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Flipping Property For Profits

How To Successfully Find, 100% Finance, and Flip Real Estate in Colorado

Sponsored by Mortgage Money, Inc.
Colorado’s Most Flexible Private Real Estate Investment Lender

Real estate; the diverse range of functional and financial utility makes it like no other investment.  An investment that has outperformed the stock market over the last 4 decades deserves some serious consideration as a wealth creation vehicle.  Yet finding success in this business can be very elusive, or even ruinous, without the right knowledge and relationships.  

Typically, the most challenging thing about getting started in property development is having a reliable source of funds, especially when experience and large cash down payment are lacking.  Not having a good lending relationship makes the process sluggish and causes hesitation when decisiveness is required.  Most real property lenders (hard money lenders) need a large margin of safety to make a deal work.  They require too much cash from the borrower at closing while deriving their profits from expensive monthly payments, when that cash is sorely needed in other areas of the project.  Mortgage Money Inc is a different kind of lender, and we solve these challenges through the most unique hard money lending solutions in Colorado.  Solutions we know the investment community will find refreshing, and the kind of financing needed for today’s competitive environment.

This article attempts to walk investors through the process of acquiring 1-4 unit residential properties below market, improving and reselling for a profit.  

“This from the perspective of an experienced private real
estate investment lender with money to lend in Colorado.”

The following is based on our processes, experiences and protocols and doesn’t necessarily apply to other lenders.  Let’s get started.

Setting Up For Success

Start at The Exit

The whole process of acquiring property below market, improving and reselling in a short period of time for a profit, otherwise known as “flipping”, begins with the exit strategy.  Start the process by identifying a property that appears to have profit potential and begin to determine what the likely value of the property will be after improvements have been completed.  In order to accomplish this correctly and avoid valuation problems with the re-sale, it’s important to have a basic working knowledge of appraisal guidelines.

Appraisal Guidelines

Appraisal guidelines matter because they will restrict the next buyer of the subject property, assuming they will be financing the purchase, to a justifiable appraisal value based on those guidelines.  Government Sponsored Enterprises such as Fannie, Freddie, FHA, VA, ultimately own or insure most of the mortgages in the U.S.  The GSE’s have specific guidelines with regard to how they want their appraisals prepared, and any bank that sells a mortgage to them must follow the protocol.  

There are three primary criteria that will serve to keep investors within the lines when analyzing and choosing comparable sales:  1) physical features, 2) location, and 3) date of sale; and not necessarily in that order.  Select comparable sales that have the best combination of those criteria.  Date of sale means applying more credibility to a more recently closed sale over an older one; typically within 6 months or less, but use the most recent.  Physical characteristics means the most similar, for example when valuing a ranch style floor plan, do not compare with a 2-story, tri-level, or bi-level when other ranch style plans are available for comparison. Similarity includes square footage; choose comps within 20% larger or smaller than the subject property, and then adjust for differences greater than 100 square feet.  Location or proximity; real estate values are hyperlocal, do not go outside of a 1 mile radius from the subject property unless nothing appropriate is available within the 1 mile radius, and furthermore a comparable sale ¼ mile away is better than a comparable sale ¾ miles away.  Choose comparable sales that need the least amount of adjusting by the appraiser because they are so similar to the subject property.  Utilize these governing criteria in the selection of the three primary comparable sales for the purpose of deriving the AIV or After Improved Value.  Like an appraisal, the AIV must be based on credible sales data with the exit strategy in mind; meaning if the next buyer can’t get the appraised value to match what they paid, someone has a problem.

Collateral Underwriter

Adding to the complexity of mortgage loan underwriting, beginning January 2015, Fannie Mae introduced “Collateral Underwriter” or CU, an appraisal risk assessment application developed by Fannie Mae to help loan underwriters assess appraisal quality.  CU provides a numerical risk score from 1.0 to 5.0, with 1 indicating the lowest risk and 5 indicating the highest risk based on a combination of physical features, location, and date of sale.  Features such as square footage, lot size, bathrooms, quality, view, etc. are also considered.  Flags and messages identify risk factors and specific aspects of the appraisal that may require further attention.  CU will integrate with automated underwriting systems such as Desktop Underwriter beginning in April 2015.

Suffice it to say, investors and developers should be aware of the increasing scrutiny and regulation of appraisal guidelines which may ultimately affect the end buyers ability to finance the property.  It’s a well known fact that suppressing lending lowers property values.  To avoid problems, keep all this in mind when planning the resale price of a flip, or it may indeed flop.  

