Analyzing a Fix and Flip Property – Learning the Fixing and Flipping Process

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This is the digital nomad quest podcast with Sharon Tseung. teaching people how to build passive income become financially free and design the best lives.

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Hey guys, Sharon from digital nomad. Plus I’m here with Michael Zuber,

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Michaels Uber Bay Area live in the Bay Area, but invest in Fresno.

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Cool. So I did an interview with him earlier, we are at one of his properties, and let’s go inside. Okay,

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yeah. So basically, I am interested in getting a property in Fresno. So yeah, we’re gonna look at a few of his properties and kind of run the numbers and also look at like the amount of renovation work and everything. How much

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did you get this property? So we purchased this property for $105,000.

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Okay, and you. So when you purchased it, you You came here you saw the amount of work? Like you got the contractor to tell you that. So,

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yeah, so we would what happens every time we lock up a property is within 48 hours, we have somebody on our team, typically a licensed contractor for a job this big. And they come in and give us a bid. They feel good about being right or wrong about 10%. Right. So it’s, it’s not something they’re going to go down and take every plug every switch, they’re trying to say, Hey, Mike, this is a 40,000. This is a $50,000 job, which is what I use with the purchase price, because I know what rents are going to be I know what I can sell it for. So I need to figure out okay, so this was 105. Right, this deal made sense, as long as my repair budget was 50,000 or less, because I can sell it for 199 all day long. So it’s like that’s the exit, exit, right? I knew going in this was going to be a private ownership rental. And as far as passive income, there’s actually two ways this building is producing passive income. Okay, first, when I buy the building, I paid my own cash. But then I have this program called six and 20, we’re actually go out to private investors who want to be my partner on this project. And what I did in this case is I borrowed $105,000, from someone, I paying them 6% interest, hence the six in the six and 20, then what we’ll do when I exit, is I give them 20% of the profit. So lots of security, lots of stuff, they only pay the purchase price, I fund the entire repair bill, I’m a very conservative investor, I want my money at risk first, because the private investor that I’m borrowing from never comes to President they don’t need to write, I’m trying to give them security. So people in part of the program person, in this case, you know, they’re going to get 6% interest, this will probably be a four month long project. So roughly speaking, they’ll get 100. And they’ll get $525 a month, right every month, and then they’ll get roughly seven to eight grand with an exit. So when you annualize that return, they’re making north of 20% in a very secure position. So that’s, that’s passive income number one.

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Okay, so that’s something you do as well for Absolutely. Okay, interesting. And then for this property, so you’re flipping it?

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Yeah, absolutely. This is this, I call this when we bought this this was a slumlord property, right, it was ugly. It was it actually had tenants, which was really sad. It was like, like something used to see in the movie, like you wouldn’t want you know, human being should have been asked to live here. But so we bought it in, in, you know, we’re spending roughly $60,000 to fix it up. And then we’re going to sell it to a landlord, who’s going to have a prior show ownership model. So they’re going to have everything’s going to be new brand new floor, new bathrooms, new kitchens, you know, we’re standing in the kitchen has been floors, but none of the cabinets are in for example. That’s all coming.

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Yeah. So you’re getting a new floors,

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new floors are in new paint everywhere. Okay, when you

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do the renovations, do you have already like a template?

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Yes. Okay. Yeah, one of the things you learned very quickly in this businesses in order to save time and money, you have to template eyes, everything. So the floor that you just looked at as the same floor throughout, so if we go see more stuff today, which we will, you’re gonna be like, hey, I’ve seen that floor before. Yes, you have the paint color. Yes. You have the outside paint cover? Yes, you have. So really, the only thoughts we have is how much quantity of stuff when you because everybody’s square footage is different. cabinet layout in the kitchen is different. You’re all going to be the white two tone upper lowers, but sometimes you need eight feet, sometimes you need six. So there’s a little bit of variability, but we do anything we can to reduce choices. Okay, it helps speed Make sense? And how, how fast is it going to? So this project here is a really big one, this is going to be about 10 weeks in total 10 weeks, how long has it been? It’s been about eight weeks, it might have been seven weeks, actually. Okay.

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And when you do the repairs.

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So normally you always have a contractor come, we have

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we have somebody come in the day, it’s usually $40 and locking up. So we make sure we got a numbers, right. Okay, we are absolutely using general contractors during the remodel,

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okay. So you never like estimate it yourself. Like,

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Oh, well, I estimate everything myself. Is GC still valid?

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Yes, I don’t want to waste their time, right? If I looked at a project yesterday, for example, where I thought it was $80,000. And we just blow out the bits. I won’t waste my team’s time. I I’m trying to take care of everybody where I can.

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Okay, so if you were just start, like, you know, I’m just starting out, right. So if when it comes to repairs, I should get like I should find a contractor first figure out, like if he can come to check it out with me to see that.

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Yeah, well, again, if, right, if, if I put myself in your shoe. Yeah. Right. Um, I think it’s important to see lots of deals and lots of opportunities and lots of projects. Okay, right. So I mean, just going back to what Olivia and I did in the beginning, we came to Fresno every couple of weeks, because we were trying to get a field, back then we were buying cheap properties. And we would bring a contract with us and they would go to contract to work with the property manager. So the first thing again, me and your shoes do you do wouldn’t be a GC, for example, because if you want to buy an old president, the most important part of your team is the is the property manager. Am I getting a good property manager, they will spider out into the organization. They’ll know realtors and bankers and contractors and painters first, so they will help you coordinate, you’ll be able to say, Hey, I’m coming to Fresno on Friday, then you give me a roofer, a painter? And then yeah, just sit at the property for two hours when people would come through and you just had a question. So that’s how I would do it. How did you find

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was part of my property management team?

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Oh, okay. Cool. Alright, so the numbers are 105. You got this 125 50 k renovation, right? And then how much

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are you going to? We sold it already two for 199. Oh, you sold it. Okay. And it’s going to rent for work, I communicate it to my buyer, which again, is a landlord who wants to own property that I’ll give him 1250. I feel pretty good actually about getting 1350. So I always trying to be conservative. So ideally, let’s just split the difference. Somebody is going to buy a property in the tower district for 199. And he’s going to get rent for 1300. Ok.

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Ok. I think that’s about all the questions I have the or any other like last words of advice for I guess a fix and flip them?

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No, the only thing to realize is is 199 1300 dollars rent is is a little smaller return I like producing, but the tower district where this house is it’s just more expensive, right? If we if we if you scan the street and you looked on Zillow, many of the houses are going for over 200 grand. We will see properties later that will have nearly similar rents but are going to go from one seven year and be better numbers. I’ve got sometimes you got to pay for the land and this is in the tower district and it’s more. Okay, what are the other ones we’re going to look at buy and hold or you’re going to look at all fix and flips. Okay, cool. Awesome. Thanks.

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So hope you guys enjoyed this episode. Please make sure to rate review and subscribe. It really helps our podcast grow. And thanks again. I’ll see you guys in the next one.

Transcribed by https://otter.ai