How To Flip Houses 101 Calgary Edition

When we get a lot of calls from investors looking to flip houses, often after watching TV shows or youtube gurus from other countries – there are a lot of harsh realities we have to hit them with. Now, a coaching company we always want to be motivational as possible while also giving customers the straight goods on what the business model actually looks like.

Firstly, the key is to get the property below market value. Yeah yeah we have all heard that before….well my point here is that below market value does have a range, who decides how low is good? I would suggest to you that it depends on your flip type.

We like to break flipping into 3 categories:

Level 1 – mostly cosmetic changes, appliances, trim, fixtures and some minor overhaul of bathroom components

Level 2 – some structural changes such as removing a wall to create an open concept or updating plumbing and electrical, and finishing a basement.

Level 3 – Fully gutting a house, adding additional square footage through additions/second levels, adding an ensuite, carriage houses, workshops.

These are all flips, but take very different levels of capital, experience, holding costs and require very different skill sets. Lastly, they are going to be sold to different end user market segments.

This factor is an often overlooked element of flipping, who is your buyer going to be? If that pool of buyers who will pay top dollar for the renovated product is small you may have longer holding costs and have to discount the price further for a quick sale.

So, first thing is the get the property below market – a good goal for that is to have 50-100% of your renovation cost discounted on the price, which is a good argument for value when speaking to sellers because those things need to be updated, fixed, or changed.

The second thing is to pick a scope of work and budget and stick within it -that also includes a time budget, if your project goes longer than expected that can break your deal or crush your profit margins. Having the work done on time is equally important to keeping it on budget, sometimes more important if you miss the busy season in your market where buyers are most active. (terrible time to sell is nov-jan especially in any cold climate areas)

Lastly, the flipping business model is about volume not so much about the margin per deal. If you are going to look at this like a business your job as investor is to get product, improve it, and sell it as fast as possible. One of the biggest mistakes I see new investors make is they get emotionally attached to both the property and it’s target profit – targets are just that something to aim at….you don’t always hit the bullseye but you keep shooting.

Keeping the property for sale at the wrong price will slow down the velocity of your flipping business, sell it fast for the best price you can get and get onto the next one. I am not saying sell at a loss, find a way to rent it or do a rent to own if the market turns against you. The business model is about doing a bunch of deals in a year, not waiting for the 100K profit deal that may never come, or if it does you might only do 1 deal that year, when you could have done 10 deals at 50k each which would be 500,000 – which would you rather have?

If you have questions about how to get into flipping houses in Calgary/other markets (the skills are the same) or how to expand your flipping business contact us to book a discovery call we are here to help.

To your success,

Tim Reid

-Respect the Hustle

Investors competing with retail home buyers?

WOW I just read an article which I think made a total BS comment on the housing market in Canada. Has the market been on a tear? Yes in many places it has, have prices risen artificially? You bet, but claim that they just made is ridiculous!

In this article that is from a source I shall not name, stated that prices in many areas are being driven up by investors competing with retail buyers in a lot of our Canadian Real Estate markets. It would seem vastly apparent that they do not invest in real estate themselves, or do not know many real investors that know what they are doing.

Warren buffet put it very well, buy low and sell high – that is pretty fundamental for any investment class, and his holding period is often VERY long also a great principle to live by in real estate or other asset classes.

Real estate is no different, you have to buy below market value to make money in real estate. Many make the mistake of getting excited and paying too much for something and they regret it. (yes we have as well – that is how you learn!)

One cannot expect to pay retail for a product and expect to re-sell or refinance down the line that same product and have consistent results. Now, there are some times you can get lucky and the market can take off and that asset (real estate) can rapidly appreciate….but that is simply LUCK and not a business model, you might as well go to the casino and put it all on black and hope for the best.

This same article wasn’t all bad however it did state that part of the housing pricing problem is supply VS demand – which I totally agree with BTW. This article cited city red tape in Vancouver as the example of slowing development approvals making it hard for developers to get anything done to meet the demand. There is a lot to be said for that issue in many Canadian cities.

In Calgary for example we have had planning policies that support urban sprawl and fight against density in the inner city for many years, that is SLOWLY changing which is a good sign for the aging inner city corridors.