Determining Feasibility

Analyzing the deal for Profit Potential

After compiling a list of prospective properties for purchase consideration, separate the winners from the losers by analyzing the profit potential for each opportunity.  Generally, the property should be acquired for no more than 60%-80% of the After Improved Value to make the flip successful.  For negotiation purposes, it’s best to identify 2-3 opportunities at a time rather than just one.  There are four categories of expense to analyze including acquisition, improvements, holding, and divestiture.  Let’s take a look at each individually starting with divestiture, or resale of the property.

Determining the AIV (After Improved Value) for Divestiture

In accordance with appraisal guidelines mentioned previously, select the three comparable sales most applicable to the subject property, with one exception; condition.  The goal is to derive the value of the subject property after it has been remodeled and improved, so select comparable sales that are in the same condition as the subject property will be after it’s improved.  Make adjustments as necessary to the comparable sales to equalize them with the subject property, and then derive from that the anticipated After Improved Value of the subject property.  This is the net resale price for purposes of divestiture.

Calculating Purchase Price

Once the AIV has been established, deduct from the AIV the other categories of expense; acquisition, improvements, holding, and divestiture, to arrive at the optimal purchase price for acquisition of the property.

Acquisition Costs

Expected acquisition costs include physical inspections to determine the safety, structural soundness, and functional utility of the property, as well as title insurance and recording fees, appraisal, survey, and attorney’s fees if applicable.


Improvement costs can swing widely depending on condition, renovation plans, construction materials and labor availability among other factors.  This part of the process is where many investors sink themselves by having no real idea of what it’s all going to cost.  Start by walking the property with a smartphone or digital recorder.  Imagine the property in its’ after repaired condition and begin recording everything that needs to be done to affect that AIV condition, room by room, area by area, inside and out.  Be sure and record everything that may need to be addressed.  If possible bring along a contractor, four eyes are better than two.  Take the recording back to the office and begin entering the recorded data item by item into the designated place on the spreadsheet.  Also enter the estimated costs of each item if known; if not known, enter each item for which the cost will be estimated later.  The important thing at this stage is to get everything on the spreadsheet that may need to be addressed and hopefully leave nothing out.

Holding and Loan Carrying Costs

Depending on the structure of the acquisition financing, there may be monthly payments required while the property is being renovated and marketed for resale.  These holding costs may include principal and/or interest payments on the loan, builders risk insurance to cover hazards and loss, property taxes and owner’s association dues.


Next, analyze the cost of divestiture, which is what will it cost to sell and get out of the property.  Typical expense would include an owner’s title policy, property taxes, real estate commissions, seller-paid closing costs on behalf of the buyer, and attorney’s fees if applicable.  It will be helpful to ask the title company to get involved early and prepare a settlement statement to work from.

Analysis of Risk and Reward

Utilize all this information by entering it into a spreadsheet for comprehensive analysis to determine if the property will meet investment goals on risk and rate of return.  “Rehab Valuator” is the best free software I’ve found for this purpose and is the one I use.

Start by considering what kind of return is being realized on other investments.  How does the proposed return on this property compare?  How high is the risk tolerance of the investor?  How much time and money will be invested for a particular rate of return and is that acceptable?  These answers will vary between investors.  It’s important to identify in advance what return on investment is acceptable because it helps to avoid over compromising objectives in the heat of a competitive moment.  What kind of return and risk one investor accepts will differ from the next, so it’s a personal choice that needs to be identified early and stuck with.  The ultimate test of expectations will be determined by one’s ability to make deals.

Real Estate Investment Financing From Mortgage Money, Inc.

Working Mortgage Money Inc.  

Mortgage Money Inc. has a targeted preference or appetite for the type of loans we prefer to do based on our unique business model.  In accordance with shareholder mandates, we target a certain range of return on investment (ROI), and this tends to put our loans in a higher risk category than other lenders in this particular market space.  Similar to a “sub-prime” category in traditional lender parlance.  

Borrowers come to Mortgage Money, Inc. for loans that are too risky for other lenders; they come to MMI for customized unique lending solutions; for quick turn around and funding; for transaction rescues, for 100% financing of acquisition, improvements and carrying costs; for a high level of expertise in both lending and real estate; for experience they may lack; for a relationship with a “money guy” that is reliable and predictable and feels more like a partner than a bank; they come to Mortgage Money Inc. for flexibility, common sense underwriting, and higher Loan-to-Value-After-Improvements (LTVAI) than any other lender in town.  We don’t compete for those very safe types of loans with money down, good credit and monthly payments; our product is more niche.

