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Fix And Flip - A Real Estate Formula
Investor Real
Estate Information Homepage
Making money with a "fix and flip" property is a great
way to make money in real estate. However, it isn't about repairing
drywall and planting flowers. It's all about how you do the numbers.
People often buy and sell a fixer-upper without a definite plan. They
buy a house, fix it up, then add $10,000 or $20,000 onto their costs.
They then put the house up for sale at this price.
Have you ever bought a house according to what the seller has into it?
Of course not. You look at similar houses to determine the value. If you
have $110,000 into a fix-and-flip project, and similar homes are selling
for $105,000, how much will you get? It has nothing to do with what
you've spent, does it?
The Fix And Flip Formula
1. Determine the after-repair value of the house you're looking at. 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.
2. Calculate costs: closing fees, loan fees, document prep, homeowner's
insurance, title policy, repair costs, interest on loans, property
taxes, sales commission, fees, title policy, etc. You want projected
costs of all four categories: buying, improving, carrying, and selling.
Subtract all costs from the expected sales price.
3. Subtract a profit that makes it worth the effort. Now you have the
highest price you can pay. You have to walk away if you can't get it for
this price or less. You'll offer thousands less, of course, to give
yourself negotiating room.
A Fix And Flip Example
You've found a fixer-upper, and determined you can get $98,000 for it
when it's done. Buying costs will be $2,000. Repair estimates add up to
$8,000. Carrying costs will be $2,500. Sales commission and other
closing costs will be around $8,000. You figure in $1,500 for the
"unexpected." For you effort, you want a $10,000 profit.
When you subtract all of that from your expected sales price, you have
$66,000. 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.
You always start with the eventual sales price and work your way back.
This is the right way to safely do a fix and flip.
About the author:
Steve Gillman has invested in real estate for years. To see a photo of a
beautiful house he and his wife bought for $17,500, visit:
http://www.HousesUnderFiftyThousand.com |