Welcome back to another edition of Deal or No Deal with ELEVATION’s Derek Marlin. He joined me in the studio to talk about a recent flip he did in Littleton. This was his most successful flip yet, what he calls his “HGTV flip.” We talked about how he sourced the deal, how they approached the project, and what they were able to get for the property.
- Listen to the podcast “#317: Million Dollar Littleton Colorado Flip” on the Denver Real Estate Investing Podcast
- Watch the YouTube video (at the bottom).
- Read the blog post. Note, the blog is an executive summary. Get the in-depth breakdown from the podcast or video.
Denver-Based House Flippers
ELEVATION is a boutique real estate investment company based in Denver that works all the way from Loveland and Longmont to Castle Rock and Parker. They specialize in property redevelopment, essentially fix and flips, by taking existing homes and making them beautiful. Since they generally max out at five or six projects at a time, they also do a little bit of wholesaling to other investors when they have extra inventory.
For those interested in learning more about house flipping, ELEVATION offers consulting; one on one training; and the ELEVATION academy, where they teach their whole system in a one-day bootcamp. They also do partnership flips, where anyone who wants more handholding through the process can partner with them and split the extra profits 50-50.
Sourcing the Deal
The house is located in Littleton. A lot of people try to stay in the Denver area to get top dollar for their flips, but the increased competition makes it harder to find a good deal. House hackers are able to overpay for a property compared to what an investor would need to pay to make a profit, so many investors are looking at the suburbs.
This property was a partnership flip they did with a couple who previously attended the academy. They were one of two parties that came to the showing, and luckily the other party wasn’t organized enough to act on this deal. One of the things taught in the class is to pick two to three areas to make good sourcing inroads, and this couple was out hustling and meeting with other investors and wholesalers.
After running the deal by Derek, they decided to buy the house and partner with him to flip it. They paid for the house, and ELEVATION funded the rehab.
Assessing Their Biggest Flip Yet
The house is located in the Ken Caryl neighborhood near Littleton. It belonged to a woman who fell behind on her taxes and hadn’t been maintaining the home. They agreed to a three-month rent back, so she would have time to find another place to live. A post-occupancy agreement is common, and ELEVATION usually doesn’t charge rent; instead, they require a hefty security deposit. In this case, the tenant ripped out the stair railing of the basement to move furniture and forfeited the deposit.
The house is a classic two-story single-family home with over 5000sq ft, 7 bedrooms, and 4 bathrooms. It is the largest house they’ve ever worked on, and the first that had a backyard pool. The property itself was in decent shape and mostly needed cosmetic work, updating, and a better layout.
Details of the Flip
ELEVATION worked with a licensed general contractor to get the work done. While they could have saved money by hiring a company that does all of the work themselves, time is of the essence when doing flips. The large square footage of the house meant it would already take more time to finish the house, and hiring someone who had the physical manpower to get it done before prime selling season was most important.
The house cost $485K, and they originally budgeted $200K for renovations with the intent to sell at $850K. Once they looked at the comps, they realized they could spend more on higher end finishes and push up the list price of the house. The nearby comps showed that it was reasonable to list the home at $925K, so they spent an extra $32K to compete with those listings. These extra expenditures included putting a wet bar in the basement and doing more landscaping and concrete work than originally planned.
Different levels of flips require different profits to generate good returns. For a house that requires minimal work, they need to net a $100K difference between the purchase price and sales price. Traditional flips require about $150K difference, while larger suburban or uptown properties generally need $200K.
They had a difficult time figuring out how to estimate the value of the pool since so few properties in Colorado have them. No homes in that price range had pools, so they hoped potential buyers would see it as a nice feature.
Speed was key for this house, so they had to be careful not to over-improve the property. At first, they considered creating two master bedroom suites, but the market showed that it wasn’t necessary.
Creating a New Fixture and Finishes Package
One of the processes ELEVATION has in place that makes it so successful is preselected rehab packages. These fixture and finishes packages take personal taste out of the equation. They have two contemporary styles, one mid-century modern, one farmhouse, and one for rentals so that clients don’t over-improve the home.