Loan Pricing

The first question most developers ask is “what do you charge” or “send me your rates”.  That’s a fair question, so let me simply answer it this way; our shareholders require that we yield between 10-15% return on funds lent.  The range between 10-15% depends on risk factors in the deal such as Loan-to-Value After Improvements (LTVAI), loan structure, property characteristics, location, experience, repeat business; the more risk, the higher return required.  We achieve the ROI requirement in three ways; discount points, interest rate, and yield spread (percentage of profits shared at resale).  Pricing is allocated and balanced between these three revenues based on the individual needs of each borrower to create a highly customized lending solution.  Private lending of this nature is property specific, so what we charge depends quite literally on the property and the structure of the deal.  Often we can finance the acquisition and improvements all while not requiring any loan payments for the duration of the term.  This is what makes Mortgage Money, Inc. different from private hard money lenders that underwrite to the borrower's credit and capacity to repay, and require monthly payments and cash down for both acquisition and improvements.  We also have very unique ways of reducing risk and that enables us to further lower the cost of borrowing.  For a specific pricing quote, submit here:

Collaboration With Lender

Lender Proposal  

If the property will not be acquired with cash, it’s time to engage with a lender.  Prepare a proposal on the rehab spreadsheet and submit it to the lender for consideration.  The spreadsheet will communicate the financial aspects of the deal and clearly illustrates what each party stands to gain.  Be realistic, don’t expect to make all the money while taking no risks and not putting any money into the deal.  Understand that while finding the property is crucial to the transaction, so is the funding and you can’t do one without the other.  The lender will be taking substantial risk, typically more than others involved, and will need to make a reasonable return as well.

Planning and Refinement

If the investor and the lender have communicated well in the previous stage, and both parties are interested in proceeding, the next likely step is to meet at the property and continue the discussion.  The main purpose of the meeting is to determine if the lender will loan on the property and firm up the specifics of the improvement plan.  The lender will want to get a visual fix on the current condition while the investor communicates what it is they plan to do during the improvement process.  This is particularly important if the lender will be financing the improvement costs, because the construction draws for those improvements will be tied to specific milestones identified in the scope of work plan.  It’s important to develop a realistic improvement plan based on an appropriate budget and stick to it, because change orders are expensive and cause unnecessary delays.  

Depending on the experience level of the investor, they may want to collaborate with an experienced lender, or a real estate professional skilled with investment properties, to determine the best course of action with the property in order to achieve the highest sales price combined with lowest possible improvement costs.

Collaboration / Lender Proposal / Agreement

Discuss the key aspects of the deal such as the risks, time to completion, structure of the financing, rate of return, and then propose conclusions to the lender and request a loan based on the terms needed to achieve the desired rate of return.  This proposal may be acceptable to the lender, or the lender may adjust the terms and counter propose to the investor for consideration.  Evaluate the proposal and come to terms under a mutually acceptable financing agreement and move forward.

Title Vesting / Taxation  

Be sure and discuss title vesting with the lender during the collaboration process as this may change the risk profile of the deal.  Some lenders do not lend to companies and trusts, others want a personal guarantee, some lend only to individuals.  The art of limiting risk through various title vesting strategies is beyond the scope of this article, but I encourage investors to consult competent counsel for advice.  William Bronchick is a well known attorney in the Denver area specializing in this kind of law, and I have used his services and came away satisfied.

Property Acquisition

Contracting for Property Acquisition

Writing a winning real estate contract is both an art and a science.  A well written contract communicates experience, low hassle, fair dealing and professionalism; all of which are characteristics any buyer or seller would want present during the process of transacting real estate.  Start by crafting the contract around the needs of the seller in exchange for the right price and terms.  If possible, make the contract assignable so as to keep the most options available.  Arrange dates and deadlines to flow efficiently by grouping them according to related contractual actions.  For example, group delivery deadlines together for things such as title work, owner’s association docs, seller disclosures, insurance and due diligence documents, while grouping objections to those items closely together.  Group survey and inspection, and possibly the appraisal dates together, and so forth.  Are there contingencies that can be waived to make the contract more attractive?  Would a large earnest money deposit impress the seller? If there is competition for the property, would a price escalation clause make sense?  What about a Specific Performance guarantee; most buyers are too afraid to choose this option, so that creates an opportunity if the deal is right.  Have a strong “proof of funds” letter from a bank, or if financing with a private lender, obtain a letter that will show pre-approval for a loan and have one of those accompany the contract when it is submitted.    

