flipping house numbers and return metrics

[Alan Hale]

We just finished a flip in Waco and sold it. Now that I'm going over the numbers on our flip, I have a ROI formula question:ROI = (ending value - starting value) / (starting value).

We went into our flip with 45k starting value. Now that we're done and closed, we have a larger amount left over. Is that the ending value since we aren't holding on to the property?Or is ending value after you've taken out other costs: We still have a small loan to pay. But I want to set money back for ST cap gains tax, pay back our personal finances for expenses covered out of that, etc.

I guess the short question is: What all costs get taken out to determine if you have a profit or left money in the deal? Of the 45k we took out of our accounts for capital, only 22.9k is going back in.

[Chris Seveney]

@Alan Hale

What you borrow is irrelevant

You paid X

You spent Y

Sold it for Z

Z-(x+y) = gross profit

If you took out $45k and only have $23k now looks like you lost $20k+

[J Scott]

I highly recommend checking out BiggerPockets newest book:

www.NumbersBook.com

[Eliott Elias]

A lot more goes into this, taxes, insurance, utilities, mortgage payments, closing costs. 

[Alan Hale]

Quote from @J Scott:

I highly recommend checking out BiggerPockets newest book:

www.NumbersBook.com

 We bought it. I'm midway through it and have loved it, so far.  It doesn't say much about flips (that I've read so far), but the rest of the info is  great.

[Alan Hale]

If you took out $45k and only have $23k now looks like you lost $20k+

I posted about it on the Real Estate Rookie group.  We did lose ~$4800.  Fortunately we had some capital left, we don't owe anyone anything (including internal debt).

We got a Master-level internship in REI and our kids participated in the experience which gave them lessons.  When you look at it like that, $4800 was a cheap education.

[J Scott]

Quote from @Alan Hale:

Quote from @J Scott:

I highly recommend checking out BiggerPockets newest book:

www.NumbersBook.com

 We bought it. I'm midway through it and have loved it, so far.  It doesn't say much about flips (that I've read so far), but the rest of the info is  great.

Part 5 has several chapters that walk through a detailed analysis of flip properties.

[Larry Turowski]

First, Merry Christmas or Happy Holidays all. Got a little down time and here I am on BP. 

@Alan Hale I’m concerned you really need to hit the brakes until you get some basic math under your belt.

Not considering any loans, your profit is your acquisition costs (generally more than the purchase price), plus holding and rehab costs, minus your proceeds from sale (generally less than the sale price).

If you’ve had a loan or loans to fund acquisition and holding and rehab costs, then you’ll have interest and related closing costs as part of the whole deal, maybe paid along the way or taken out of the proceeds. It all depends on how you structured the funding.

You say you have a larger amount left over but then say you only put 22.9k back so I don’t know where you are. You need to sit down with someone who can explain the numbers to you. 

[Alan Hale]

Quote from @Larry Turowski:

First, Merry Christmas or Happy Holidays all. Got a little down time and here I am on BP. 

@Alan Hale I’m concerned you really need to hit the brakes until you get some basic math under your belt.

Not considering any loans, your profit is your acquisition costs (generally more than the purchase price), plus holding and rehab costs, minus your proceeds from sale (generally less than the sale price).

If you’ve had a loan or loans to fund acquisition and holding and rehab costs, then you’ll have interest and related closing costs as part of the whole deal, maybe paid along the way or taken out of the proceeds. It all depends on how you structured the funding.

You say you have a larger amount left over but then say you only put 22.9k back so I don’t know where you are. You need to sit down with someone who can explain the numbers to you. 

This original post of mine was asking about ROI, using the numbers I had at the time (and not accounting some that I had erroneously omitted).  The OP is obsolete.
Fast forward to today:  I've had a chance to thoroughly comb through the numbers and the post I made earlier today is the more accurate of the two.

As I mentioned, I am still going through J. Scott and Dave Meyer's Real Estate by the Numbers  and will continue to do so.  During this time of continuing education we're also raising more capital for the next deal.  This was our first deal and we did it after over a year of paralysis by analysis,  so we're still learning a little.  

[Alan Hale]

Quote from @J Scott:

Part 5 has several chapters that walk through a detailed analysis of flip properties.

Okay great.  I'm on Ch. 19.  Since it appears each chapter builds on the next, I figure you probably intended for us to go through it sequentially?

[J Scott]

Quote from @Alan Hale:

Quote from @J Scott:

Part 5 has several chapters that walk through a detailed analysis of flip properties.

Okay great.  I'm on Ch. 19.  Since it appears each chapter builds on the next, I figure you probably intended for us to go through it sequentially?

 If most of the material is new to you, then I definitely recommend going through it sequentially. If you are pretty strong with math, finance and analysis techniques, then you can skip around and use it more as a reference guide.