Section Overview

Thought about flipping in Denver but not sure where to start or if you can be successful in a competitive and changing marketplace? Our ELEVATE Your Flip educational series will give you the real time keys to success from local investment experts in this seven part content series. 

The guest for this course is Derek Marlin. He is the Founder of ELEVATION which specializes in property re-development (Fix & Flip), consulting, wholesaling, and a unique Partnership Flip system. 

This first episode covers:

* Flipping reality check* Investor success factors* Getting your financial house in order* Realistic expectations for all experience levels

ELEVATE Your Flip CourseThis post is part of the ELEVATE Your Flip Course. The course gives you an introduction into fix and flipping properties in Denver.Three Learning Options:

* Listen to episode "#127: Flip #1 - Denver Flipping Blueprint" on the Denver Real Estate Investing Podcast

* Watch the YouTube video at the bottom of the page.

* Read the blog post.

Enjoy!

Flipping Reality Check

In order to become a successful flipper, you must first understand that flipping is not a passive investment. It takes hard work and fits best for those who view it as a business even if you don’t plan to make this a full time endeavor. 

Investor Success Factors

Successful flippers are organized, know what their goals are and are realistic in their expectations. You will need to be actively involved in the flipping process which takes organization. 

It’s important to consider and identify your unique strengths and what you bring to the table.  Do you have contracting experience? Do you have a real estate license? These are helpful skills but not necessary for everyone.

The next question to ask yourself is what do you want to get out of this experience? Do you want to continue to work at your current job and use flipping houses to develop streams of income? Is your end goal to put money in the market, take a vacation, save for your kids’ college? You will want to identify your short term and long term goals as well as incremental goals. Defining your goals upfront allows you to set expectations based on these goals.

Some other questions to consider are: 

* What time do you have available to commit to flipping? * What is a “good deal” for you? Is $10,000 profit per flip a good deal, or do you need $20,000+ to feel like your flip was a success? * What lifestyle changes are you willing to make today to decrease your expenses in order to provide more of a financial cushion?

Getting Your Financial House in Order

This involves what we call building a financial runway. In other words, you want to financially set yourself up for success. You will want to get your personal financial house in order which involves the following;

* Paying down any consumer debt you have. A good goal to have is zero or low personal credit debt and other non mortgage debt. * Build up a personal emergency fund. We recommend having 6 months living expenses in this fund held in a separate account.

Thought about flipping in Denver but not sure where to start or if you can be successful in a competitive and changing marketplace? Our ELEVATE Your Flip course will give you the real-time keys to success from a local investor who is actively flipping. The guest for this course is Derek Marlin. He is the Founder of ELEVATION which specializes in property re-development (Fix & Flip), consulting, wholesaling, and a unique Partnership Flip system.

Chris Lopez shares his 2020 investment goals and updates to his investing strategy. The chapter submission for the 2020 Guide to Denver Real Estate Investing Strategies is extended to January 20th. Details at https://www.denverinvestmentrealestate.com/submission-guidelines-for-the-denver-real-estate-investing-strategies-book/

Do you have a strategy for your real estate investing? Is it written down? Most likely your answer is no! Creating a rental income stream for retirement is the main reason people invest in real estate. The goal of this episode is to help you create your real estate investing strategy.

In November 2019 I closed on a cash-out refinance on my primary residence to pull out $106,000 to invest into Denver rental properties. As discussed in earlier posts, the equity in my home is an opportunity cost.

Before reading this post, make sure you read the previous post, "Refinancing Your Primary Residence to Purchase Denver Investment Property" as this post builds upon the information in there. This post continues to explore different scenarios for pulling equity from your primary residence in order to buy rental properties.

Investment Property Analysis Course (IPAC)This post is part of the Investment Property Anaylsis Course. The course teaches you how to analyze a rental at purchase and how to review it annually to optimize your returns.Three Learning Options:

* Listen to episode "#122: IPAC #5 - Tapping into Your Primary Residence Equity Updates - Part #2" on the Denver Real Estate Investing Podcast

* Watch the YouTube video at the bottom of the page.

* Read the blog post.

Enjoy!

Scenario Updates

My clients reviewed the first Real Estate Financial Plan model, and then we hopped on a call to discuss it. Not surprisingly, there were some updates to make. It takes at least a few meetings to get details fleshed out and to find the right path.

Here's the summary of the updates for this round of scenarios:

* Their preference is to stay in their current house and not move. The difference between the previous scenarios was not enough to make them move. We'll focus on refinancing options.* I'm using a lower cap rate rental property to run a more conservative model. We're going from a 6.3 cap rate to a 5.8 cap rate. This means we're less focused on finding a "really good" deal, but let's see the results for finding a "good" deal.* They can increase their monthly savings rate by $1,000/mo, because one daughter is no longer in daycare. * Since they are refinancing their primary, they are open to refinancing their current and future rental properties. I'm NOT running scenarios on refinancing their primary beyond the initial refinance to pull out cash.