Inspections / Due Diligence

It is important to complete inspections and due diligence as soon as possible after going under contract.  Discover everything possible early in the process.  Regardless of the contingencies which may have been waived to get the deal, I recommend completing crucial inspections anyway.  For negotiation purposes, submit your findings in writing to the seller and copy interested parties.  This can serve to put the seller in a position where they will have to disclose known defects or risk possible litigation later, and it may help massage the negotiations.  It’s better to lose $1,500 in earnest money than lose $15,000 to a bad sewer line.  Always remember the next buyer will very likely conduct a complete inspection for general issues, sewer scope and radon gas levels at minimum, so know what they are going to find and be prepared to deal with it.  Other due diligence might include warranties, building plans, construction permits, surveys, prior inspections, radon tests, soil reports, engineer reports, documents from an HOA or notices from city, county or state governments, current leases and amendments or other occupancy agreements, and other issues that may require investigation.

Construction Bids / Verifications  

The best way to limit labor and material expenses to ensure the project comes in as budgeted is to obtain multiple bids.  Create a clear, concise, detailed improvement plan and put it out for bids.  The more detailed the scope of work, the more leverage the developer will have with contractor’s.  Let all participants know they are competing for the job.  After obtaining and comparing bids, are there opportunities to utilize the best of each bid?  Take some time to verify material costs and do a “make-sense” check on labor.  For example, x price for x number of laborers for x amount of time should approximate a reasonable labor cost per worker per hour.  This helps to avoid paying rock layers like rock stars.  I recommend separating labor and materials and purchasing those materials directly.  Some contractors don’t like to break it all down, partly because they don’t like paperwork, but sometimes it is because the more detail given, the more the developer can hone in on the actual labor costs.  Some will claim they can get materials at a lower cost and so the developer should allow them to handle materials as well; which may or may not be true.  Look for ways to develop long term reliable relationships with these bidders.  Negotiate for win-win, but stay in budget.   If the developer will be directing the construction process, pay attention to the personality mix and styles of those who will be communicating with each other often.  Along with financial strain and delays on the project, it can cause a sense of panic if a contractor walks off the job because they can’t get along with the developer.

Title Insurance Commitment

Obtain a title insurance commitment from a reputable highly rated carrier.  Developers reselling the property in less than one year can typically qualify for a “Hold Open” Title Insurance Policy, which allows them to hold the policy open until the end buyer closes on the resale.  This saves a bit of time, but mostly money, because for a nominal extra fee at the acquisition closing, the developer can avoid paying the full cost of two policies.  The Hold Open Policy option is less costly than a reissue rate as well.  Like every insurance policy, review carefully and understand the requirements and exceptions for coverage.  The best title companies will have legal counsel available for questions and solutions upon request at no additional charge.

Risk Insurance

Builder’s Risk Insurance is a crucial part of the development process and must be obtained by the borrower and approved by the lender prior to closing.  Builder’s risk insurance differs from a typical hazard insurance policy by insuring the structure and building materials while under renovation and while being unoccupied.  Insure the property for the full value after renovation, and add to that the potential costs of demolition and debris removal, which is costlier than most realize.

Loan Package Submission and Underwriting

Documents typically needed for underwriting include purchase agreement and all related seller disclosures, appraisal or value analysis, engineering reports, short term resale profit analysis with long term rental contingency plan, scope of time and work budget with material and labor breakdown, improvement contract with contractor’s, copy of contractor’s liability policy, documentation of experience through prior projects completed, title insurance commitment, builder’s risk insurance binder with paid receipt for one year in advance, borrower credit report and copy of driver’s license.  For best efficiency, all documents should be submitted at one time, all together.  The verification and underwriting process will typically take 48-72 business hours in most cases.

Closing Setup  

Once the loan is approved the lender will send the loan closing documents and a breakdown of the financial figures to the title company for settlement statement preparation.  The statements are then prepared by the title company and sent back to and approved by the lender prior to distribution to other parties.  Once all parties have reviewed and approved the settlement statements, the closing can take place.

Acquisition Closing.  

The closing date and time are typically designated according to the purchase contract.  Colorado is a “wet funding” State meaning the parties must have certifiable “good funds” at the closing table or the closing cannot not take place and the party not presenting certified funds may be in default under the purchase contract.


