The Delta – Spotting a Flip
So… how does a potential investor actually locate added-value ‘flipping’ opportunities? (Other than applying for membership to my Investors’ Circle real estate investors group!) One way is to search neighbourhoods for large price differentials in comparable similarly-sized lots/houses. The ‘delta’ (potential price change between acquisition price and post-flip resale price) is first evident here and is a great indicator of a flip opportunity.
So then, what is delta exactly, and how is it evaluated? It’s best explained through an analysis of the search process. For instance, this week, there is a property that my investor group have been tipped off to at 4 Armadale Ave in the Bloor West area, listed at $789,000.
4 Armadale Ave – Listed at $789,000
When we look on the street for comparable properties, we will want to pay special attention to a couple of factors, to ensure we are choosing good comparables:
(1) Lot size. This must be similar, especially in terms of frontage width, or you are looking at incomparable properties.
(2) Type of property. Goes without saying? I’m saying it anyway. No comparing semi to detached, etc. For starters, you can’t tear down a semi and start again. In my experience, the adjoined neighbour usually vocalizes understandable concern with that idea. (!)
(3) Number of Storeys. This doesn’t matter if you’re doing a complete tear-down, but generally speaking, adding storeys is a bigger task than working only with the interior space of a home. (Though adding storeys can be an amazing and surprisingly safe bet to upgrade properties for profit. Email me if you’d like to see a perfect example opportunity available right now in Toronto.)
So you’ve found a fairly good comparable that has been fully renovated up to the highest standard of sales in the neighbourhood? Great. What did it sell for? In the case of Armadale, I don’t have a fully-renovated comparable readily available, but there is a very similar property listed at 23 Armadale for $1,549,000, which, if they get even close to that, could prove to support a healthy delta ($760,000, all things being equal and with a sale at list price).
23 Armadale Ave – Listed at $1,549,000.
Now, obviously we’ll want to do our due diligence, including visits to these properties, inspections, financing, legal, etc. But if everything seems in line, we can use the price difference here as our gross potential revenue estimate, from which we will subtract our expenses, such as transaction costs, taxes, carrying costs and the renovation itself, to arrive at our projected profit.
Once you’ve found a property with a great delta, you can reasonably start taking these next steps toward evaluating and buying the right flip property for you.
Tell your friends! They’ll thank you. Call me if you’re interested in learning more about buying or selling real estate. OR email me if you’d like to apply for membership to the Investors’ Circle. Members receive email tip-offs to opportunities like these as they become available.
Until next time,
Shaun Nilsson
1-888-712-7888
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