In real estate, there are many different ways you can invest and turn a profit. For Patrick Bieleny, flipping houses offers the best bang for his buck. Bieleny immigrated to Canada from Eastern Europe for school in 2010 and attended the University of Toronto. He graduated with a degree in business management and moved to Calgary, Alberta. There he established the successful PB & Co. Houses, his very own company specializing in identifying and flipping the best possible properties for the greatest return.
It may sound a lot like your favourite home and garden television series, but the results are as concrete as the foundations Bieleny builds on. If you’re thinking of trying your hand at flipping houses, Patrick Bieleny is the expert to turn to. There are six key stages to flipping a house, he says, and each of them informs the bottom line.
Know Your Market
The first stage of flipping a house is probably not what you might think. In fact, house flipping starts a lot sooner than buying your first fixer-upper. Long before you start your house hunt, do market research, says Bieleny. It’s important to understand the different types of flips you could engage in and identify the one that best suits your investment style and experience. House flipping is also a cash-heavy investment, meaning that you will need some capital to get started.
Knowing how much you can put into a project from the beginning will help inform the rest of your approach. Traditionally, mortgages require a 20% down payment. Luckily, investment property financing will cover the majority of your purchase. Keep in mind, however, that you will still need to front some cash to demonstrate your commitment to the project to potential lenders.
Bieleny explains that there are four categories that most real estate investment professionals will refer to. They are Classes A through D. Class A investments are often in high-cost neighbourhoods catering to the wealthiest of society, whereas Class D investments are usually in low-income areas. There are risks associated with every class of investment. In Class A, the buy-in is quite high, squeezing potential margins for profit. A Class D investment may be vulnerable to break-ins or vandalism, which may require additional insurance coverage. For most first-time flippers, Classes B and C are the most common choices, says Bieleny. These properties generally cater to working class and white-collar professionals.
Build a Network
Chances are you won’t be flipping the house all by your lonesome. That’s why it’s important to build a network of professionals in construction and the trades early on. Good relationships with vendors and contractors will help ensure you bring people on to your team who are reliable and do quality work. This will help avoid delays, which cost money in this time-crunch of an investment. After all, the longer you are renovating, the more it will cost to carry the house month to month. And, in some cases, knowing who your team is before writing up your business plan can give you an edge when it comes to securing financing. A reputable team goes a long way, says Bieleny.
Make a Business Plan
Flipping a house isn’t like investing in Real Estate Investment Trusts (REITs) within a broader investment portfolio. It’s a much more involved activity. As the project lead, you will have to invest both your time and money to make this dream a reality. For lenders considering helping you cover the cost of the house purchase and even some of the work, it’s important to see that you understand the business end of house flipping. Patrick Bieleny recommends creating a simple but thorough business plan. It doesn’t have to be complicated, but it should demonstrate your plan of attack, understanding of the costs, and projections for returns.
Start with the scope of the project. Do you plan to work primarily on cosmetic upgrades like flooring and paint? Or, do you plan to completely gut a structure and start with bare bones? This leads perfectly into the next requirement for your business plan: a timeline. Adding a coat of paint and some new floorboards is a comparatively quicker project than redoing the plumbing or electrical, which will require permits from the city and specialized tradespeople. Finally, outline your expected returns by referencing your market research. This will be the part most lending institutions will want to see to ensure you will be able to pay back your loan.
Secure Financing
Patrick Bieleny always advises securing funding long before you need to use it. That means making sure you have funding before making an offer on a house. Many loans built for home renovations and real estate investment will often cover the majority of the purchase price and all if not most of the renovation costs. So, take your business plan and start visiting your local lenders to find the best deal for your project.
Bieleny recommends seeking financing with low fees. This may mean that the interest rate on the loan will be higher, but as a house flipper you will ideally only be making a few payments before the project is complete and ready to sell, making interest rates less of a concern than fees.
Get the House
Making it to this stage of the process can be exciting, but don’t jump the gun, says Patrick Bieleny. You want to find the right house at the right price, which can take some time. Don’t be discouraged if you make multiple offers before one is accepted. After all, house flippers are looking for a deal and many real estate markets can be competitive.
A good piece of advice Bieleny likes to give first-time flippers is to stick to the business plan. Don’t be tempted by a house outside your budget or in a neighbourhood you haven’t researched. These factors will have a huge impact on your bottom line if you are not properly informed. Since house-flipping can be a risky investment to begin with, don’t add volatility by deviating from the plan.
Renovate and Sell
Once you’ve secured the property it’s time to get your hands dirty, and quickly! The longer you work on the property the more it will cost to carry, which will restrict your profit margins. That’s why you put the work in planning early, says Bieleny, so that you can break ground the moment you get the keys (or soon thereafter). Stick to the budget and the timeline as best as possible, he says.
When your A-team of contractors, vendors, and professionals are done helping you turn a dump into a dream, it’s time to sell. Work with a realtor you trust to price the home competitively while ensuring you still make a profit. Ideally, the property won’t sit on the market too long and you’ll be able close a deal on a turn-key home with ease. At this point, you’ll be able to close out your loan and walk away with a tidy profit and pride.
For Bieleny, flipping homes is a dream come true. It combines his passion for business and his love for building homes into one money-making opportunity. If it sounds like house-flipping might be for you, stick to these six stages and you’re likely to find success.
