fixflipstategyguide

The one thing you already know as someone who has done

this before, is that time is money and relationships matter.

Our guide will o�er tips on best practices to maximize your

relationships and keep your projects on track and provide

important considerations to align your priorities.

We hope you enjoy this and �nd it valuable.

-Ken Meyer President Trust Deed Capital

Ken Meyer CA. Bureau of Real Estate, Real Estate Broker #1805798 – NMLS #296507

1. Overview

We developed this guide as a reference for professional real

estate investors. We hope you learn new things and for the

things you already know this could be a refresher to reinforce

good habits for continued prosperity.

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Some Advice Before You Start Your FlipWhether you look at it this way or not, you will be enlisting a team when you start your �x and �ip. If you treat it that way and choose your team wisely you can maximize your success.

Build a Strong Real Estate Investment TeamHere are some tips for creating a strong real estate investment team.

For the inexperienced, entering the world of residential or commercial real estate investment is de�nitely a process fraught with risk. Not only are there bad deals but also unscrupulous dealers. For this reason, the novice real estate investor should build a strong team around them to advise on a deal and help evaluate it. Here are some tips on �nding the most important team members:

Use Good Brokers to Find the Deal – Obviously, there is no need for a real estate investment team without the deal itself so, in many ways, the broker who �nds the deal is the most important player and must be nurtured. Still, there are other reasons to build a relationship with one or a few reputable brokers so you can see some of the best deals before anyone else.

Use the Right Inspector to Identify the Problems – Not to demean the profession, but there are many inspectors who simply go through a checklist of items and report the obvious results to the potential buyer. It takes a superior one with many years of experience to identity potential problems. In many cases, this identi�cation is the di�erence between a superior deal and a merely adequate one.

Obtain the Best Contractor to Fix Them – The majority of real estate investment deals hinge on the ability of the buyer to rehab the property at an a�ordable cost. In addition, the availability of a contractor is crucial to this process. In short, having a contractor who can reliably meet your budget and your timeline is essential for making your deal pro�table.

Rely On a Reliable Lender to Find the Money – Most inexperienced real estate investors understand that “time is money.” Unfortunately, they do not always realize that this means that time is of the essence. Once a superior real estate deal is identi�ed, it behooves everyone to move as quickly as possible lest someone else steal the prize. In this situation, nothing is more valuable than a seasoned lender who can act swiftly with your best interest in mind.

Bring It All Together in One Place – It is one thing to recognize that you need all these team members; it is another to bring them all together at a reasonable cost and in a reasonable time frame. Fortunately, there is place where these distinct skills are brought together – Hard Money Lenders. Consider one when contemplating your next real estate investment deal.

Make Sure You Have a Prospecting Strategy for Your Properties

The biggest owner of residential properties in the country isn't a wealthy individual or even a real estate company -- it's Blackstone -- the largest alternative investment company in the world. Just because the "smart" money has found residential real estate investing doesn't mean that there aren't opportunities left, though. While they own $5 billion worth of housing, the US housing market had about $23.7 trillion in value, as of 2012. There are a lot of opportunities left over, and here are some of the ones to watch out for:

Damaged foreclosed properties. Generally, the secret is out when it comes to foreclosures in turnkey condition. However, when you have a foreclosure that needs real work, the buying pool thins out very quickly. If you have access to construction funding and can move quickly, these properties are frequently high yield investments even after you pay for your carrying costs and construction.

Homes in inner-ring suburbs. Inner-ring suburban homes are desirable as rentals. While some outer-ring suburbs are over saturated with new building that has been converted to rentals, the inner ring combines easy commuting with a relative lack of new homes to compete with you.

2. Devise your Plan

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Distressed condos. While condos can be hard to �nance, if you can �nd one with a board that allows rentals, you can bene�t from having a newly renovated unit to put back on the rental market. If the purchase market picks back up, you can resell it without having to go through the expense or inconvenience of doing a condo conversion, too.

