Deep Dive: Advanced Deal Analysis Strategies

Discover the unexpected challenges and triumphs of turning a condo into a profitable real estate gem. From navigating HOA headaches to doubling the expected return, this deal analysis will change the way you view real estate investing. 

Get ready to uncover the secrets of making big profits from seemingly modest deals. But what surprising twist turned this solid double into a home run? 

Join us as we dive deep into the real estate trenches to uncover the hidden gems of success in this captivating deal analysis. Get ready to be amazed by the unexpected turns and valuable insights that can elevate your real estate game.

In this episode, you will be able to:

• Master real estate deal analysis to unlock profitable investment opportunities.
• Harness contractor expertise to elevate condo project success and profitability.
• Navigate permit requirements for condo renovations with ease and confidence.
• Decode HOA regulations in condos to optimize project outcomes and profitability.
• Foster positive building manager interactions to streamline condo renovations for maximum profitability.

Learn more about Elevation’s Partnership Flip program: https://elevationinvest.com/partnership-flip/

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Transcript

0:00

Welcome to Raising the Flipping Bar, the go to podcast for aspiring and seasoned real estate investors. I'm your host, Derek Marlin, and I'm the CEO of Elevation. We're a real estate investment company based right here in Denver, Colorado. We'll dive into smart investment strategies, market insights, and essential tips for scaling your real estate ventures. Whether you're making your first investment or your hundredth investment, this podcast is your blueprint for success in the ever evolving world of real estate investing. Get ready to elevate your real estate game and begin your journey with me. I'm so excited to have you back with this episode and we're going to dive into deal analysis, which going back to our, essentially, feedback. We know that that's one of the number one things that people want to learn about is deals and help you with individual strategies to obviously make some money in this real estate investment game. So we're going to talk about either super profitable deals and us, that stuff that's like over a hundred thousand dollars in net profits, it would, could be kind of the bread and butter or I'm a sports guy, as you know. So that's your, your double, if you're thinking about baseball terms and that's a 50 to 60, 000 profit. Or also we're talking about some small profits. We've been talking about some losses potentially. So we're going to cover the gamut and deal analysis. the good thing is our batting average is pretty good if we're staying with that sports analogy. So right now we've done about 87 projects total throughout, essentially leading up to and through 2024. We're in the first quarter right now, recording this episode. And we've been profitable on 84 of them. It's our deals. It's our partnership flip deals, and then it's our client's deals too. So we'll consult and we'll teach people how to do that. So again, want to kind of give you the behind the scenes information on how we're quantifying all this stuff. So let's jump into the story for this specific deal analysis. And what I wanted to share on this one is it is a condo and it's on 1200 Emerson Street. So for those of you that are not familiar with Metro Denver, that's heart of Metro Denver. That's the Cap Hill neighborhood. And we executed this specific project in the first quarter of 2023. So we're essentially about a year out from when we're recording this episode and when it'll drop here very shortly. And from a sourcing perspective, we always like to tell people, okay, where did you find this freaking property? We found it. We do a lot of marketing in what used to be called actually the senior citizen space, and it's kind of changed terminologies to the older adult space. So we do a lot of marketing, a lot of networking, and one of my sales executives at that time had met somebody at a senior marketing event, and they had a friend who was living in a community and definitely needed to sell their property. It was one where the seller, I'm not going to say it was a hoarder type of property, but it definitely had a lot of stuff. They had lived there for probably over 30 years, so just kind of accumulating a lot of different stuff. And so what we did is we really wanted to benefit the person who, you know, needed to feel comfortable referring us. And then specifically to the seller, we needed to benefit them as well. And so something that we ended up doing is making sure that we listened to our clients and we figured out what were their needs and she needed to actually sell the property and have it close in the next tax year. So we started negotiating this deal towards the very end of 2022. And then we actually set the closing for, I want to say it was January 4th, whatever that first day post holiday was. We had the closing happen for that because there were some tax implications for her. So for me, I don't care whether I buy the house last week of December, the first week of January, we're going to be rehabbing that, that property during that time anyways, and then putting it on the market in this example, sometime during the first