lender that doesn't necessarily
have low rates but they have a great product for flipping.
And what that product allows you
to do is purchase a property for $10,000
down on Alberta and Ontario, it's $20,000 down
and they allow you to purchase the property
with just that small down payment,
make improvements to it so that the value increases
and use the extra cash that you have
on hand over and above that $10,000
or $20,000 in order to actually do the renovation.
So basically instead of having a 20% down
and then have the money to do the renovations
on top of that, like most people
would normally do in a flip,
they allow you to put a very small amount down.
They use the as improved value
in order to determine the loan to value.
And subsequently you're able to do a flip
for far less of an investment
upfront than you normally would.
If you were getting bank financing.
Now, the interest rates are typically around 13 to 15%
but you know, when you look at the condo
that I'm going to show you
that we bought for basically $130,000,
the interest costs on this property is maybe
1500 to $2,000 a month.
We're only gonna hold it for three months.
So it'll only take $6,000 out of profits
that are going to be well in excess of that.
So you see that when I go through
the actual details of how we analyze the flip
now that was the first thing was the finance piece.
And the cost piece was our first barrier to entry.
Our second barrier to entry was finding
a contractor that we knew was reliable
because what we didn't wanna do
is we didn't want to contract this over ourself.
We didn't want to have to find our own electricians
our own cabinet makers, our own flooring people.
It's just too much of a pain in the ass.
So we really needed somebody
who had a grasp on flipping who really knew
what they were doing and luckily we were able
to find that person and how we found
that person was through word of mouth.
In fact, what had happened was we had a realtor
who was doing a lot of purchase plus improvements
with his clients and every single time
a client dealt with this particular contractor
they came back and they said he was amazing.
And not only was he amazing, he got the job done
on time and he was under budget every single time.
So obviously I had to meet this guy
took him out for lunch in the summer.
And I said, listen, we're looking at doing flips.
We're a little bit scared about the construction side
and doing the actual work on it.
But I'd like to bring you in on a couple of them
and see how it goes and luckily for me,
he had experienced doing flips.
He knows exactly what we're doing
and what we're trying to accomplish.
All we're doing is we're providing the funds,
he's doing the work.
And ultimately we're gonna end up with an amazing product
for whoever rents or buys this property down the road.
And more than likely, it's gonna end up a rental.
I'll tell you why a little bit later on
but this property is going to be absolutely amazing.
Now, the other great thing about finding a good contractor
having a lender who understands, flips, and having a team
of realtors that really knows how to find a deal is
you know, it took a few times for us to find this property.
We looked at a couple of the properties over the summer.
The first one ended up being something
that we just didn't write an offer on.
Second one was a private sale.
Somebody that I found personally
we got them to the finish line.
They agreed on the price and everything.
And then all of a sudden they decided
that they didn't wanna follow through
because they think that we saw something
that they didn't see.
Now, interestingly enough, our lender friends
that do the appraisal, do the valuation,
for us and provide us the financing
just as the seller was backing out on that property.
They came to us and said, Hey, hold on a second.
We don't think this is a great investment.
Maybe you should pump the brakes on this one.
So it all worked out in the end.
And ultimately that led to in
about mid October us finding the property
that we purchased as of today.
Now, it was really interesting
because we did get into competing offers.
And what had happened was an offer
was originally put in in early September on this property
the court date was on November 3rd.
We put in our offer on November 2nd.
The other party didn't realize we had put in an offer.
So the courts actually extended the court date
to November 5th and gave the other people who
had written an offer an opportunity to up their offer.
Now, ultimately they didn't end up as high as we were.
I paid a little bit more than less for the property
but when we go through and show you
the details of the analysis,
I think you'll understand why it's because
there was a lot to left on the table
after the renovation and a lot of potential profits
on this property for us to basically add
to our net worth and a matter of 30 to 40 days.
So let's get into it.
Let's talk about the analysis.
Let's talk about the renovations that we're going to do.
And let's talk about this process
of actually getting into flipping a house.
So what I'm gonna do is I'm gonna take you
inside the computer here.
I am going to open up all of the analysis
of this property and you let's start with the valuation.
So what we do is anytime we are purchasing a property
like this, we typically go to our lender friends
and say, okay, we've got a property that's available.
It should be something that we can flip.
Here's what we're thinking.
And we basically get them to double-check it for us.
And what happens is they have an appraiser in house.
She goes through usually in a couple
of hours and is able to determine
if what we're thinking is accurate and correct.