Long-term owner properties. With the ongoing aging of the Mature generation and the Baby Boomers moving into retirement, properties that have been held for a long time are likely to be coming on the market. Some of them may be able to be purchased for a low price because they need cosmetic improvements. Many may also be the holy grail of residential real estate investing - well-located properties at attractive prices.

High-value cosmetic �xers. One of the many bene�ts of Proposition 13 is that it makes it possible for people to hold on to their homes forever. When this happens in high-value areas, you could end up with a house that has gone too long without being updated to meet modern standards of appearance, �t and �nish. Typically, these homes need minimal structural work and are ready for resale with a bit of lipstick. Given the high costs per square foot in these areas, your work is likely to be rewarded with a healthy pro�t.

Inland rental homes. The housing bubble changed everything and it changed nothing. While inland properties are still signi�cantly less valuable than they were before, there's still a need for cheap housing. With millions of people unable to a�ord to live in high-cost areas, these houses remain viable rental properties. Given the high rents in many of these areas and the lower purchase prices, cash-on-cash returns north of 10 percent are relatively easy to achieve, especially if you can buy a well-priced home. Homes that need cosmetic updating can be particularly attractive as high yield investments.

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Ultimately, just about any house can be a great investment. If you can purchase a property at a signi�cant discount to similar properties that have recently sold, you are e�ectively buying equity for yourself. On the other hand, if you �nd a property that can positively impact your cash �ow after debt and management, you can also hold for the long term pro�tably.

What are the Characteristics of a Good Investment Property

Regardless of the size, cost, location or even type of investment properties, good candidates for growth-oriented investors all share the same three inter-related characteristics. A property that presents a problem that you can solve now to make it desirable in the future should give you multiple exit strategies.

Short-Term FlawsMany real estate experts say that you make your money in investment properties when you buy. However, most of them don't explain how to do that. The secret to creating growth in the value of real estate investments is to �nd one with a problem or �aw that makes it unattractive to investors. The investors that will pay the highest prices for properties frequently lack the vision to see a property's potential once its �aw is corrected.

Buying investment properties with one or two �aws puts you in a position to create equity. As you improve the property, the universe of buyers expands to include the precise ones that overlooked the property when it had the �aw.

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Long-Term Desirability While a �aw is important, the property also needs to be desirable. This is how you leverage the work that you did to improve it. Desirable properties don't have to be on Rodeo Drive in Beverly Hills, though. Just about any property can be desirable. It just needs to be appropriate for its area and slightly better than the average in just one small way. Having something that makes it stand out increases buyer or tenant interest, making it easier for you to sell or lease out.

Finding a long-term desirable property also means actively avoiding undesirable investment properties. Four bedroom houses with one bathroom are an example of this. Another example is a property in a rough area that's getting worse.

Exit StrategyWhile you make your money when you buy, it's all a paper gain until you sell. The best properties o�er multiple exit strategies. For instance, if you bought a house to �ip, and it was priced so that you could make a healthy pro�t on a �ip transaction, that would be an exit strategy. On the other hand, if you could also hold onto it and rent it at a positive cash �ow, you'd have a second exit strategy. A property that would be popular with longer-term tenants looking to buy on owner �nancing would provide a third exit strategy. Being able to get out lets you turn a winning property into your next one.

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3.What to Do Before You Buy

Some Advice Before You Start Your Flip

While real estate investing should not be undertaken without adequate knowledge, proper preparation and a certain degree of caution, there is a wealth of information and host of quali�ed experts to help guide the novice investor through the process. These resources can be used to �nd a deal that suits you both �nancially and psychologically. Here are a few ideas on how to get started:

Get an inspection on the home - If possible, get a complete inspection done on your property. By spending a few hundred dollars on this expense you can save thousands of dollars and many headaches. An inspection will uncover problems that you cannot see such as foundation, Wood Rot, Pest issues, etc. When you pay for a full inspection, you can rest assured that you know everything that is wrong with the property before it’s too late. In the contract for the house you need to make sure that you have 7 days to have an inspection performed. If the inspection �nds problems that are going to cost more money than you are willing to spend you can get out of the contract without penalties.