I have never met an investor in over a decade in this game that would compete against a retail home buyer to get a property to rent, flip, or do a rent to own on that property – retail buyers looking to buy a home and live in it will always pay more than an investors looking for a ROI. If anything, the retail home buyer is competition for the investor!

What are you thoughts on the “housing crisis” which the media is currently taking and running with it?

Contact us to book a time to chat and let’s hear your thoughts.

To your success,

Tim Reid

-Respect The Hustle

3 Ways Investors Impact the Price of Real Estate

There have been some interesting articles floating around out there speculating in the material impact that investors have on the real estate market.

Often we hear a lot of noise in the media about foreign buyers driving up real estate markets like Vancouver and Toronto, but what about the last 18 months through the Covid19 pandemic? There was a massive reduction in immigration and foreign investment, so that would indicate a lot of that noise is just that…noise.

For example the BoC (bank of Canada) published stats that would see investors accounting for 20.1% of residential purchases in Canada. That may seem like a lot, but that centers only around residential properties. With having 80% still being purchased by retail home buyers, the impact of investors in this space would seem not that large.

What are the key impacts that Investors do have on pricing?

1. They pay cash or have 20% down and don’t have insured mortgages. — That means they do not pay too much for properties (over market value) or at least they don’t very often and certainly not with our guidance! Typically savvy investors will pay less than market value but at only 20% of the market volume this does not drag the average down significantly

2. Investors force appreciation – through renovations, adding suites, garages, so this does drive up the prices because they are adding value to the properties (example flipping houses) in a short period of time. This has the largest impact on pricing, which often occurs in older areas with naturally higher prices and infill activity in the inner city areas of most Canadian cities

3. Rental increases – while updating, adding value, and of course for rental purposes the goal of a cash flow investor is to maximize that as much as possible, then doing a re-finance to pull capital back out of properties also can have an impact on valuations on properties especially when it comes to commercial assets (6 units or more)

These are the key areas that Investors have a material impact on the stats IMHO. Also, I always like to point out that a lot of residential investors buy directly from home owners which are private sales – which do not get reported by the real estate boards and therefore do not show up in the statistics.

The regulators, banks, real estate boards and media have to work with the data sets that they are given – but this is not the whole picture.

If you would like to know more about how to have your own impact on the real estate market through investing in real estate without the hassles of day to day management Contact us today and let’s chat.

To your success,

Tim Reid

-Respect The Hustle

3 Ways water issues can ruin your real estate investment

When you are looking at investment properties sometimes you have to move quickly to snap up a great deal. Newer investors AND experienced investors should always get a home inspection whenever possible.

There are some situations where you need to make a quick offer in competitive markets or even go all cash unconditional. What can you do to make sure the property is sound? We recommend bringing in an experienced contractor and some of your trades people to do a walk through at a bare minimum.

(We do not suggest making unconditional offers unless you are very experienced and are comfortable dealing with any issues that may come up with the property.)

This will give you valuable information on what risks there could be with the property even if you are in a bit of a rush to get that offer in. The best deal is often the one you DON’T do….which means you didn’t make a mistake and wind up with a very challenging deal!

We will often make offers conditional to viewing satisfactory to the buyer, which will not give you the same coverage as a home inspection condition – but this still allows you to walk away if you and your team find something that seems risky about the property such as plumbing concerns.

Water is the nemesis of all landlords and investors of all real estate strategies. Nothing other than a fire can cause more damage quicker than water damage, insurance companies also hate water damage because that causes them more payouts in claims than many other losses.

Damage from water can happen from more than just the plumbing though, including sewer backups (gross I know but it happens more often that people want to admit!) flooding, and rain coming in around windows or through the roof. We recently saw a property in Calgary that had a woodpecker that poked a hole in the roof causing a leak!

What are the most common water damage risky items to watch out for?

  1. Leaking or improperly installed fixtures (that includes toilets). When fixtures are old or improperly installed by happy home owners doing things themselves they can leak behind walls and through floors going unnoticed until these issues have damaged drywall/floors/ceilings causing mold which could need remediation and those costs add up fast.

