Fix And Flip - The Formula
Below is a MRR and PLR article in category Finance -> subcategory Real Estate.
Fix and Flip: The Proven Formula
Overview:
Fixing and flipping properties is a popular real estate strategy for generating profit. However, success hinges on understanding the numbers, not just cosmetic fixes like repairing drywall or landscaping.Common Mistake:
Many investors jump into fix-and-flip projects without a clear financial plan. They tend to price a property based on their total investment, adding $10,000 or $20,000 to their costs. But buyers compare similar properties to determine value, not what the seller has spent. For instance, spending $110,000 on a project means little if comparable homes are selling for $105,000.The Fix and Flip Formula:
1. Establish the After-Repair Value (ARV):
Consult an appraiser or research recent sale prices of similar homes. The ARV is your starting point.
2. Calculate All Costs:
Include every expense: closing fees, loan fees, documentation, insurance, repair costs, loan interest, property taxes, sales commission, etc. Divide these into: buying, renovating, holding, and selling costs. Subtract these from the ARV to determine your maximum allowable offer.
3. Factor in Desired Profit:
Decide on a profit margin that justifies your effort. Deduct this from the ARV to find the highest price you can pay. Always aim to negotiate a price below this threshold.
Case Example:
Imagine finding a fixer-upper with a potential sale price of $98,000. Breakdown of costs might look like this:- Buying costs: $2,000
- Repair costs: $8,000
- Holding costs: $2,500
- Selling costs, including commissions: $8,000
- Contingency for unexpected expenses: $1,500
You want a $10,000 profit. After subtracting all costs plus your desired profit from the ARV, you're left with $66,000 as your maximum bid. Offer around $61,000 to leave room for negotiation, but be ready to walk away if the seller won't accept $66,000 or less.
Conclusion:
Begin with the ARV and work backward to determine your offer. This approach ensures a safer and more strategic fix-and-flip investment. Always let the numbers guide your decisions.You can find the original non-AI version of this article here: Fix And Flip - The Formula.
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