Things To Consider When Flipping A Property
Over improvement will devour your profit on a Flip.
Buying and flipping a property is a great way to make money. There are a few factors to consider making it a profitable venture.
The best way is to go backwards… First research how much an improved property similar to the one you are looking will sell for. This is the benchmark. Because you likely won’t be able to sell your improved property for more that that.
Next is basically simple math. Figure out how much your property will cost you after you bought it will cost. And be careful not to project too much of your desired design preferences into the mix. Be sensible to not over improve your rehab as the comparable sales will put a lid on your profit. In addition, include the holding costs into the calculations. This includes all utilities, insurance, mortgage, insurance etc. during the period you own the property. Also, there is a cost to selling a property that includes the commission if you have an agent representing you and the costs that you will be paying during the escrow period. Finally, there are tax consequences. The math for the return on equity is simple. You add all the costs ranging from the purchase, the rehab, the holding costs and selling costs together. Then divide that number by the net profit, which is the net sales price minus the mortgage balance and the total equity you invested. If the resulting number is 0.30, which means a 30% return on your equity. I would shoot for a minimum 20% return. If you cut the margin too slim you might only make a few bucks for all the time and effort you invested. Most investors would like to earn a certain return plus add a risk factor percentage to be safe. Considering all these factors, it will make the decision to purchase a fixer upper easier. Our organization would create the proforma for you to give you the bare bottom decision facts…That’s what we do…What’s your method?