Hi everyone. I just recently found BP and this is my first question.
It seems that one of the main purposes of the Fix and Flip calculator is to determine what your max allowable offer should be based on ARV and profit. And yet the calculator needs to know what my mortgage monthly payment is. Don't I need to know what my purchase offer is before knowing my mortgage payment? It seems odd that I need to know what my offer is before it tells me what my offer should be. Perhaps the calculator should have a mortgage section where you input your expected interest percentage and # of years instead.
On a side note, if I'm expecting to live in my fix and flip, lets say for 2 years and then sell, should I be subtracting what my current rent is to understand my overall bigger picture? For example, if I'm renting at $1,000 / month but I move into my newly acquired house soon after, does it make sense that I should be able to subtract the money I'm saving from not having to rent an apartment?
Thanks for any help!
Hey @Michael Coffey
I have not looked at the fix and flip calculator but it makes perfect sense to me that the calculator needs to know what your financing terms would be.
Think about it; The cost of financing the renovation is an expense that will eat up some of your potential profit.
When evaluating fix and flip opportunities, the idea is to work out, knowing what the ARV should be, what your max offer should for you for you to make money.
All the costs you'll incur along the way: closing at purchase, labor, materials, interest payments, holing costs such as property tax, broker commmissions at resale have to be factored in.
If you don't need financing and you have the whole cash to fund the flip without raising financing, that is great! (Although it is arguably not the best use of your capital)
But if you need to raise financing, you need to know upfront what the terms would be, otherwise you are introducing high risk in this endeavor.
For example, you could assume that you would borrow renovation money at 5% on an interest only loan. What if you are not able to do and you can only borrow at 10% (on top of paying 3 or 4 points to your lender), that can change radically the outcome of this flip.
Re your second question. I wouldn't factor in a rent because there isn't. I would simply look at the merit of the deal making it too complicate.
The great thing with doing a long hold owner-occupier flip is that you get to keep most if not most of the profits the flip produces.
You can also get easily conventional financing at the very low rate.
Thanks Patricia. I suppose not many people see this as an issue since you are the only one to respond!
Nah! I think your post simply got missed in the flood of other posts ;)
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