2. Basement windows without proper drainage – window wells have building code requirements that mandate proper drainage and slope to move water/snow away from the window so that water does not flow toward the house leaking through windows into the house.

Often new landscaping or walkway construction will change the grade to slope toward the house causing water to leak through the windows – which are not waterproofed to heavy water flowing directly toward them.

Window wells that are too shallow or do not have drainage can fill up with snow or rainwater and cause leaking into the house, this can allow lots of water into the home causing major damage and if left undetected can also cause black mold in the home behind the drywall.

3. Sewer backups – in some cities there are flood prone areas or even in areas with higher elevations under heavy rainfall conditions with older waste water pipelines backups can happen from the city sewer. What that means is that high pressure can force the gray water back into the house up through toilets and drains ….Gross I know but something that needs to be considered. A good mitigation for this is a back-flow valve which prevents the gray water from flowing back into the house’s pipes under these heavy rainfall/flood conditions.

Water, we all need it it can be our enemy as real estate investors if we are not careful. Do your homework on the water risks, ask the professionals when in doubt and maintain the plumbing systems in the property and you will avoid costly repairs and higher insurance bills.

If you have questions about how to due your due diligence or how to value these repairs contact our team to book a discovery call and let’s chat.

To your success,

Tim Reid

-Respect The Hustle

Canadian Election Effect on Real Estate Market

WOW we have had a heck of a year and a half in the Global covid-19 pandemic, with governments having to put billions into the economy to support workers and businesses alike.

The Canadian election has been called, now I normally do not like to comment on politics often – however this election will be a real barn burner with the announced platforms of the different parties. Some of these proposed changes to tax law in Canada are HUGE for investors.

Our American friends have enjoyed one of the best tax advantages on earth for many years called the 1031 exchange. What the heck is that? This is a tax exemption that states if you sell an asset, for example an apartment building and have a 1,000,000 capital gain you would need to pay the tax on that normally if you put that cash in your bank account. However, if you buy a like for like asset within an approved amount of time then you defer the tax.

This is an incredible advantage to scale your business without having to incur the tax all the time. In Canada there has been a rental housing shortage for many years as developers focused on for sale product such as condos and single family homes.

Conservative government politicians have realized this is a problem, and making it a campaign issue. The solution they have proposed is for rental property owners who sell to re-invest in additional rental property and defer the capital gains just like the 1031 exchange!

This would be a game changer for Canadian real estate investors, and the renters that would benefit from more supply of better housing. Let’s face it our rental stock is very aged in a lot of cities in Canada with a lot of deferred maintenance. All that deferred maintenance is partly due to the fact that owners can’t sell and buy something larger or similar to extract that equity to perform the repairs – also rental controls which in my opinion also contribute negatively to this problem.

Look at New York’s history of rental control, which has basically forced landlords to not spend money on the buildings there because they are held hostage by rental policy. (that is a whole other post for another day!)

Financial services and investment industry what I like to call “retail investments” offered by banks and mutual fund companies could be shaken up as well. The feds are pushing for more transparency on fees that are charged to consumers when speaking about returns on products such as mutual funds, bonds, EFTS.

What impact would that have on real estate investing? Hard to call, however with a better informed consumer they may choose to look at different investments more often once they know the fixed costs of the alternatives.

Real Estate IMHO is one of the best ways to build wealth for multiple generations, which is 1 of the 3 pillars of wealth

  1. real estate
  2. stocks/bonds
  3. Business investments

They are all needed for a well rounded portfolio, and you have to be at least somewhat active in 1 of the 3 to really crush it. There is no such thing as a great return on investment that is totally passive – 100% passive does mean lower returns than being active, what you put in for effort you get back in higher ROI.

Investing in real estate does not need to be complex or difficult, if you are thinking about real estate investing book a discovery call with our team today to find out how to get started or grow your current investment in real estate.

To your success

Tim Reid

-Respect The Hustle

6 Big Mistakes Buyers Make

Today I wanted to provide a list of common mistakes that home buyers make and more importantly – what do do about them to make your home purchase in Calgary or any area as smooth as possible.

