Sticking to Your Numbers

Perhaps one of the most important aspects of flipping houses can also be the easiest to mess up– your numbers. Now we know the “Flip This” and “Flip That” TV shows makes it look like the investors score a deal on EVERY property they flip but we thought a dose of reality might come in handy. We wanted to take a quick look at a case example to help some of you new to flipping houses.

It is very easy to stray from your Property Repair Estimate Sheet in the thick of rehabbing and wanted to first look at the numbers to ensure it is actually a good deal for you to start with. This will entail looking at what the property is listed for on the MLS, what the After Repair Value  (ARV) is, what your repair cost estimate is (gathered from your Property Repair Estimate Sheet), and what you are prepared to offer for the property. Let’s take a look at one of our case studies.

Case example: HUD foreclosure

Listed on MLS for $100,000

ARV of $130k – $135k

Repair cost estimate $18k

For a retail buyer for their personal home, this is a good deal.  They can fix it up and immediately have $12-$17k of equity.  For investor, not a good deal.

Max Offer Amount for a flip:

ARV $135k

Fix up cost $18k.

Realtor commission at time of sale: $7800

Closing costs $2000

Carrying cost $4500

Profit Desired $20k

Max Offer Amount Allowed = $82,700

It is important to note the Realtor’s commission, closing costs and the carrying cost as most “reality” shows always seem to leave those bits of the deal out. On this property, we offered 80% of list price ($80k) to HUD and offer was accepted. Also once you get to the actual rehabbing part gets some tips on not over improving to make sure you stick to your budget. Remember, you do have to be just a little smarter than a fifth grader to make a profit at flipping houses but you don’t have to understand complex mathematical formulas or have a PhD in astrophysics to be successful.  You DO however need to know your numbers, or your flipping houses career will not only be short but more than likely painful for you and your family.

For more info on this subject check out http://www.biggerpockets.com/renewsblog/2012/11/03/flip-houses-formula-math/

To learn more about Part-Time REI visit us at http://part-timerei.com/

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Erik Hitzelberger has been Real Estate Investor since 2007. While learning the ropes in the market down-cycle, he now teaches others how to use his systems and leverage other people’s expertise to achieve their own goals.

Erik Hitzelberger – who has written 194 posts on Part Time REI.

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