Mak
ing money with a “fix and flip” in Parrish is a great way to make money in real estate. However, it’s not about repairing drywall and planting flowers. It’s all about the numbers.
People often buy and sell a fixer-upper without a plan. They buy a house, fix it up, then add $10,000 or $20,000 onto their costs. Finally, they put the house up for sale at a specific price.
Have you ever bought a house according to what the seller has invested? Of course not. You look at similar houses to determine the value. If you have $110,000 into a fix-and-flip , and similar homes sell for $105,000, what is your return on investment? Generally speaking, the bottom dollar is more complicated than that, isn’t it?
The Fix And Flip Formula
1. What is the after repair value of the house you’re looking at? Get an appraiser’s help, or look at what similar houses have sold for. This is 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. Of course, you’re looking for 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. This is the highest price you can pay. Plan 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. Figure in $1,500 for the “unexpected.” For your 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 prepare to 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. I work with investors. Please feel free to get in touch with me.