Starting Assumptions:

* Total starting cash remains the same: $166,463 for investing* 75% LTV refi: $111,463 ($483,750 refi amount - $372,287 current loan balance)* $55,000 from their current capital* Total cash for real estate investing: $2,901/mo* $901/mo is the difference between their current payment and the new refi payment ($3,107 - $2,206). Let's take the savings and apply it towards buying more real estate!* $1,000/mo current savings rate* +$1,000/mo from their daycare savings.

Scenario Details

We're exploring three different scenarios to see which one is the best one for getting them to their $5k/mo and $10k/mo goals.

* #1 - Refi Primary, buy 10 rentals w/ $1,901 savings, 6.3 cap rentals - This is the "winning" scenario from the previous post. It was titled "Refi Primary, buy 10 rentals" but renamed for clarification purposes. It's here for comparison purposes to give us a baseline. It uses the original assumptions.* #2 - Refi Primary, buy 10 rentals w/ $2,901 savings, 6.3 cap rentals - This is a copy of the scenario above, except the monthly savings rate has been increased from $1,901 to $2,901. It's using the better cash flowing rentals at a 6.3 cap.* #3 - Refi Primary, buy 10 Properties w/ $2,901 savings, 5.8 cap rentals - This scenario has the updated monthly savings of $2,901/mo and buys lower cap rate properties at 5.8 cap.* #4 - Refi Primary, buy 10 Properties w/ $2,901 savings, 5.

If you're like many Denver homeowners who have owned their primary residence for a few years, then you're probably sitting on a decent amount of equity that is often in the six-figure range. The Return on Equity module discussed calculating your return on equity and the opportunity costs of equity in your rental properties. This module will explore the opportunity costs of equity trapped in your primary residence.

After owning a property for a few years, is using return on initial investment the best way to measure the performance of your rental property? No, it's not. You're building equity, which has an opportunity cost. Do you leave it in the current property or take some or all of it out to buy more properties? What you do or don't do with the equity can have a big impact on your rental portfolio.

This post will cover:

* How to calculate and understand return on equity.* The three common scenarios for determining your equity opportunity costs.* An overview of the "Equity Optimization" Spreadsheet.* A real-world case study for optimizing return on equity.

Investment Property Analysis Course (IPAC)This post is part of the Investment Property Anaylsis Course. The course teaches you how to analyze a rental at purchase and how to review it annually to optimize your returns.Three Learning Options:

* Listen to episode "#120: IPAC #3 - Return on Equity" on the Denver Real Estate Investing Podcast

* Watch the YouTube video at the bottom of the page.

* Read the blog post.

Enjoy!

Return on Investment (ROI) vs Return on Equity (ROE)

Before you dive into this post, be sure to read or listen to the first part of this course at The Four Returns in Real Estate Investing: Cash Flow is NOT Everything. As discussed in that post, calculating your return on your initial investment is a great way to analyze rental properties at the time of purchase. After a few years, it becomes an inadequate way to measure your return. Calculating the ROI is nothing more than a simple fraction that takes your total return and divides it by your total initial investment.

What happens to the fraction and the math over time? The denominator, or the "Total Initial Investment" stays the same every year. If your initial investment in a rental property was $50,000 in 2015, it stays at $50,000 every year. The numerator, or the four returns from real estate, changes every year.

Fast forward to five years after you purchase an investment and calculate your ROI. At year five, you're taking returns in today's dollars and dividing it by an investment from five years ago. The result is not a great way to measure your return. However, return on equity (ROE) is.

Return on equity is taking the four returns of real estate (the numerator) and dividing it by your equity (the denominator):

ROE gives you a more accurate return, because it's taking numbers from the current year for both the numerator and denominator. Every year, the numerator and denominator are changing.

I put together a table to show you ROE vs ROI. The Return on Equity column takes the four returns and divides it by the current equity in the property. The Return on Investment column takes the four returns and divides it by your initial total investment.

Spend a few minutes to review the table, but pay particular attention to the Return on Equity and Return on Investment columns and what happens to their percent returns every year. FYI, the table uses a real-world rental property that is a 3 bedroom, 2 bathroom condo in Aurora. I rounded the purchase up a couple thousand to $200,000 for simplicity.

This episode gives you a high level overview of the rental analysis spreadsheet from Joe Massey that we use to analyze properties. It does not go into specifics on how to use the spreadsheet but rather discusses variables and assumptions to use.

Go to https://www.denverinvestmentrealestate.com/denver-rental-property-spreadsheet/ to download the spreadsheet and to watch training videos.

YouTube Video

https://youtu.be/O8eaLirMjOo

Webinar recording - Watch it here or listen on the podcast.

Cash flow is NOT everything when it comes to analyzing rental properties. Yes, it's important, but if you're only looking at cash flow, then you're missing a few very important pieces to the puzzle. This show covers: (1)The four ways you make money in real estate investing. (2) Defining your true total initial investment to accurately measure your ROI. (3) Using a powerful visual aid to calculate the four returns to determine your complete ROI. (4) Two real-world Denver rental property analyses and their ROI.

Most likely, it'll be a different property analysis perspective than you've learned elsewhere. As the title states, cash flow is NOT everything!