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/

Or visit us on FB at: https://www.facebook.com/PartTimeRei

Linked In http://www.linkedin.com/company/part-time-rei

Time vs Money

Time is money!  While cliche, this statement is absolutely true when investing in real estate and, doubly so if you are investing on a part-time basis.  So how can you make sure that you are not overspending your time and money when flipping houses?  Having good systems is critical.

One of the more important documents you need is Property Repair Estimate Sheet.   This document should include a list of all of the major items (roof, hvac, kitchen, paint, flooring…) as well as cost estimates for each item.  You should complete one of these during your initial visit of every house you look at.  The 2 main benefits of the form are 1) to save you time and 2) to give you confidence to proceed with the deal.

Saving Time

Saving Time

Many rehabbers waste time looking into every dark corner of the house during their initial walk-through.  They may spend hours measuring and documenting every detail to come up with the best estimate possible.  This can be a tremendous waste of time especially since there is a good chance you won’t even get the house. Click here to see our list of houses not to buy.

With a good Property Repair Estimate Sheet you should be able to complete your initial inspection in 15-30 minutes.  The goal is to get a rough estimate (within $5,000) so that you can make an offer.  Simply checking whether the repair is needed and including the corresponding amounts will allow you to total the necessary costs in a few short minutes.  Anything beyond that is a waste of time.

Providing Confidence

Having a list of what actually needs to be done to the property will give you confidence that you aren’t overlooking anything. By referring to your list, you will make sure that no major items are missed.  It is easy to be distracted by something odd in a house and forget to check out every other area.  By referring to your Property Repair Estimate Sheet, you can be confident that you have reasonably captured all items.  The cost of overlooking a missing air-conditioner, damaged roof or cracked foundation is way too high to rely on your memory.

Systems

Having a system will not only make these 2 goals more attainable, but will also remind you that you are running a business and trying to earn a profit. If you have a tried and true system in place, steps that you follow for every rehab, then you will not spend unnecessary time on issues and will have a turn-key process. It will mean every rehab is done consistently.  Also with a system in place it will help to build your confidence that you haven’t overlooked any repairs. You will know how much a kitchen over haul costs so when a contractor over bids you have the confidence to speak up about it. Remember, knowledge is power.

The essential thing to remember is that systems work.  Having good systems in place will make sure everything is done in the most financially sound and cost-efficient way. In the end, systems are what will save part-time real estate investors time and money by preventing costly mistakes.

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

Or visit us on FB at: https://www.facebook.com/PartTimeRei

Linked In http://www.linkedin.com/company/part-time-rei