1. Not getting pre-approved for a mortgage before you go shopping. This means that you might lose out on a deal because the bank tells you that you are approved for 50k LESS than you need to buy your dream home

2. Buying too much house and winding up “house poor” winding up with payments that could become unmanageable after “life happens” events such as work hours being reduced or slow times in business can really cause a family a lot of stress if things get tight.

3. Not structuring your mortgage for both short term AND long term goals, being trapped in a mortgage due to a huge payout penalty is no fun at all. In fact, recently I had a client that HAD to keep their rental policy because of this problem.

4. Failing to learn about pre-payment penalties and how they work. What is the penalty if I sell in year 1 of 5 year terms? What is the difference between fixed or variable? Can I port the mortgage? These are all questions that should be asked.

5. Not asking if the mortgage is portable/assumable – not portable you have a penalty for sure, how much is that going to be? Could be 10’s of thousands of dollars if you are not careful.

6. Not working with a mortgage broker and only their bank – the bank wants to make money for their share holders, that is their primary goal. Mortgages are set up to protect the bank’s bottom line not YOURS.

There is a lot that goes into designing a mortgage, it is kind of like building a house from the ground up – there are a lot of things that can go wrong without the proper design/guidance along the way.

Ok great, so now we know what to watch out for…what do do about it?

Here are some solutions and things to think about”

1. ALWAYS get pre-approved when going to shop for a home, investment or to live in. This process involves the bank verifying and checking all your documents (credit score, income, expenses, assets, liabilities just to name a few)

Then they will give you a commitment letter that is an full approval to lend you X dollars with having Y down payment available. This also locks in your interest rate in case rates go up you will get the agreed rate for up to 6 months depending on the bank.

BONUS: this helps you negotiate stronger knowing your max price. Not saying you need to use the whole approval, and generally you shouldn’t to avoid the house poor issue.

2. Biting off more than we can chew is a common trait for North American residents overall. We often feel the need to “keep up with the joneses” and live above our means, in terms of cars, clothes, houses. Real estate is generally the most expensive thing that families will ever buy, so any financial advisor will tell you not to buy more house than you need for your current family dynamic.

When investing in real estate we only think about the numbers: will it cash flow? What is the repairs needed? What is the common expense ratio for this area? (more on these in another article to come) Think of your house as an investment even if you live there, that thing should cash flow if you ever moved out and rented it.

3. Speak to a mortgage broker (or call our team for advice) on how to set up your mortgage for success both today and tomorrow. There are many features of a mortgage to consider past the interest rate – which is all that most buyers think about after watching ads/seeing posters for 0.99% interest rates (there are many strings attached to those!)

4. Dreaded penalties for breaking the mortgage early – which is generally 5 years, but it does not have to be there are 1,2,3,5 year and even 10 year mortgage terms that you can get to suit your goals over the long term. Also lines of credit or HELOC for short that have 0 penalties to pay them off early, and blended mortgages which are a combination of the 2 that are ideal for flipping houses. Also, how many payments you make per month is up to you bi-weekly can save you tones of interest over the life of the mortgage. Talk to the broker about these items

5. Many mortgages are no longer assumable after the regulators changed the rules many years ago, some still are which could be a great option for a home buyer both investors in real estate and retail home buyers alike – you need to ask and confirm. Always ask for a mortgage to be portable, this can save you lots of money in penalties – better to have the option when you need it because it cannot be added to a mortgage after the fact.

6. Bankers work with the tools that they have, and their list might not give you everything that you need to build the mortgage ideal for you. Get a second opinion at the very least – if you were told today you had cancer and only 6 months to live wouldn’t you get a second opinion from another doctor? OF COURSE YOU WOULD! Do the same with your mortgage your making a 5 year deal on terms and a 25-30 year commitment with that bank, for pete’s sake get it right from the start

If you have any questions about real estate financing, private money, how to invest your RRSP’s in mortgages and play the same game the banks do – contact our team to book a discovery call.

To you success,

Tim Reid

-respect the hustle

Calgary Real Estate Market Real Deal

What is going on in the market? Is it slowing down? Is it speeding up? Are there still competing offers?

These are the questions that I get often both as a realtor and investor these days. There is no simple answer, but what we are seeing on the ground is what I had predicted for the most part back in April/May with the looming stress test and the opening of the economy (whatever that really means is up to your personal world view!).