quarter. So listen to your sellers, be creative problem solvers. And as long as it's within reason and you're not crushing your business model, it's a great way to go. For this one, again, we were under contract for about 60 days. We just wanted to work with them. They needed to move the closing back. I believe at least once. From a rehab perspective, let's talk about what we did to fix up the property. So for this one, the, we're going to quantify it and then we'll try to get you guys some standards with these deal analysis episodes. And so the general contractor level of expertise. The cool thing about this is with condos, you need to have people that do good quality work, but you don't have to have that general contractor who's used to doing multi million dollar projects. With this one, this specific contractor, it was somebody that we actually had them do this condo first. It was a quicker project. It was a little bit smaller scope of work before they got into doing a significantly larger one. So it's a great way for you to actually vet your contractors before you just jump in and say, great, let's flip some amazing, 1. 5 million property in the Highlands. Ideally get them to do something smaller first, get them to do something more cosmetic first. So this was a little lower level, a little bit of an introductory period with this contractor. From a permit perspective, we did not need to pull permits. And the good news is in condos, 9 times out of 10, you are not needing to pull permits. And the reason for that is it's what's called like for like remodel, meaning you're taking old crappy kitchen out. And you're putting a new, beautiful kitchen. You're not reconfiguring the layout. You're not moving it from one side of the condo to the other, because all the plumbing is in the same spot. You're not changing your condo's layout for what's going on in the rest of the property. So it's taking old stuff out. It's putting new stuff in, and typically you don't need to pull a permit for that. So that's huge in our world. Not really from a cost perspective. You're only, you know, paying a couple hundred bucks for permits these days. It's a time perspective that takes forever. The other good thing on this one is. We were able to overcome some hurdles and some challenges, but working in condos, you've got two different things to factor. You've got neighbors and you've got the HOA. So in this instance, it was a little rough to be honest with you, which again, we're going to tell you about the down and dirty. There were a handful of times, what we do when we do our flips is we go around on the floor that we're on. The floor above us and the floor below us. And we go door to door, we knock and we hand out flyers and accomplishes, it's a twofold thing, it is one telling them who we are, what we're doing, and that if there's loud noises or work going on, tell us if our crews don't clean up after themselves and trash the hallway, we need to know. I want to know what's going on before I need the HOA being involved. Also, especially coming out of COVID, a flip tip that you might want to consider and something that we still use today is still a lot of business gets done on zoom, still a lot of business happens at home. And so we tell people, especially the neighbors, you know, kind of above us, below us and on each side of us. Hey, if you've got a work call or a zoom call or whatever, let me know. And if I can have our contractors pause for a little bit, give you time to make that call, we'll do it. In this particular instance, I feel like the neighbor right to the side of us took a little bit of liberties and I felt like our crews were freaking pausing all the time. So after a while, we had to have a little bit of a tough conversation. You can't completely have your contractor get sidetracked. And so we just had a pretty upfront conversation with a neighbor of. Hey, look, we're making this condo really nice. It's going to improve your property values. We don't mind once in a while helping you out with the zoom, but we can't do this multiple times a day or else we're never going to finish. So again, just kind of finding that balance, talking about the HOA. So with that one, this was another one where, man, they were so overly involved. It's kind of hard to vet that on the front end when you're purchasing a property and you go under contract, you want to talk to the HOA company or the HOA management company. Ideally your best metric is also, have you seen other properties in there when you're pulling your comps or your comparable sales and have properties been flipped, not to say there's a simple piece, of information or document in your HOA docs that says, yes, you can flip properties, but if there's fixed up stuff, then somebody's figured it out. If that's never happened, it can be a little trepidatious to let you feel comfortable that you're not going to get hassled all the time. This one was tough. I'm going to call him Bob, protect his identity. Bob, the building manager, man, he, he was brutal. Nice guy. So he's like to kind of like differentiate between. Probably a great human being, but giant pain in the ass for us when it comes to fixing up a property. So Bob was this nice kind of, older adult. Let's use the right terminology. And, the tough thing was he literally lived on the same floor as our flip and he lived two units down. And