Once the borrower has signed all relevant documents, the title company will prepare a funding package which will be sent to the lender to evidence all documents have been executed according to the lender's instructions.  Upon review and approval of the funding package, the lender will authorize funds to be released and the title company may then disburse funds, close the transaction and record the documents.


Improvement Permitting

Most building projects in the City and County of Denver including new construction, remodeling and repairs require a building permit plan review to evaluate the project before permits are issued.  There are some instances where only a trade specific permit or a quick permit is issued with no review required.  When a building permit plan review is necessary, plans are reviewed in one of two ways; as a ‘same day / walk-in review’ or as a ‘log-in review’.  The type of review required depends upon the value and complexity of the project.  Projects that qualify for a same day review have a total construction value less than $300,000.00 and do not require approval from any other agency.  Log-in project reviews, both main and intermediate, require approval from each reviewing authority; architectural, structural, mechanical, plumbing, electrical, fire and wastewater for issuance of a permit.

Construction Plan Execution  

Improvements must be executed according to the scope of time and work plan in order to keep the project on track and eligible for subsequent construction draws.  Care should be taken to avoid change orders once improvements have begun as they are costly and time consuming and are often opportunities for the contractor to charge higher fees.

Construction Escrow Draws

Construction draws are disbursed by pre-determined stages of completion in accordance with the scope of time and work plan.  Once a milestone has been reached, the project is eligible for additional escrow draw to propel it to the next stage, and so forth until the project is complete.  Receipts for materials and invoices for labor must be submitted to the lender for approval in advance.  Lien Waivers must be obtained from the contractor’s receiving payment and must indemnify the owner against sub-contractor’s leining the property as well.  The lender’s representative will walk the property to verify all the components of the milestone have been reached and then the escrow disbursement check can be cut.  It’s important to note construction escrow draws are additional funds lent on “real property” and not for “materials and labor” and so the milestone has to be completed in order to be eligible for additional escrow funds.  

Inspections; Lender / County  

Inspections will be conducted by the lender and building authority.  The lender inspects the property for conformance with the scope of time and work plan for construction escrow draws, while the building authority inspects the property for conformance to building code regulations.  Both require a 24-48 hour notification period.  

Cleanup / Listing Prep / Staging  

Once all the improvements have been completed, the property should be professionally cleaned to make everything sparkle and smell fresh.  Staging a home can make a significant difference in the resale price and is usually worth the cost.  Like any well promoted product, presentation is immensely important, exterior aesthetics, or ‘curb appeal’ is equally important.  Touring new home builders’ models in the area gives one a sense of professional product presentation for staging and showcasing a property.  Finally, take well-lit higher resolution photos showcasing all the features and benefits of the property finishes and fixtures.  Like staging, a professional may be in order to vividly capture the essence and experience of living in the property.


Listing for Resale  

Since cost can also be measured in terms of lost value, i.e. a lower sales price, having a concise and effective marketing and exit strategy is crucial to achieving the highest price.  The best way to achieve the highest price in the shortest amount of time with the least amount of cost and hassle is to list the property for sale with a professional Realtor®.  High exposure is key to getting not only the highest offers, but multiple offers simultaneously, a market dynamic which goes a long way to ensure the seller has captured the highest price possible.  Further, third party negotiation is a proven and effective method of achieving goals and objectives with less compromise.  The value created by a good Realtor® will exceed their cost and thus makes good financial sense.

Pricing for Advantage  

Pricing the property correctly is one of those very valuable services a Realtor® can provide.  Pricing too high, means taking less over a longer marketing period while pricing too low means leaving money on the table now; either way is a loser.  Price correctly and sell for the highest price in a shorter time frame.  Further, the first couple of weeks on the market are the most critical in achieving a high price, so it must be priced correctly in order to hit that target.  Bottom line; price it competitively within its micro market and realize a better profit margin when you sell.  

Contracting for Resale

Having received multiple offers or just one offer, it’s crucial to accept the right offer the first time.  Focus on the financial strength of the buyer and their ability to close and less on who is offering the highest price.  Interview the buyer’s lender to find out how far along in the underwriting process they are.  Has the lender ‘verified’ income and asset documents for down payment, work history, does the credit and debt ratio profile meet the underwriting requirements of the loan program, have they actually run it through the computer and what was the outcome?  What if the appraisal comes in lower than the contract price, does the buyer have additional cash to solve the problem if they need it?  When choosing consider that more down payment means less risk for the lender; more security in the buyer's ability and willingness to repay means less scrutiny on the transaction as a whole, making for a smoother more reliable closing.  The lender will most likely decline to answer any questions without their borrowers permission, so anticipate this before contacting them and ask the buyer to give written permission to their lender to speak candidly in advance of the phone call.