Summer generally sees a shift in buying behavior with kids being out of school and vacation mode kicking in. I have a number of deals on the go at the moment which have been heavily impacted by what I call the “vacation factor” -so that happens to residential as well in any given year.

Inventory is up, buyers pool/motivation has shifted, and financing is now harder to get – this will have downward pressure on pricing as well as speed of sales. Reminder that sales are only recorded by the real estate boards once the property closes…so it could have sold 3 months ago and now is just getting reported.

There is now the ability to show properties relatively easily whereas bookings were tough for the first few days of any new listing on the market. There can still be competing offers for aggressively priced properties relative to the competition in a given community.

Investor demand for renovation projects remains strong, as there is a lack of new builds in the closer in amenity rich neighborhoods. Also, certain schools with differing programs with a draw radius draws families to those areas as well.

Properly marketed properties, that show well, and are priced right are selling very well under the 600K mark where more expensive homes have flattened out/slowed down. If you would like to learn more about how to get top dollar for your home or sell privately in the non-traditional way contact us today for a discovery call.

To your success,

Tim Reid

-Respect The Hustle

Lessons to Learn from a 1.7B business failure

I have read the gory greek tragedy that became of quibi which was an app that raised troves of silicon valley cash before going under. The idea could have had legs, but it all came down to operations and lack of business systems that caused a lot of the grief. The team has to work together as is very well detailed in the book good to great by Jim Collins, not only do you need to get the right people on the bus but make sure they are all in the right seats – which in turn creates a cohesive team that will work together toward the common goal or vision for the company.

The lack of business systems and how important they are you can read more about in the article that inspired this post by rich dad Robert Kioysaki original via this link

What business systems in real estate do you feel are the most important or you might need help with? Contact us today to book a discovery call and let’s chat real estate.

To you success

Tim Reid

-Respect The Hustle.

The Value of Real Estate & Business Coaching

Firstly I recently had a few interesting conversations with clients both coaching and other areas about value. The first point that I want everyone to internalize is that price is only a concern in the absence of VALUE.

Now customers may not fully understand the components that go into any given job, this is very accurately portrayed in the trades professions when some customers feel they could do the job themselves for much less….but can they? My fellow real estate investors are thinking right now that they have seen the horrific results of some real winning DIY renovation jobs.

This story has been around social for a while so I thought it really illustrates this point in business, and serves as a great reminder to respect your value in business and ensure that you convey that value well to your prospects and you will increase your sales, plus convert more A+ customers.

A customer asked me how much it cost to do this job….
I answered him: $ 1500
He said: So expensive for this job?
I asked: How much do you think it would cost you?
He answers me: $ 800 maximum… That’s a pretty simple job right? !”
– For $ 800 I invite you to do it yourself.
– But…. I don’t know how to.
– For $800 I’ll teach you how to. So besides saving you $700, you’ll get the knowledge for the next time you want
– It seemed right to him and he agreed.
– But to get started: you need tools: A welder, grinder, chop saw, drill press, welding hood, gloves etc…
– But I don’t have all these equipment and I can’t buy all of these for one job.
– Well then for another $300 more I’ll rent my stuff to you so you can do it.
– Okay, he says.
– Okay! Tuesday I’m waiting for you to start doing this work
– But I can’t on Tuesday I only have time today.
– I’m sorry, but I’m only available Tuesday to teach you and lend you my stuff. Other days are busy with other customers.
– Okay! That means I’m going to have to sacrifice my Tuesday, give up my tasks.
– I forgot. To do your job yourself, you also have to pay for the nonproductive factors.
– That is? What is this?”
– Bureaucratic, tax, vat, security, insurance, fuel etc.
– Oh no!… But to accomplish these tasks, I’m going to spend more money and waste a lot of time!
– Do you have them? You can do it to me before?”
– Okay!
– I’ll make you all the material you need. Truck loading is done Monday evening or Tuesday morning you’ll have to come by 6 loading the truck. Don’t forget to be on time to avoid traffic jams and be on time
– At 6??? Nope! Too early for me! I used to getting up later.