Also Inspect the Property Yourself – While it will not always be possible in the future, it is advisable that a �rst-time investor actually visit the property they intend to purchase. After all, it is your money and you should have a good handle on what you are buying and the possible rami�cations, good and bad, of your investment.

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Investigate the Location – A property may be beautiful on its own but its location will have a tremendous bearing on its ultimate worth. In general, an investor should aim to purchase a property that is not out of the ordinary for its surroundings. This allows the investor to market the property to the largest number of potential renters or buyers.

Evaluate the Overall Market – All markets are not the same and the residential, o�ce and commercial markets do not always march in lockstep. More importantly, di�erent stages of the market are attractive to di�erent types of investors. It will certainly reap large dividends if you can learn to identify what to buy from whom and when. Don’t forget to evaluate your own needs in the current market and the foreseeable future.

Tap Expert Resources – Real estate has been around for a long time and many people have developed a wide range of expertise in the industry. You neglect these sources of invaluable information at your own peril. While experience is a valuable teacher, it can also be an expensive one.

Consider Private Money Deals –The true secret to real estate investing success is �nding a reliable and trusted source for the deals, for the participants and for the experts. It can take a lifetime, however, to accumulate this experience. Fortunately, there are companies (Private Money Lenders) that specialize in just this activity.

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Money is made at the buy, not the sale of your �ip. When �ipping a house, your pro�t is made when you purchase, not when you sell the house. Often times people buy an investment property with the intentions of making a huge pro�t only to �nd out that they could not make any money after all the renovations were completed because the purchase price was too high. If they look back, they will see that the mistake was made with the purchase price by not factoring in all the associated costs, not the sold price.

Analyzing the Investment and Use Key MetricsWhen you're looking to buy investment property, there are two key metrics that you need to carefully analyze. Paying attention to comparable sales prices will help protect you from overpaying for a property relative to the rest of the market. Calculating your returns, though, will help ensure that every deal you buy is worth buying on its own merits, regardless of what other people in the market are doing.

Price Per Square FootThe price per square foot is an excellent reality-check metric. If you've analyzed a market and know that rehab homes sell in a certain cost per square foot range, you will have a good general sense of which deals to discard. When an investment property gets presented to you at a price that is above the range you identi�ed but it's comparable to the less expensive ones, you can quickly move along.

While the price per square foot is an excellent metric for ruling out properties, it isn't one to use to make a buying decision. Just because a property's price per square foot falls within market norms doesn't mean that it's a good buy. It just means that it isn't impossibly overpriced.

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Total ReturnTo calculate the total return of an investment property, you'll actually need to have a command of many other market metrics. Here's how to calculate it:

Calculate your down payment.

Estimate what your loan will cost you to source.

Estimate your rehab costs.

Estimate the carrying costs while you are rehabilitating the property. Carrying costs include property taxes, insurance and mortgage payments.

Add all of these costs together to �nd your total cost.

Project the property's selling price based on market comps for owner-occupied homes and subtract the costs you will incur in getting it sold.

Subtract your remaining loan balance to �nd the net proceeds you expect to receive when you sell the investment property.

Divide your total cost into your net proceeds.

Subtract 1 from the product of the division to �nd your total return.

As long as the price per square foot tells you that a given investment property makes general sense, the total return lets you compare between properties to ensure that you take down the best opportunity. While it's a powerful metric, it's also easy to calculate as long as you know your market well.

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Long-Term Desirability While a �aw is important, the property also needs to be desirable. This is how you leverage the work that you did to improve it. Desirable properties don't have to be on Rodeo Drive in Beverly Hills, though. Just about any property can be desirable. It just needs to be appropriate for its area and slightly better than the average in just one small way. Having something that makes it stand out increases buyer or tenant interest, making it easier for you to sell or lease out.