Have the FHA anti-flipping rules been considered?  If the loan is to be FHA insured, check for the latest updated property flipping rules to be sure the deal will be in compliance before any contract is accepted.  As of January 1, 2015, the FHA anti-flipping rules are back in effect!  This means the date between recording of the last sale and the date of the new contract for the resale must be at least 90 days in between.  The purchase contract must be written on the 91st day after recording of the last sale or the loan is ineligible for FHA insurance and may be denied.  Underwriters may require the deal be canceled and restarted with a fresh contract to comply with the rule.  

This makes conventional buyers more attractive because there is no such rule for conventional financing and the appraised value does not attach to the property for 120 days as it does with FHA financing.

Also, effective 9-14-2015 FHA loans will be insured according to the new Single Family Housing Policy Handbook (SF Handbook; HUD  Handbook 40001.).  

To achieve the highest sales prices, developers should have a working knowledge of these underwriting guidelines, because first time buyers represent an anticipated 32% of the 2015 housing market and many of them will utilize FHA financing.

Resale Process

Hold Open Title Policy  

If set up initially with the property acquisition, delivering a new purchase contract to the title company within the requisite time period will produce a title commitment under the previously ‘held open’ policy.

Inspections / Due Diligence  

Inspections conducted by the end purchaser of the property will likely include a general inspection, radon inspection and sewer inspection at minimum.  Often, when issues requiring further evaluation are found, additional professionals are brought in, such as electricians, plumbers, HVAC techs to diagnose problems and engineer solutions.  Frequently requested due diligence documents might be: warranties, building plans, construction permits, surveys, prior inspections, radon tests, soil reports, engineer reports, documents from an HOA or notices from city, county or state government.  These documents should be carefully reviewed for anticipation of problems.


The appraisal process has been insulated from the mortgage company in most cases.  Appraisal Management Companies or AMC’s handle communication and dispatching of appraisal assignments.  If the property value is in question, it may be necessary to research and produce supporting data which can be supplied to the appraiser for their consideration.  The best way to accomplish this is to meet the appraiser at the property with the supporting documentation along with contact information so they can collaborate later if desired.

Buyer Lender Underwriting  

Once the lender has acquired all income, asset, credit, and collateral documents from the borrower, the file can be submitted to underwriting.

Closing Preparation and Setup  

In preparation for closing, the developer and lender should collaborate on the loan payoff so there are no lingering questions at the closing table.  The lender will prepare a mortgage loan payoff statement and send it to the developer for review.  The payoff statement will generally reflect the terms agreed to previously in the collaboration process, with the exception of the yield spread component which was an estimate previously, but known now due to having an executed resale purchase contract.  The payoff statement is then sent to the title company to be entered on the developers closing settlement statement.

The date, time, and location of the closing is dictated by the contract, closing instructions, and the parties mutual agreement.  

Deed Review

Every transaction is different; every deed is different.  Deed review requires careful proofreading for typos and misspellings; comparing title commitment schedules A and B with the deed to be sure they match; making sure the choice of deed designated in the contract is prepared on the correct form.


The seller (Grantor) names appears 3 places in the deed:  In the first sentence; at the signature line; and in the notarization.  The names must be identical in all 3 places.  The seller names must be identical with the names of the owners on the title commitment.  Identical means identical so if the commitment includes “Jr.”, then the deed must include “Jr.” in all three places.

The buyer (Grantee) name appears once in the deed in the first paragraph.  The buyer names must be identical with the names of the buyers on the title commitment.

Joint Tenancy; Tenancy in Common:  for multiple buyers, the deed must provide that title be taken as provided in the Buy/Sell contract, or as countered or amended.

The legal description in the deed must be identical to the legal description in the title commitment.

The part of the deed review in which mistakes are found more often is in Title Exceptions.  Title exceptions are per the contract in the provisions titled Owner’s Extended Coverage (OEC) and Title Documents.  Title companies, the good ones included, often do not follow contractual requirements as to title exceptions.  Even after issues are brought to their attention, they still may not want to correct it.  Be persistent about getting it right and if necessary contact legal counsel for guidance, or escalate the requested corrections to their legal department for written clarification.  