so this is another good thing that I'm kind of thinking through this and recounting it. It's good for communication purposes with your contractor. Our guy, Gustavo did a great job. And he wanted to be sensitive to what was going on in the building and working with the neighbors. And so he just would come in and Bob had the keys to the unit because he was the building manager. He just went in our unit. That's actually a hundred percent illegal. It's actually trespassing. And what we really tried to use to broach the subject with our buddy, Bob was. Dude, you can't come in here because we've got sub flooring going on. And he was literally walking on the floor that had little nails sticking out of it. And he had no shoes on. So if Bob trips and falls, if Bob hurts himself, Bob could easily sue us. Even though it wouldn't have been our fault, it ends up being your fault cause you're the investor. So we, we kind of had, a bit of a heart to heart with Bob and said. We love you. Thank you for taking care of the building. However we can be of service. We went above and beyond and cleaning the hallways because again, he was two doors down or whatever. But we can't have you in the property. So it's just dividing those, you know, or drawing those dividing lines of like when you can give and when you shouldn't give. The other thing, again, from an insurance perspective. Don't do that. That's a train wreck waiting to happen. So that was a bit of a challenge. We did also talk to the, so again, he was more of the maintenance guy on behalf of the HOA. Then there was the HOA themselves. And even though they didn't have a right to do it, because we did not need a permit. They want a documentation of the thickness of sub flooring that we were putting in to help with sound deafening and dampening the sound of the units above and below us. So this was just kind of some random thing that they had instituted. It was not in the community documents that you get that you can review before you purchase a property. But again, it was like, okay, we're going to play ball. I believe it only increased our costs by two or 300. So it didn't break the bank there. But if they end up, stalling our project out, my cost on that would have far exceeded a couple hundred bucks. So it's like make good business decisions, but a little nicer subfloor in there, a little quieter, keep your HOA people happy and just kind of move along. So we're going to take a quick break and tell you about the next elevation academy. If you're looking to dive deep into real estate investing, this is definitely the event for you. Our academy features over a hundred step process to help you navigate every single thing from market analysis all the way down to every aspect of project management. So this is tailored for both beginners and seasoned investors. And our one day intensive training will equip you with the strategies and insights needed to elevate your real estate investing game. Spots are definitely limited. So click on the link below in the show notes to sign up and transform your approach to real estate investment. Okay. Let's get back to the episode. So now that we've kind of set the stage, we're going to talk about the actual deal analysis. And what that is is for me, I want to tell you about the capital structure, meaning where are we getting our money from and how much is a cost because that can vary drastically. So at this point, again, it was a company flip. And that is defined as our company Elevation is using internal funds to buy the property. We're fixing it up with our funds, we're selling it, and then we're keeping all the profit. Versus partnership flip, which you'll know from other episodes, is client is funding the deal or having the property, we spend our money on the rehab, and then we split the profits. So again, company flip. At this point in time, I'm looking at my notes. I was paying 8 percent as far as an interest rate. And it was with our company line of credit. So kind of in the middle of the capital stack, it's not as expensive as hard money, it's obviously not as cheap as cash or even private capital. It's kind of right in the middle. The rehab itself was about a 60 day renovation. And to put it in context, it was a two bedroom, two bathroom property that was just over a thousand square feet. And so another flip tip that I can give you guys is on average for nicer condos in Metro Denver, and nicer meaning level of finish, not necessarily astronomically high price point is we were spending, or we are spending 50 per square foot. So this specific property, just over a thousand square feet. And our rehab budget was 51, 000 and I'd be like 200. So we were almost spot on. There was a little extra cost because with this specific unit, it was this cool blend of mid century modern type style, and they had a second bedroom, but it had those crazy like accordion doors. So technically you could close it off and be a bedroom, but that was not. A conforming and legal and functionality wise that obviously made no sense. So we ripped out the weird old school accordion door and we just framed it over. So spending that extra little bit of money was of course, worth every penny. I'm looking at our investment metrics. If you remember, we kind of go in a little bit of a different order. My number one investment metric is dollars per day. And what that is is how much