Finding a long-term desirable property also means actively avoiding undesirable investment properties. Four bedroom houses with one bathroom are an example of this. Another example is a property in a rough area that's getting worse.

Exit StrategyWhile you make your money when you buy, it's all a paper gain until you sell. The best properties o�er multiple exit strategies. For instance, if you bought a house to �ip, and it was priced so that you could make a healthy pro�t on a �ip transaction, that would be an exit strategy. On the other hand, if you could also hold onto it and rent it at a positive cash �ow, you'd have a second exit strategy. A property that would be popular with longer-term tenants looking to buy on owner �nancing would provide a third exit strategy. Being able to get out lets you turn a winning property into your next one.

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4. Decide on your Financing Strategy

How To Find Money for Real Estate Investments

For many real estate investors, �nding the right property and negotiating the best deal is a challenging and rewarding process. Finding the money, however, to �nally consummate the deal is a somewhat daunting ask and often more than a little trouble.

Most investors look for the easiest route possible even if it is not the best �nancially. The following are three of the more common paths for �nding money for real estate investments with their pros and cons:

Family and FriendsWhile often the easiest path to investment capital, borrowing money from friends and family is fraught with pitfalls. Most particularly, a default on a loan can ruin lifelong friendships and damage even a family relationship. In addition, these private arrangements tend to be informal and misunderstandings about the terms can also lead to strained relations. For your own peace of mind, you should only consider this option for the safest of deals with a minimum of risk.

Traditional Lending InstitutionsBanks, savings and loans and other heavily regulated lending institutions are excellent sources of investment capital for single family homes and other smaller properties. Unfortunately, for any deal that is in the least bit unusual or falls outside their normal lending parameters, investment capital is notoriously hard to obtain. These institutions will only lend on the safest of deals and will not even consider many non-traditionally constructed deals.

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Private Money Lenders For unconventional or non-traditional funding of a real estate deal, private money lenders are an excellent option. Private or “hard” money loans are generally provided by experienced and astute investors and o�er a host of bene�ts to the borrower.

First, private money lenders make their own decisions. Since they control their own funds, all decisions about a deal need only be approved by them instead of by a loan approval committee. In addition, the deal points are completely negotiable and can include changes to the interest rate, the length of term and the loan to value ratio. Secondly, private money deals are as secure as any other type of real estate loan. The loan process includes inspections, appraisals and escrow as well as all pertinent legal documentation.

In short, private money lenders o�er speed, �exibility and a�ordability to the advanced real estate investor. Consider them �rst when you �nd a deal that you need to �nalize quickly and with a minimum of complications.

Do you plan on using Hard Money to �nance your �ip? Make sure you know how to communicate with lenders.

Hard money lending is a very di�erent animal than traditional lending for real estate investing. Instead of dealing with an employee checking o� boxes in a �le, when you work with a hard money lender, you're working with an investor just like you. This means that your communications can be much more direct and much more symmetrical. After all, your lender is looking for the same thing you are -- a pro�table transaction.

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Prepare for a Positive AttitudeWhen you work with a traditional lender, the loan o�cer's primary job is to protect the bank by not making bad loans. If he makes a good loan, nothing much will happen but if he makes a bad one, he could get �red. A private lender comes to the transaction knowing that there's a cost to not making a loan. If he can't work something out with you, his money will continue sitting at a low rate of interest. With this in mind, the best hard money lending conversations are held from an attitude of trying to make a deal happen, rather than trying to prevent one.

Have A Deal StorySince private lenders are investors like you, they're usually looking for a deal story, just like you. This doesn't mean that they are looking to make foolish or reckless loans. Instead, it means that hard money lending is about more than just checking boxes in the �le. Exact numbers might not be as important if you can answer the lender's questions and show how it is a good loan for him to make. This is one of the reasons that investors turn to hard money lending for deals that are lucrative but also outside of a traditional lender's box.