The Bottom Line

Taking Profits  

How much profit can be expected out of a flip?  That is a question for each individual investor to answer, and every market is different, but context is always helpful when flipping real estate.  

According to RealtyTrac, during the first quarter of 2015, there were 17,000 single family homes flipped in the U.S.  Flipped means sold during a quarter with a prior sale in the previous 12 months.  This number represented 4% of all single family home sales during the quarter, which is the lowest level of flips seen since the first quarter of 2011, the date RealtyTrac began tracking flips.  The volume of flipping is going down, but gross profits are trending up with an average of $72,000 for the quarter; that’s the highest level seen on record.  That $72k gross profit margin represented a 35% ROI compared to the original purchase price of the property; 35% ROI has been constant for that last 5 quarters.  64% of all homes flipped went to owner occupants, which was the lowest level since 1Q 2011.  2Q 2012 was the peak when 74% of all flips went to owner occupants.  On average it took 176 days to complete the flipping process in 1Q 2015; up from 165 days a year ago.  Homes between $100-$200k accounted for more than ⅓ of all flips, and homes in this group also generated the largest ROI at 47%; the biggest ROI of any price range, followed by homes priced between $1m-$2m which returned an average gross profit of 44%.  

Look for areas with a combination of distressed housing stock at a discounted price along with affordability and demand from buyers.  When you can find markets with these characteristics, you can flip profitably according to RealtyTrac.

Colorado Statistics: Distressed Property Compared with Remodeled

Take a look at these statistics to see if you can glean anything meaningful.

Attached Single Family

Fix-Up.  According to Recolorado, there were just 168 attached single family homes sold between May of 2014 and May of 2015 which were designated as “fix-up”; they had an average sold price of $168,172 which represented 99.7% of asking price.  On average, they were built in 1975; spent 27 days on market; were 2 bedroom 2 bathroom with 1,165 square feet above grade at a cost of $138.96 per square, and had 1,448 total square feet including the basement.


Remodeled.  During the same period, 2,709 properties designated as “remodeled”, had an average sales price of $231,648, which represented 100.01% of asking price.  On average, they were built in 1975; spent 22 days on market; were 2 bedroom 2 bathroom with 1,154 square feet above grade at a cost of $200.74 per square, and had 1,369 total square feet including the basement.

Detached Single Family

Fix-Up.  1,245 detached single family homes sold between May of 2014 and May of 2015 which were designated as “fix-up”; they had an average sold price of $243,480 which represented 99.8% of asking price.  On average, they were built in 1957; spent 26 days on market; were 3 bedroom 2 bathroom with 1,406 square feet above grade at a cost of $181.33 per square, and had 2,025 total square feet including the basement.


Remodeled.  4,998 detached single family home sales over the last 230 days with a designation as “remodeled” had an average sales price of $392,883 which represented 99.8% of asking price.  On average, they were built in 1968; spent 30 days on market; were 4 bedroom 3 bathroom with 1,740 square feet above grade at a cost of $234.53 per square, and had 2,520 total square feet including the basement.  

Average Return on Real Estate Vs. Stocks    

According to Zillow's Spencer Rascoff, between 1975 and 2014 the average ROI for real estate was 11.6%, compared with the ROI of the stock market (S&P) at 10.4%.

The National Council of Real Estate Investment Fiduciaries produces an index showing that REITs, Real Estate Investment Trusts, provided an annualized return of 10.91% over a 20 year period between December 1991 through December 2011.

NCREIF tracks the performance of high-quality institutional commercial real estate assets such as those owned by pension funds. Their index includes properties across the country in various sectors like office, retail centers, industrial, hotels, and apartment buildings.  Between 1978 and 2012, the index shows an annualized return of 9.19%.

Residential real estate has the added benefit of functional utility; it can be lived in as a primary residence or rented, it is protected with insurance, serves to hedge inflation, it can be leveraged and borrowed against, and it will always have significant relative value in the marketplace.

Finding Flip Opportunities

Sourcing Properties

Of course, the challenge here in Colorado remains finding inventory to flip.  Supposing the investor is not bringing any cash to the transaction, and supposing they don’t have much expertise in property development, the real value they can bring in this instance is the ability to source off-market properties.  

