In real estate, making money with a fix and flip property is a great way to make money. However, it isn't about repairing drywall and planting flowers. It's all about how you do the numbers.
Often, even without a definite plan, people would buy and sell a fixer-upper. They buy a house, fix it up, then add $10,000 or $20,000 onto their costs. Then, they will put the house up for sale at this price.
Did you ever buy a house according to what the seller has into it? It's unlikely of course. To determine the value, you should look at similar houses. If what you have is $110,000 into a fix and flip project and similar homes are selling for $105,000, then how much will you get? You may have noticed that it has nothing to do with what you have spent.
What is the Fix and Flip Formula?
The after-repair value of the house that you are looking at is what you need to determine. Get an appraiser's help, or look at what similar houses have actually sold for (not asking prices). The price it's likely to sell for is going to be your starting point.
Closing fees, loan fees, document prep, homeowner's insurance, title policy, repair costs, interest on loans, property taxes, sales commission, fees, title policy, etc. are some of the costs you need to calculate. What you want are the projected costs of all four categories namely buying, improving, carrying, and selling. Subtract all costs from the expected sales price.
Subtract a profit that makes it worth the effort. Now you have the highest price you can pay. If you can't get it for the this price or less, then you have to walk away. You'll offer thousands less, of course, to give yourself negotiating room.
Fix and Flip - an Example
You have found a fixer-upper and when it's done, you determined that you can get $98,000 for it. Buying costs will be $2,000. Repair estimates add up to $8,000. As for the carrying costs, it will be about $2,500. The sales commission and other closing costs will amount to about $8,000. You figure that the unexpected would be about $1,500. For your effort, a profit of about $10,000 is what you want.
You have $66,000 when you subtract all of that from your expected sales price. That's the most you'll pay if you want a safe real estate investment. Offer $61,000, and walk away if you and the seller can't settle on something under $66,000.
Work your way back and you always start with the eventual sales price. In order to safely do a fix and flip, this is the right way.
Often, even without a definite plan, people would buy and sell a fixer-upper. They buy a house, fix it up, then add $10,000 or $20,000 onto their costs. Then, they will put the house up for sale at this price.
Did you ever buy a house according to what the seller has into it? It's unlikely of course. To determine the value, you should look at similar houses. If what you have is $110,000 into a fix and flip project and similar homes are selling for $105,000, then how much will you get? You may have noticed that it has nothing to do with what you have spent.
What is the Fix and Flip Formula?
The after-repair value of the house that you are looking at is what you need to determine. Get an appraiser's help, or look at what similar houses have actually sold for (not asking prices). The price it's likely to sell for is going to be your starting point.
Closing fees, loan fees, document prep, homeowner's insurance, title policy, repair costs, interest on loans, property taxes, sales commission, fees, title policy, etc. are some of the costs you need to calculate. What you want are the projected costs of all four categories namely buying, improving, carrying, and selling. Subtract all costs from the expected sales price.
Subtract a profit that makes it worth the effort. Now you have the highest price you can pay. If you can't get it for the this price or less, then you have to walk away. You'll offer thousands less, of course, to give yourself negotiating room.
Fix and Flip - an Example
You have found a fixer-upper and when it's done, you determined that you can get $98,000 for it. Buying costs will be $2,000. Repair estimates add up to $8,000. As for the carrying costs, it will be about $2,500. The sales commission and other closing costs will amount to about $8,000. You figure that the unexpected would be about $1,500. For your effort, a profit of about $10,000 is what you want.
You have $66,000 when you subtract all of that from your expected sales price. That's the most you'll pay if you want a safe real estate investment. Offer $61,000, and walk away if you and the seller can't settle on something under $66,000.
Work your way back and you always start with the eventual sales price. In order to safely do a fix and flip, this is the right way.
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