For this home, they knew there was no way they could use one of their existing packages because they were planning on listing the home at such a high price. They created a sixth package for high-end homes that are $800K or greater. This package has the highest level of quartz, marble mosaic backsplash, and $2500 more for nicer appliances.
Having these packages in place expedites the time it takes to fix up the properties. Instead of having to spend hours picking out and sourcing tile or appliances, they know exactly what to get and can easily send out a crew to pick it up. Saving time saves them money, especially with the interest clock ticking. This systemization also allows them to work on multiple flips at once, since they don’t need to be as hands on for each flip.
How Do I Determine if a Property Is a Good Flip?
Derek uses a fix and flip spreadsheet that has four metrics that help him determine if a potential flip will be a good deal. Ideally, he’ll have multiple properties and can run them through the spreadsheet to decide which one to keep. Running the numbers on this property shows why it was Derek’s most successful flip yet.
The first metric is dollars per day. This is calculated by taking the estimated net profit and dividing it by how long he would need to hold the property. If he were to ask someone if they’d rather make $58k vs $42K, the kneejerk reaction of most people would be $58K. But in reality, it will depend on how complicated the project is and how long it will take to finish it. If a project will take a long time to complete, it will end up costing them money to hold onto it, and the extra profit might not make up for it.
The second metric is velocity of money. It calculates the profit per day that the property is held. The house was originally projected to sell at $850K, which would have come out to between $650-700 per day in profit. Selling it at the higher $925K meant that the per day profit was $930 which is well above the average of $475.
The third metric is profit, which is purely net profit. This is determined by adding the purchase price of the property, the cost of the rehab, and the closing and holding costs of the house and then subtracting it from the sales price. This property netted just over $200K in net profit. This metric is useful for showing people that even if they’re borrowing at a high interest rate, they can still make a profit if the rehabbed house sells for a high price point.
The last metric is Return on Investment (ROI). The average ROI for one of Derek’s flips is 12-14%; the 25% ROI on this property shows just how good a deal this is.
For partnership flips, the profit is split 50-50. In this case, the partners received their acquisition price of $485K and their interest, while ELEVATION was reimbursed for their rehab money. The total profit after those costs was $200K, meaning each party got $100K.
Selling the Property
The comps were spread across two different neighborhoods that are similar in style. Since the house is in the suburbs, the footprint for comps is larger than in the city. Some of the other homes were a little bigger, but that makes less of a difference once the property is over 5000sqft.
They priced the home at $925K, had 47 showings, and received 5 offers. This was much more than they expected at such a high price point. In the end, they went with the buyers who loved the home the most. They paid $75K over asking, bringing the sales price to $1M. Derek figured they could get that much for the house, but didn’t want to price it that high himself. His philosophy is to let the market do its thing and good things will happen.
The property was flipped during the wintertime, which made it difficult to assess the work needed for the pool. By the time it was listed in the spring, the few pool service vendors in the area were too booked to give them quotes. Luckily, they were in a multiple bidding situation at that point, and it was not necessary to get the pool fixed. Instead, they gave the buyers a significant credit to get it fixed themselves.
This was a lesson in talking to buyers’ agents to find out what the buyers want. In this case, the buyers were well-to-do Texans who wanted to make their dream pool. The credit allowed them to create the pool they desired, and it saved Derek money and the time required to figure out an area in which he isn’t an expert.
Derek likes partnership flips, because they allow him to work on deals he would never otherwise see. By only needing to fund the rehab portion, he saves money and gets a better ROI than if he’d bought the property himself. The partners are able to learn more about how to flip and have the benefit of ELEVATION’s processes and contacts to make the most out of their flip.
Before Photos of Million Dollar Flip
After Photos of Million Dollar Flip
Connect with Derek
To learn more about ELEVATION and house flipping, go to elevationinvest.com, or look for @elevationinvest on Instagram and Facebook. If you’re interested in partnering with them, call and email to find out more.
Go here to download the Fix and Flip spreadsheets Derek uses to assess potential flips.
As always, if you’re interested in finding your own property, reach out to us.