net profit am I making after all of my expenses? What's your total bottom line divided by how long does it take you to do the deal? And that is. Buying the property, all the rehab, listing it for sale and getting all the way through closing. So what we call this close to close. So we were at our dollars per day was 608 of net profit per day. So again, whether I'm sleeping or whether I'm working or whatever, we were in this instance making 608 a day. For us, that's a really good return. Our minimum was normally 400. Our goal is 500 or more. And so that became a great deal. Our net profit was just over 71, 000. So again, that's kind of that amount that hit the bank account when everything was said and done. And then the ROI, which is a return on investment. That's an important metric, but for us, it's actually number three. Because in Denver, we flip pretty expensive properties compared to the rest of the country or some of the country should say, you know, people in San Francisco are probably laughing at me right now or New York. But on this one, we ended up making, just over a 20 percent return on investment for the period of time that we own that property. So those were the deal metrics. I want to talk a little bit about the market itself, because I think that's super important when we do our deal analysis for putting context to, well, was this a great deal? Was it a really crappy deal? How does that all frame out? Again, this one was first quarter of 2023. And for me, I'm a huge kind of proponent and a person who really focuses in on supply and demand. To me, that's the number one thing that drives prices or price variability. And luckily there were no properties that were active right when we were going to list, which means essentially we had no competition in that building. And there wasn't a lot of competition in the surrounding area right at the last minute before we listed it. Another unit came online. It was below our unit and it was listed for 379, 000. And it was super dated, I think almost original. And so the good news is I quickly thought, Oh, nice. If that ends up being any perceived value of being a good deal, our property, having it listed properly would have blown the doors off. So luckily, we were able to use that comp to justify our listing price. I'm also going to really hit in on and double click on the number one thing to focus on for comps are units that have sold in your particular building. And this is really hard. I remember I had these amazing consulting clients and they were a little newer to the investment game. They were great real estate agents. It was a husband and wife couple who has since moved out of Denver, but with them, condos were so hard to comp because if you don't have comparable sales in the building, you do have to look in a little bit wider radius, but then things change drastically. so with that, the style of the building is very important. The amenities are super important. This building in particular did not have laundry in the particular unit. That's a huge benefit. There was a nice communal laundry room on the main floor. But you have to look at other buildings that don't have laundry in unit. If you're comparing it to a unit that has laundry inside your specific property, you're probably talking at least a 10, 000 swing, in my opinion. If you don't have those in unit comps or in building comps, I should say, maybe go out a quarter mile, but be really sensitive that that might cross you over a major street. And you might be in two totally separate neighborhoods. And that really would constitute two totally separate price points. So keep that in mind. The interest rate environment, I'm going to mention this in our deal analysis, because I think in a very short period of time, we had insane interest rate rise. I don't think we're going to have a compression per se, maybe it'll trickle down a little bit, but I look back to make sure I wasn't misrepresenting myself and rates at that time, we're in the low 6 percent range. So if you think about it from early 2023. Rates got as high as the low eights that affected what you could sell your properties for as far as backend price. And then it's now drifted back down in a mid first quarter to 6. 6%. So we're pretty close to where we started last year and where we're starting this year. So it'd be interesting to see that as an apples to apples comparison on how much can I sell my properties for? Again, we look at this as a, we go into every deal, very realistic. It was a double in our books. So we had a 55, 000 projected net profit. Had we just sold it at the listing price, but we were able to list it for 20, 000 higher. Because when we went under contract in late October, we just didn't know exactly where the market was going to be. And then luckily stuff started selling and we felt super confident that not that we fall in love with, Oh, our property is super nice. So we can list it for more. Again, that's the kiss of death in my opinion, or we went over budget. So we have to list it for more. That's another stupid thing to do in my opinion. It sucks, but you got to kind of eat crow and you got to price it where the market appropriately says that that thing should be priced. And then the great thing is I'm going to give kind of a shout out to one of my mentors, Lon Walsh with your castle real estate, hands down one of the smartest residential real estate investors there are. He had kind of a cool metric that he brought up when I used to co teach with him. And he would say, If you can make the same amount of profit or ideally more of what you spend in rehab, that's a great deal. I had a really hard time making those numbers work over the last two or three years. And, so in that example, you know, Lon saying, Hey, if you're spending 50, 000 in rehab, you should make 50 grand or more in profit. We ended up flipping, I think more expensive properties. So that metric was a little off for us, or maybe we're just not as smart, which is probably true. But in this one, it was fun because. 