And if it is we go ahead on the property,
if it isn't, we don't.
And in this case, what we're looking
at here is we're looking at a property
that has the value as renovated based
on the $33,500 renovation budget.
So we bought this property for 132,650.
I know it's a weird number that's
because we're in competing offers
and we were trying to bid just
a little bit higher than the other party.
And based on our renovation budget of $33,500,
the appraiser values as property $210,000 as complete.
Now, I think it's a little bit higher than that.
Of course I do, I'm the buyer, I'm the owner,
I'm the person doing the flip
of course, I'm going to think it's a higher value
but I think that that is a really conservative estimate.
And then all the numbers that we've run
on this property are as if that the property is
only going to be worth $200,000 when we're done.
So what you can see is that everything
we've done here is ultra conservative
to make sure that we've got more than enough room
in this property to actually profit.
And so that we aren't stuck with the property
that we've done, you know two or three months
worth of work on and then ultimately have to sell
for pretty much what we've got into it, which would suck.
So if you take a look at this property
and I'm gonna Zoom it in here a little bit
what they've done is they've gone
through and they found comparables for us.
And what comparables are is similar units
that have sold recently that we can basically
use as an estimate for the value.
And, you know, there was one property
in here that really, really got our attention.
And that was comparable number three,
which is over here and comparable number three
is a unit that is identical
to the one that we've purchased in the same building.
It was sold in June, so just four months ago,
actually about three months ago.
And it had a full renovation on it
and ultimately sold for $243,500.
So what that tells me is that there's a good market
in this area for a renovated property
especially one in this building.
I mean, even if you take the 243,500
reduce the value by $20,000 for it
being a lower level property the one
that we purchased being a lower level property.
So I mean, the fact that we've got
this property in here that sold for $243,500
tells me that we've got a pretty good opportunity
to make some money here.
The appraiser in this case has basically said
that the fourth floor versus the first floor
which is the one that we own
is a $28,000 difference in value.
So it is pretty reasonable
to assume that this property when all
of a sudden done is going to be worth at least $215,000.
In fact, in this case, she's done the adjustments
on it and she's come up with a value of 212,066
which I would be more than happy with,
now just to give you kind of a look
at what we're looking at for the renovation.
This is the property that has been renovated.
You know, it's got really nice cabinets.
It's got in sweet laundry, stainless steel appliances,
granite, an Island, this is all things
that we're looking at doing to this property.
This is all included in the renovation
that we're going to do.
I feel like the pictures of the property
that we've purchased, you can see that there's
a lot to be desired here.
So there's a lot of room for improvement.
And that's what we're hoping to do
is improve this property as much as we can
in order to get as much value out of it as we can.
And when you look at the things
that we're going to do on this property,
you know, we're going to install luxury vinyl flooring.
We're going to paint all the walls
we're going to put in a new slide, glass, top range
new fridge, new dishwasher, plumbing rough-in
and install of all the appliances.
We're going to change out the faucets and the shower.
We're gonna put a new bathtub, new sinks.
I mean, this property is going to be pretty much new
by the time we're done with it.
And it's going to be absolutely awesome.
So some buyer or some renter is basically
in a walk into this building that was built in 1966.
They're going to walk into this apartment
and they're gonna go, well this is as good
as something that is new which is good
because something that is new in this sort
of quality is going to be worth three to $400,000.
Obviously they'd be buying or renting
in a slightly older, older building.
But the actual living space that they're going to live
in is going to be comparable
to some of the nicest condos in Calgary.
The end of the day, our total costs
for the rental are going to be around
$33,500 again purchase price 132.
So our total all-in cost is going to be about $165,000.
Okay, so the lender that we use
for this program is really awesome.
They've got a complete flip analyzer
which we absolutely love.
So what we can do is we can go in
and they actually did this for me.
They punched in all the numbers for this purchase.
They put in the real estate agent fees,
they put in the cost of the renovations,
the budget, the total expected amount of months.
That's gonna take us in order to do
the renovation and whatnot.
And then what they've done is they've allowed us
to put in a after repaired value
that we think the property is going to be worth
or what it would sell for.
I'm gonna put about $210,000,
actually I'm gonna put $215,000
in cause that's what I suspect
that the property is going to appraise
for when we're all said, and done.
And then they allow for certain things like purchase price.
So in this case, we put in 132,650
they allow us to put in the down payment of only $10,000.
