What To Know Before You Flip a Property
As a full time Canadian real estate investor, we must be doing deals on a regular basis that continue to create massive and passive income for ourselves. The deals we want to spend our time on do not require our own money to facilitate the acquisition or profit. To do this we can Flip a Property.
In a previous article, we talked about flipping a contract or assigning a contract. What we want to discuss in this article is what we need to know before notifying our investor or end buyer.
Firstly, we need to understand “will this property make money, or will the investor make money on this property?” A lot of investors out there either want to become landlords or are renovators. It is easy to find properties that perhaps are tenanted with positive cash flow, or are in need of some cosmetic repair. Let’s deal with the former as an example.
Income and expenses
If we find a property that has positive cash flow, we need to show our investors the income and expenses of that property. We should understand how much the tenants are paying, how long the tenants have been there, the amount of positive cash flow the current owner is getting as well as any other pertinent details of the property.
Crunch the numbers
We have to understand how the purchase price that we have negotiated affects the buyer. We must calculate what the new investor’s mortgage amount may be (with a few examples of varying down payments) , be able to work the monthly expenses accordingly, and able to show what the positive cash flow will be as well as the investor’s cash on cash return.
In a renovation, you must know the fair market value of the property, not your negotiated price, but what the actual market value of the property is. You must also know what a good “fire-sale” price is for the property in order for an investor to make a quick sale.You need your acquisition costs, 3-6 month carrying costs, and renovation costs on the property to determine a logical profit.
There are many other ways of determine what the exit strategy should be on a particular property that you are assigning. The key factor is to understand the various situations that are related to the property in terms of an exit strategy, and be able to intelligently discuss those with an end buyer or investor. Congrats, you just learned how to Flip a Property.
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