– You know, I’ve been thinking. Y ‘ all better get the job done. I’d rather pay you the $1500. If I had to, it wouldn’t be perfect and it would cost me a lot more.

When you pay for a job, especially handcrafted, you pay not only for the material used, but also:
– Knowledge
– Experience
– Study
– Tools
– Services
– Time to go
– punctuality
– Accountability
– Professionalism
– Accuracy
– Guaranteed
– Patents
– Sacrifices
– Safety and security
– Payment of tax obligations

No one can denigrate other people’s work by judging prices. My prices to do this would be much higher than it says here for that job but its the point not the amount.
Only by knowing all the elements necessary for the production of a certain work can you estimate the actual cost.

When you hire a coach (which gets paid for their experience) you get focused attention, custom guidance, access to their networks, experience and a third party unbiased perspective so that you can get the feedback you need to get results in a fraction of the time.

What about mentoring? Mentoring is fantastic and I have had many over the years which have helped a lot, but the coaches I have invested in (they are an investment not a cost) have drastically moved the needle for my business. Mentors will be there to help but they have their own businesses to run as well so they can’t always be there when that critical deal hits your desk and you need fast targeted advice.

If you have every considered building a real estate BUSINESS, which is different that flipping a house per year as a side hustle contact us today for a discovery call to explore some options.

PS: We help those who want to build that side hustle as well, there are options for that!

To you success,

Tim Reid

-Respect The Hustle

5 Key Reasons You Need a Power Team in Real Estate Investing

Real Estate is not a solo-sport, you absolutely need a team of professionals to support you in your real estate investing ventures. The first time you have bought a house (or maybe you haven’t yet) you might not have realized how much goes on behind the scene of that transaction.

From the start you likely worked with a realtor, who has a huge list of service providers that could help you out with due diligence, financing, repairs and many other items.

As an investor you will need a much longer list of people to help you out, and here are the Key reasons why:

  1. You will always run out of time to do everything yourself, even if you work in real estate full time – which is also not how most people start, they still work a day job while investing in real estate and many never intend to leave their day job they just want a great return on their investments. Real estate is one of the most reliable ways to build wealth than any other sector.
  2. It does not matter how great you are at finding deals, you can’t possible to do them all with your own resources. Having wholesale connections will save you a lot of time and effort.
  3. Cash/credit are finite and you will need JVP partners to help you grow your portfolio
  4. What about the passive income? Well nothing in business is ever truly passive if you are going to get great returns – therefore you will need property mangers, resident managers, and partners to help you keep the investment running as smoothly as possible. No fluff and fairy tales there will be challenges, just like any other business on earth!
  5. Having fun! Does it really make sense to try and do it all on your own? Even if you had all the money in the world and an unlimited credit capacity, where would be the fun in building an empire if you cannot share that with others? The relationships that you build with your power team members make the challenges less severe, and you can have a great time along the way when you work with others. I believe in the Richard Branson model of business – find a way to have fun while you are at it, work hard and play hard. (he has a thing or 2 figured out in business)

Here are some power team members that you will need to get on board when you are starting out, or even if you have a number of deals under your belt and have gone the solo route – at some point to scale you will need all of these team members.

  • Realtor
  • lawyer
  • mortgage broker
  • appraiser
  • home inspector – residential
  • commercial property mechanical inspector
  • General contractor
  • handy men/women
  • wholesale material suppliers
  • private lenders
  • bankers
  • accountant
  • book keeper
  • architect
  • wholesalers
  • property managers
  • resident managers
  • JVP’s – joint venture partners
  • RRSP lenders
  • Trustee companies
  • Insurance broker
  • Trades; paint, flooring, roofing, HVAC, carpentry, tile setter, plumbers, drywall, smart home techs.
  • Moving company
  • Marketing consultants
  • Web design
  • Printing company
  • Bailiff
  • Engineers: structural/mechanical
  • Real Estate/Business Coach

As you can see there are lots of people that make the real estate world keep spinning, if you have any questions or need a connection in Calgary and many other markets in Canada we would be happy to help. Contact us today and book a discovery call.

To your success,

Tim Reid

-Respect The Hustle.