Be A PartnerHard money lenders can be partners. The nature of their �nancing means that they will take a more holistic view of you and your application package, just like a partner. In addition, many of them are former real estate investors. Talking with them like a partner won't just make it easier to build a relationship that could lead to a closed loan. It could also give you the advice that you need to turn an almost-failed deal around or to turn a good deal into a great one.

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Speci�c Bene�ts of Hard Money in a Fix and Flip.

Seasoned investors know that private or “hard” money is an excellent, alternative option for �nancing when traditional funding sources are not available for one reason or another. Here are some of the reasons why:

AvailabilityInvestors with private or “hard” money make their own decisions without having to report to an oversight or approval board. As such, they can invest in any deal that makes �nancial sense to them. The bottom line is there is more money for non-traditional loans or deals that wouldn't have a chance at getting funded by a bank.

FlexibilityIn a similar vein, private money lenders can set any terms that meet their own risk tolerance and �nancial goals. They are in no way constrained by the needs of shareholders in a company nor by its upper management.

SecurityHard money loans are secured in the same ways as conventional mortgages. This means the same legal contracts as well as an appraisal, inspection, and escrow. Both parties are well protected with the lender having the additional protection of a �rst trust deed on a real property at a lower than normal loan-to-value ratio.

ExpertiseHard money lenders – companies set up to provide a convenient platform for borrowers and lenders to meet – are experts in the multi-family real estate market. In addition, they have access to a wide range of other, reputable real estate professionals. With these resources, both the borrower and the lender can be assured of a safe, secure, and pro�table deal.

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Don't do the work yourself:

Get a contractor or several sub-contractors and have the work done quickly. You need to have you house �ipped ASAP, so that you can get it on the market and get it sold. Time is money and it’s critical that the work be done quickly and e�ciently.

Have a Good Relationship with Your Contractor

You will need a trusted contractor to do the actual rehab work. Short of doing the work yourself or being involved on a daily basis in the management of the project, you will need to build a good working relationship with your contractor. Here's why:

Less E�ort – Most real estate investors – even if they intend to actively manage their properties – are not really interested in picking up a hammer or even overseeing a work crew. With a trusted contractor, you can turn these responsibilities over to someone else. Of course, he will need to be compensated, but a good contractor can save you money in the long term by getting the job done faster and with better quality.

5. Maximize Your Value with Improvements

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Less Time - The rehabilitation of a property can be a time-intensive and detail-oriented business. An experienced contractor knows the ins and outs of the process and can signi�cantly reduce the overall time it takes to �nish the project. This reduction in completion time means that you can �ip the property or see rental income a lot sooner. Nowhere is the old adage, “Time is money,” more appropriate.

Less Capital – Real estate deals succeed and fail based on their return on capital ratio. A good contractor will save you money in a variety of ways from discounted materials through superior workmanship to faster completion times. Each of these factors reduces the amount of capital you need and the length of time you must hold it.

The bottom line is that developing and sustaining a good working relationship with a contractor is essential for making money in the rehab real estate market. These factors hold true for any of the professionals – from hard money bankers to appraisers and closing companies – that you use in making your property investment.

Simply put, it is essential to �nd ones that you trust. In short, do your homework �rst and then invest. You and your bank account will be much happier in the long run.

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Although you want to have a great relationship with your contractor there is one rule you must have in place.

Never pay contractors in full up front.Paying a contractor in full before the promised work is completed is never a good idea. It provides no incentive for the company to �nish (or in some cases even start) the job. Additionally, if you need to hire someone else, you would have already blown your entire contracting budget. Since you can't leave a house un�nished and hope to �ip it, that means you will start spending more than you bargained for - unnecessary debt.

