Profits of Flipping
Hello Everybody,
Im in research mode before venturing out and finding my first deal. I have one rental that was a primary residence convert. So my question on this topic relates to profits on a flip. Like many new investors my capital is limited and Im not sure at this point what route ill go on my first deal. I plan on attending local REIA groups and networking in the next couple of months.
Listening to podcasts and reading forums I hear/see profits but Im still a little confused. Is the profit the amount gained off the total deal not including "personal" capital invested or is is after this money has been taken into account.
For Example:
ARV / Sold Price $120,000
Required Profit $25,000
Fixed Cost $10,000
Rehab Cost $22,000
Purchase Price $63,000
Total Cost before Profit is $95,000 for which lets say I finance $84,000 (70%) and put in $11,000 of my own capital. The house sells for the $120,000 profiting $25K. Is this my "profit" or should it be $25K minus the $11K I originally put in meaning I made $14K?
I understand everyones financing of deals varies but when I look at spread sheets Im having a hard time determining how much personal capital is invested in the deal vs the profit. Being new to business Im probably going to use HML starting off before I have a track record and use alternatives.
In the case where I can find a JV or personal investor how do you calculate their ROI since a deal typically should only last 3-4 months. How do you calculate their rate of return? IS it 1 set rate, annual?
Thank you to all who help in answering my questions. Im in the process of expanding my financial literacy and any recommendations on this topic would be greatly appreciated.
Regards,
Buck Robinson
After creating a spreadsheet in Excel I was able to see what my Gross Profit and Net Profit would be on potential deals with the capital I have. I found a great site that allowed me to factor all my cost and what I would need to bring out of pocket. This was a key factor in determining my profit! Using this information I could then input my numbers and determine what my profits will be and ROI. Although these are hypothetical equations I now have a good template on what to look for in potential deals.
BP has a few calculators under the Analyze tab that make great spreadsheets for presenting deals!