51, 000 in rehab. And we were able to list it and we thought we'd make 55 and we ended up making 71. So this was a great property for us. We'll kind of dip back into managing some of the risks. And so again, big risks. Neighbors kind of mild pain in the ass. HOA, giant pain in the ass, Bob, go back to Bob. And then the risk of, what level of rehab do you want to do? So no crazy risk, nothing, you know, no big hurdles to overcome. I'll give you another flip tip and I'm thinking, okay, one of the things that our contractor suggested, and we actually do this now in every condo moving forward is. When you're doing these types of projects and you're doing plumbing work, you have to get in touch with the HOA. They have to give notice to the building that the water is going to be shut off for hopefully a short period of time for you to fix, you know, put in a new bathroom, redo the plumbing, change out your shower, you know, faucets and valves and things like that. I know other neighbors are not super pumped, but you know, if it broke and there was a leak, that's normal. It happens. But what he did is he actually, we incurred a little bit of extra costs, but we actually cut in a specific access panel. And so what that is we actually put in shutoffs for the water just to our specific unit. In a lot of these old units, you're either shutting the water off to the whole building or in this instance, we put in these extra two independent shutoffs and I think that was actually a huge selling point and from a, risk management standpoint, when you're doing a flip, if you've got a leak in your unit, you can just shut off your unit. And so the HOA actually liked it so much, they were going to institute that for all their other residents when they were doing updates for their property. So again, learn on every single deal. So we just did all the risk mitigation. Again, not a bunch of stuff going on there. Let's really kind of wrap this thing up, um, with a nice tidy bow and give you some key takeaways for deal analysis. Again, make friends with your neighbors. Make friends with HOAs. Make friends with Bob. It's just going to make your life so much easier. It seems simplistic, but really our company mission statement is to provide full circle value. And so just be valuable, all these other people, and they'll make your life a lot easier. The second thing is actually parking. I should have probably brought it up a little more in deal analysis, but parking is really important to make sure that you have kind of those apples to apples comparisons. So in this specific instance, we had one dedicated parking space for this unit and it happened to be under an overhang. So it was kind of a nice amenity when we're looking at comps. We want to make sure that that's what we're looking at. That is definitely a lower price point. You're going to be selling your properties at typically. If you think that, let's say a comp sells for 450 and you've got a unit that does not have dedicated parking space, you should not use 450. You definitely have to bring your price range down a little bit. So think like for like, when it comes to parking and really again, our mission and our goal this year is to actually hit a lot more doubles and hit them more frequently than trying to do some of these. Big, long six to nine month drawn out flips where you're pulling permits. Hopefully it's either a triple or a home run, but if you're hitting lots of doubles, you're going to make more money in the end. And this condo totally reminded me when I went back to say, okay, which one do I want to do a deal analysis for? These are the ones that were a solid double. It turned into a triple, which is great. Even if it's data double, it's like, if I could do these far more often, whether it's a condo, a townhome, or maybe even just a cosmetic flip. And my opinion, and it's something we're going to lean into in 2024, usually a hundred percent. Do it. So I hope you learned a ton. Hope you love this deal analysis, and we will catch you guys on the flip side. Thanks for tuning into this week's episode of raising the flipping bar. If you found value in our insights and stories, let's keep the conversation going, connect with me on social media, and be sure to share this episode with friends or colleagues who might benefit your feedback and reviews, help us grow and reach more listeners like you. So please, if you enjoyed this episode, leave us a review. Thanks again to the elevation Academy for sponsoring today's show. If you're interested in learning more, click the link in the show notes below. And remember every property. Tells a story. Every deal brings a lesson. Keep reaching for those goals and we'll catch you on the flip side.