What to Improve.If you're getting ready to sell a house and you want to maximize your selling price, of course you're going to want to make sure the house is in its best condition. On the other hand, unless you intend to spend years perfecting every minute detail, you're also going to want to make e�cient home improvements, such that you minimize time and energy while maximizing the e�ect your work will have on the house's resale value.

Here are �ve home improvements to increase the value of your REI (real estate investment) that you can probably do in just a few days without breaking the bank.

Focus on the KitchenKitchens and bathrooms are the most important rooms in a house. Bedrooms come in next, followed by living rooms, dining rooms, and family rooms. This is because people tend to spend more time in kitchens and bathrooms, whereas all the other rooms are used more for optional activities. If you want to improve a home's value in a weekend, make sure the cabinets are in mint condition. As long as you're improving the kitchen, consider �nding energy-e�cient stainless steel appliances. In most homes, a refrigerator uses over 13% of the total home energy consumption, second only to air conditioners.

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The BathroomWhile the kitchen is vital (including large appliances as well as cabinets), according to the National Home Buyer's Association, in 2011 bathrooms became more important to home buyers than kitchens. The toilet, bathtub, and sink should not just look clean and functional and work without problems, but by adding a facade or coordinated color scheme to the bathroom, you can change a functional room into something with wider appeal. Even a fresh coat of paint and new �xtures on the sink or towel racks can really improve the look of a bathroom.

Make sure all Systems are FunctionalNo one wants to buy a house with plumbing problems or electrical wiring issues unless they're looking for a good deal on a �xer-upper. Before you put your house on the market, take some time to make sure all electrical wiring (including the circuit breaker and all outlets, sockets, and built-in lighting systems) are fully functional and work exactly as expected. Plumbing should be modern and fully functional. Even people who enjoy living in outdated houses still prefer the necessities to be up-to-date. Electrical, plumbing, and heating systems will also likely come up during a home inspection. While it's acceptable to have �xed a problem caught by the home inspector, it's much better to never have had that problem brought to the inspector's attention in the �rst place.

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Check your Curb AppealAccording to RealEstate.com, replacement projects give better returns than long-term renovations, which is good news for home improvement a�cionados because they also tend to be the cheaper projects.

"The ROI on replacing garage doors, siding, front doors and windows is almost 72%!"

Projects that improve curb appeal include the above, plus any front yard landscaping, �xing cracks in the sidewalk, and making sure the house is either pressure-washed or freshly painted, depending on the condition of the existing exterior paint job.

Don't Forget the Back YardAs long as you're doing a little landscaping for the front of the house, you might as well improve the back as well. By making the backyard a place people will want to spend time in to relax, you create an inviting atmosphere that appeals to any potential home buyer. Simple projects that can really improve a back yard include: Install an arbor Improve or replace an old deck Consider installing a fountain or small pond

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Place the property for sale 2 to 4 percent below market value. If you are wanting to �ip real estate and make money the object is to buy and sell the property as quickly as possible, so that you can move on to the next house. If you purchase a house and list it at top dollar to make an extra couple of thousand dollars on your �ip, and end up holding it for 6 months, you are losing money. Get the house on the market at a price that is going to blow the competition away, and you will sell it no matter what the market conditions.

Use a Licensed Real Estate Agent. Do not try to sell your house on your own. Harness the power of a Licensed, Professional Real Estate Agent and the power of the MLS system. When you do a FSBO you are depending on people driving by your house and seeing your sign, however, with a real estate agent you have someone actively marketing your house to get it sold. Once again this will free up more time for you to look for more great deals.

Many of these steps may be well known to the experienced real estate investor and home �ipper; however, they are so important, that they deserve repeating. If you aren’t doing them already, you may want to consider making them part of your operating procedures. If you continue to educate yourself and learn, you will make money. Please do your homework before you purchase a house, and make sure that you can pull a pro�t on your deal. Then, make it happen!

6. Getting Ready to Sell

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