And then they put in things like the interest rate,
their financing fees and then that calculates
out the interest costs per month.
And the total interest cost,
depending on how many months we hold this property.
So as you can see, it costs about $1,638 per month
in interest cost for us to borrow the money from them.
But again, we're only putting $10,000 down.
We've got the $33,000 in our pocket
in order to make the renovations.
So this is a good trade off to have that extra cash flow.
Now, if I had a line of credit that was completely empty
and I could purchase this property
with it basically cash or if I had cash,
would I use this type of financing?
And the answer is, maybe it would all depend
on what I felt like with respect to my cashflow
and how much I wanted to make sure
that I had in the bank versus stuck in a property.
Then once we scroll down a little bit further
through the calculator, it starts to give me the profit.
Now this is based on it taking us two months
to do the rental, it's not gonna take us two months
and then two months to sell the property.
And it'll have four months of borrowing.
Now, as you can see, my profit ends up,
you know, assuming that we've got
a purchase price of $215,000, my profit ends
up being $24,482, not bad for four months
of work that work and subsequently four months
worth of work, that I'm pretty much
hands-off on because I've got a contractor
doing the renovations, I've got a realtor
listing and selling it, I mean,
all I've got to do is make sure
that nobody is screwing up.
So it's actually pretty easy work.
And what I also love about their analyzers,
that they've got a section that allows us
to allow for one additional month
if it took an additional months
to maybe sell the property or if it took one last month
and what the profits would ultimately end up being.
So if it took an additional month
we're only gonna make $22,000.
If it happens a month sooner than we expect it to.
So it takes three months instead of four
then we make $26,000.
Now, one thing that's interesting
that I wanna show you on this property
and why it's got so much room
and why we like it so much is
let's say we take all the financing out of here.
Let's say I bought this in cash
rather than in using their program.
We'll look at what happens to the profits on this property.
They go up to $32,877, that's pretty good.
Now, let me go one step further and let you
in on what we're actually gonna do
with this property cause I have zero intention
on selling this, in fact, I think longterm
in order to build wealth I need to hold property.
So what we're actually going to do
is we're gonna take this and we're gonna hold it.
So I'm gonna pop the real estate fees out of here
and I'm gonna pop the legal fees out
on the sell side and the title insurance fees
on the sell side, basically, I'm taking
all my selling costs out of here.
And look what happens to the profits.
The profits ended up going to $45,150
which is pretty awesome.
So now consider this, so let's say
I'm able to take this property
and I'm able to refinance it at 80% loan to value.
So now I've got a $215,000 property.
I refinance it put $172,000 mortgage on it.
I've only got 165,000 into it.
So now I've got $7,000 to use for my next flip
or in this case because I'm using expensive financing.
That $7,000 is refinanced into the new mortgage.
And basically we bought this property
for a long-term investment.
It's gonna rent out for $1,500 a month
and we bought this property for zero down.
So in a matter of three months,
a little bit of elbow grease,
a little bit of hard work finding the property
and having a great contractor.
We ended up with a zero down property
that we're going to be able to rent out.
It's going to cashflow on day one.
Our cash on cash return is gonna be through the roof.
Our returns are gonna be through the roof
and it's an absolutely amazing investment
for us in the long-term.
So that's why we've ended up flipping properties.
It's because we've been able
to identify opportunities in the market.
We found a great team, including contractors,
realtors and lenders, and appraisers,
to help us through the process.
And ultimately, as a result, we're able
to get into these properties for zero down
which means we can keep our cash in our pocket.
Remember cash is King.
It means we have a backup plan,
so that we can always make our payments.
We're gonna have lots of cash
minimal amount of leverage
and ultimately a portfolio
that will be able to propel us
into being able to do what we want
when we want buy what we want, including bigger
and better rental properties, maybe commercial
maybe multifamily, but basically,
we'll be able to propel us into wealth
and being able to do what
we wanna do for the rest of our life,
just by waking up in the morning.
So I hope you enjoyed this video on flipping,
and analyzing a flip we're excited
to get started in this process.
We're gonna keep you updated as time goes on.
So make sure you subscribe to this channel
and hit that notification bell.
So you can keep up to date on what's going
on in this flip as well as other mortgage
and financial related stuff.
And again, please hit that like button
for the YouTube algorithm.
So more people like you can see this video
and leave us any questions, comments
in the comment section below,
look forward to seeing you on the next video.
And we'll keep you updated on what's going on on the slip.
Cheers.