Updated 5 months ago on .
Fix & Flipping Today & making a Mint - Flippidy DO DAH
One of the most often asked questions is how to get started in flipping. Here is how I determine if I’m going to keep a flip as a “Buy & Hold” or Sell it to an end buyer. Since it’s actually a little complicated, I’ll do it in steps. There are many variables but here is one sample.
You make your money when you buy. Know beforehand what price you have to buy at, to be profitable
The simplest start is to do a search for the Average Price for homes in your chosen area. Let’s look at Indianapolis IN; (not my market, just using it since it is a popular place) https://www.redfin.com/city/9170/IN/Indianapolis/housing-market for a median price of $250K That's the range you want to start out in, as a beginner.
Then we assume 35% of ARV (After Repair Value) to do the rehab, holding costs, sales costs and profit. Why 35%? Because we have to start somewhere and that satisfies most flippers on under $300,000 houses. So, we have to buy at 65% of value.
The obvious question is "How do I buy for 65% on the dollar"? There is info available on that.
So, the initial numbers look something like this: $235,000 ARV, Here is a house for our example
It usually takes a beginner 6 months from buying the house, rehabbing, and then selling & closing, to getting your money.
SELL: It assumes you are putting 20% down on a purchase price that is 65% of what you will eventually sell it for, with a Net Profit of $22,981 if you flip & sell
RENT: Your monthly mortgage cost is $1,302 and Rentometer says it should rent for $1,500 - a $200 a month difference. Keep in mind you put $30,550 cash in as a down payment. You get that back if you sell, but if you keep it as a rental it takes 153 months or 5 years to break even on your down payment alone.
So, here are the numbers. Keep in mind, every deal is different and your mileage may vary.
https://www.redfin.com/IN/Indianapolis/1515-E-Kessler-Blvd-Dr-46220/home/66981054 (random house, not mine)
| ARV / Sell Price | $235,000 | |
| We Calculate All Costs | ||
| Purchase Price | $152,750 | 65% |
| Closing Costs | $2,000 | |
| Rehab | $30,000 | |
| 6 Months Carrying Costs | $9,114 | |
| Real Estate Selling Costs | $14,100 | 6% |
| Other | $0 | |
| Other | $0 | |
| Total Rehab Costs | $207,964 | |
| Now We Calculate Profit | ||
| ARV / Sell Price | $235,000 | |
| Total Rehab Costs | $207,964 | |
| Gross Profit | $27,036 | |
| IRS Tax | $4,055 | 15% |
| Net Profit | $22,981 | |
| Per month profit | $3,830 | 6 |
| Loan Down Payment | $30,550 | 20% |
| Loan Amount | $122,200 | 80% |
| Loan Cost per rmonth | ||
| Principal & Interest | $813 | 7% |
| Prop Taxes | $321 | |
| Insurance | $168 | |
| HOA Fees | $0 | |
| Monthly Payment Costs | $1,302 | |
| Monthly Payment 1 | $1,302 | |
| Monthly Payment 2 | $1,302 | |
| Monthly Payment 3 | $1,302 | |
| Monthly Payment 4 | $1,302 | |
| Monthly Payment 5 | $1,302 | |
| Monthly Payment 6 | $1,302 | |
| Utilities for 6 months | $1,302 | |
| Total for 6 Months | $9,114 |