Estimate Your Profit From a Fix and Flip Project

You’ve probably heard it a hundred times from TV shows and seminars that rehabbing houses is a very profitable business nowadays. That is why many are testing their luck in this field. For beginners in rehabbing, there is actually an effective way to calculate your profit the moment you bid for the property you want to fix and flip. But before e discuss that, let’s see what the common practice of neophyte rehabbers is.

Beginners in the business usually buy a fixer upper home and then repair it. After that, they add the amount used for repairs, other expenses like closing costs, and the purchase price of the property. After getting the total expenses, they will add around $10,000 and that’s the selling price of the property.

Some rehabbers also use a different formula when computing the selling price, which is also known as the ARV or after repair value of the property. They buy a fixer upper home, repair it, and then determine its ARV based on the prices of neighboring properties. They subtract total expenses from the average price of nearby properties and whatever is left is their profit.

Veteran rehabbers, meanwhile, use their own formula. They calculate the ARV first and then set a ceiling price for the fixer upper. Here is how it works: They hire professional appraisers who determine the possible ARV of the fixer upper. They check at how much similar and nearby houses were actually sold, not at how much their owners asked for. They base the ARV from these factors.

Rehabbers then subtract expenses except the price of the fixer upper from the ARV. Partial expenses will include repair costs, property taxes, closing fees, among others. After doing this, set a profit you want to obtain. What is left is the highest amount you can pay for the fixer upper home you want to purchase. Using this formula will allow you to regulate the minimum profit you get from all your fix and flip projects. If you set $10,000 as your minimum profit for every fix and flip project, you’ll know that you can get around $40,000 if you rehab four properties in a year.

Let’s apply this formula in a sample computation. You found a $65,000 fixer upper home. Your estimate ARV is around $100,000, says your appraiser. Your estimate repair and other expenses stand at around $15,000 and you want a profit of $10,000. Subtract these amounts and you’ll get $75,000. That’s the maximum price you are willing to pay for the fixer upper you plan to fix and flip. And since its price of $65,000 is within your limit, go on and buy that property! Discover more things about rehabbing houses at rehab-real-estate.com today.

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