Archives for 2018

Whatever business you are in, the most important function should be to make sales. Sounds simple right? I have seen in my travels a lot of companies (some of mine in times past) that are too focused on things that don’t matter at wind up lost in the weeds.

The death of most companies is due to the inability to sell enough products at high enough margins to become wildly profitable. I have heard of very few business failures based on too many sales! However, this is possible if there is a massive influx of orders/customers and the infrastructure is not built to support it and the resulting brand damage is too hard to recover from.

When you have a widget to sell, you need to price it according to the market and what it will bear – at that moment in time. Using real estate as our context: the goal is to make smart buys for the inventory and then be able to manage that inventory by holding it for cash flow or by increasing it’s value and then selling it for a profit.

If that inventory sits on the metaphorical shelf for too long, then it will eat into your profit margins very fast and put investment dollars at risk – one of the advantages of real estate investing as an asset class, so don’t be that guy. Plan your purchases/exit strategy with contingency built in so that you can reduce costs and get sales to happen quickly.

Some times you will have to make little profit or take a small loss to liquidate inventory of any type, real estate is no different – it’s just a very high priced “widget” that you need to continue to cycle through the sales process. Inventory control and planning is a weak point in many businesses that have cash flow issues. Having multiple exit strategies is critical in real estate, and lessons learned from a low-profit deal or a deal that sells at a loss will make your next purchases that much better because you know what works and what doesn’t.

There is often a best case, typical case, and worst-case scenario in anything in business and if you accommodate for all of these in your real estate plans you will be well-positioned to make great profits in any area in which you operate in. The Alberta market place is an interesting one at the time of this writing full of opportunity, learning, and profits.

Respect The Hustle,

Tim Reid

We are back with the next Flipping houses fundamentals: all about the numbers.  The real estate investing game in Calgary has been a bit of a bear market lately.  This has led us to move toward the greener pastures of Edmonton Alberta real estate where the numbers make more sense.  The difficult truth is, that your home turf might be at the wrong part of the real estate cycle for you to make good returns without high risk.  Real estate investing is one of the best investments there is due to the fact that you can mitigate the risk much more than you can with alternatives in the investment world.

When you are evaluating a property for renovation for the purpose you need to consider the following:

1. What is the ARV or “after repair value”
2. What the total cost of renovations will be
3. What is the total “burn rate” or monthly costs you will have to pay during the holding period
4. Total project timeline from purchase to sale
5. How you will market the property

For example, let’s say you buy a house for 450,000 in Calgary and it has an ARV of 550,000

Estimated repairs are 50,000 (this would include updates to the entire house with minor structures such as removing a wall to create an open concept)

The potential spread on this house would be 50,000 (purchase price of 450K+50k=500K leaving 50K leftover)

The common mistake that a lot of investors make is they underestimate costs, and time the project will take.  Often you find some extra issues with a home once you get into the project, and these issues take longer to fix than anticipated.  Also, the time to sell can take longer than you want- that is a reality.

We have 50K to work within our example to pay for the following:

1. holding costs: Mortage, taxes, insurance, utilities = 2000 (this is your burn rate)

if the project takes 3 months to complete and 3 months to sell you will have the following costs to consider:

3 months x2000 = 6000 in holding costs during renovations

3 months of holding costs once renovations are complete 2000×3 = 6000

1500 in legal fees

Realtor commissions of 20,500

Add all that up and we are at 34,000 in costs — 50,000 – 34000= 16,000 in total profit.

This does not take into account any potential price decreases or staging of the home which I would always recommend if possible in your budget.

The above math shows why I like to see 100,000 in a spread for our renovation deals, this is rarely found on MLS where you can get a deep enough discount to make the numbers work in your favor.  The above example would be considered a mid-range renovation, which in my opinion are not viable in Calgary right now due to the value adverse buyers market we currently find ourselves in.

Respect The Hustle

Tim Reid