Hi everyone I am new to REI, and im looking for GREAT advice. I am very determined and passionate about my starting career. At this point I am really trying to understand the math for flipping houses. Any pointers?
Couple of rules you can go with or just run your numbers.
Rule #1 - Get the house at a price where the Purchase amount plus your estimated rehab equals 70% of the ARV (after repair value).
So lets say your house is worth 100k AFTER you do all your repairs and make it look pretty.
And your rehab estimate is 20k. That means you need to get the house for a purchase price of 50k. (i.e. 50k plus 20k = 70k and 70k is 70% of 100k).
At 70% ARV, you will typicall make money.
The other way is to just run your numbers working backwards.
Add up the following items to come up with your all-in number:
1) Estimated rehab.
2) Estimated closing/holding costs (i.e. realtor fees, closing costs, interest payments, utilities, prorated taxes, etc)
3) Desired profit.
Subtract your all in number from the ARV (after repair value) of the house and thats the purchase price you need to get the house for - or lower.
1) Est rehab = 20k
2) Estimate closing/holding costs = 15k
3) Desired profit = 15k
Total all in number = 50k.
You estimate the house will sell for (i.e. ARV) is 100k.
100k minus 50k = 50k purchase price.
You need to get the house for 50k or less to make your desired profit.
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