Realtors® specializing in investment property brokerage can be an excellent source of “coming soon” properties because they often employ strategies to cultivate new business and therefore know of off-market opportunities.  Identify these practitioners online or use a service such as EcampaignPros; contact them and ask specifically about how to work with them to buy properties before they’re listed.  As a technical matter, “listed” means the seller signs a brokerage contract for the agent to sell the property. This is an important point, because once a Realtor® lists the property, they usually owe fiduciary duties which would prohibit them from helping you get the best deal, but rather obligates them to get the seller the best deal, which means exposing it to the open market with fierce competition.

Social media is a great way to find people such as Realtors®, investors, developers, lenders, and others to network with on finding “propertunities”.  LinkedIn, Google, Facebook, and others all have groups and clubs available to join where discussions and posts can be used to cultivate relationships and advertising for the purpose of finding deals.  For example the Colorado Association of Real Estate Investors has a group on LinkedIn, if you have a LinkedIn account you can view the link, if not, sign up for a free account or find a group on your favorite social media platform; there is an array of groups to choose from to fit your niche.

There is nothing like a face-to-face intervention to break through to someone.  Door knocking in the right neighborhood with the right message can achieve great results.  I remember a time early in my career, I was cold calling through a neighborhood prospecting for business when someone answered the phone who was literally at that time having a discussion with his wife at the kitchen table about selling the house.  He was shocked at the timing of it all and took it as divine intervention.  Terry and Leslie went on to become long-time customers.  The same thing happens with door knocking; knock a lot of doors as quick as possible on a weekend with a similar message that fits you; “hello, I am looking to buy a home in this neighborhood for my family, who do you know that may be interested in selling?  No, ok here is my contact information, if you think of anyone, please let me know”.  Or if yes, “Wonderful, who would that be and would you give me an introduction, or would it be ok if I mentioned I to them that I spoke with you?”  It’s always nice to have a familiar connection through a neighbor if possible.

Targeted direct mail campaigns can be effective if done right.  Design a mailing piece  with a specific target audience in mind with a bold headline and strong imagery.  Keep content and design simple clear and concise with just one focused message.  Make a compelling, time sensitive offer to evoke immediate responses.  The right message to the right audience with consistency are the key factors in deriving results.

Having a relationship with a title company can be useful because they have so much property data, you can target a very specific group and obtain the list and mailing labels at low cost.  For example, targeting people who have been in their homes for a certain period of time, or who have not refinanced in a certain period, or a range of other data sets to aid in targeting a group.

Rebogateway is a service that offers an impressive suite of tools for locating legal filings, mortgage delinquencies, recent sales data, distressed homeowners, for sale by owner’s, property tax defaults, absentee owners and more.  This service can be used to efficiently compile direct mail lists on all sorts of targets which can then be merged with marketing pieces and vendors for delivery.

Once a data set of good candidates is established, a mailing service can be used to ensure consistent delivery.

A cautionary note; obtaining a property from someone with equity in their home, who is in default under Colorado law, could carry a jail sentence if done improperly.  Colorado defines a borrower in “default” once they are 30 days late on their mortgage.  That’s just one missed payment!  If purchasing a property under this scenario, stay in compliance by using the Colorado Real Estate Commission form titled:  Contract to Buy and Sell Real Estate (Colorado Foreclosure Protection Act) and be sure to carefully adhere to the requirements therein.

County foreclosure auctions may be a good opportunity in circumstances where there is a lower level of competition.  Presently, auctions offer a best case scenario for the seller, but not so good for the buyer, unless the property can be purchased without the price being bid too high.  The other problem is it’s a cash only game requiring investors to bring certified funds in order to bid, which has the effect of keeping the little guy contained so the big players can dominate.  Still, if in a County with rising prices and a stock of distressed property hanging around to be sold, it could be a very good opportunity if you can find the money.  RENAV is a foreclosure property tracking service that is reasonably priced by the number of counties selected for tracking and can be useful for the auction strategy.


Flipping real estate is an exercise in creative expression and financial savvy.  It is exciting and rewarding work that benefits lots of other people besides the developers.  Flipping real estate has traditionally been a cash intensive proposition and has therefore kept most would-be participants from getting in the game.  

Mortgage Money, Inc. offers a great loan product, especially for those candidates who are just starting out with low cash flow, who may also be in need of extra financial support and guidance from an experienced lender.  We hope you will consider Mortgage Money, Inc. for your next investment property flip.  Good luck with your real estate investing, thanks for reading!

Contact Information   

James Ponzi is the Managing Broker of Mortgage Money Inc., a Colorado based private real estate investment lender, NMLS #268804, and can be reached by email at or by voice/text at 720-432-1030.

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