Flipping using Hard Money calculations

Rehabbing & House Flipping
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Flipping using Hard Money calculations

Daniel Llauger
Real Estate Agent · Kansas City Metro · Member since 2019 · 13 posts · 3 votes

Hey BP flippers pro's

This is the first time I've been doing a flip using Hard Money, and I've been struggling with the numbers to the point if I'm doing the math correct or not. 

I have used BP calculator and I also created an spreadsheet, but most of my numbers for profit are too low or negative... If I have a deal like this for instance below, what would be your numbers?

Hard money lends 75% ARV, 10% of loan and 2.5% origination fee, assuming I'm paying closing costs when selling the property ($5,000), here are my numbers...

I might be doing (substracting) something that I shouldn't ?... Any help is appreciated, 

Purchase Price - initial$118,000.00
Earnest Money$5,000.00
Fees from wholesaler$295.00
Purchase price$113,295.00
ARV$185,000.00
Rehab$45,000.00
Purchase Closing Costs$1,500.00
Loan Amount calculationARV x 75%
Max Loan Amount$138,750.00
Actual Loan Amount $138,750.00
Monthly Interest payment$1,035.63
Max Monthly Interest payment (after all draws)$1,300.78
Final Loan Amount to pay back lender$124,875.00
Holding Costs in Fix & Flip BP report
Rehab and sell property (months)5
Costs per month$620.00
Total Holding Costs$3,100.00
Financing Cost
Highest monthly interest payment x months$6,503.91
Purchase Cost in Fix & Flip BP report
10% of loan$13,875.00
2.5% origination fee (min $2,500)$3,121.88
Prepaid interest$36.33
Total$17,033.21
Initial investment
Out of Pocket pp+rehab - loan amount$19,545.00
Out of Pocket - EMD$5,000.00
Purchase Costs / Lender fees$17,033.21
Total$41,578.21
Sale Cost (from bp report)
Agent commission/fees 6%$11,100.00
Sale closing costs5000
Profit
Total (pre-income tax)-$3,657.11
ROI based on 5 month flip-17.59%
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Kyle EbersoleBusiness Member
Real Estate Agent · Lancaster, PA · Member since 2022 · 78 posts · 75 votes
2y

Ken Na's response was really good on how he goes about calculating his costs. I do it the same way he does it. When I run numbers, I use an excel spreadsheet that calculates everything involved in the process. My first section is all my rehab categories broken down, the next section calculates the Purchasing/Holding/Financial costs, (Origination fee, interest, closing costs, utilities, taxes, mowing fees etc), then my last category is my selling  costs (Transfer tax, commission fees, sellers assist/inspection contigency, etc.) What that does is it shows me really quickly if a deal is going to work or not. With the numbers you showed as an example, I'd recommend turning this one down and looking for your next one. 

Also just wanted to touch on your hard money lenders. I have connections with hard money lenders that give me 100% of the purchase price, rehab budget, and closing costs of a deal. I pay them 10-12% interest and 1-1.5% as an origination fee. I would suggest pushing to find some lenders that give you those terms. Completely changes your deals and keeps you from having to bring money out of pocket! 

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  • John Seitz
    Investor · St. Louis, MO · Member since 2019 · 59 posts · 30 votes
    3y

    One thing I see is that your ARV calculation is off. The formula is (Purchase Price + Renovation Costs) / ARV Percentage. In your case, (118000 + 450000) / .75 = 217,333.

    0Reply
  • Daniel Llauger
    OP
    Real Estate Agent · Kansas City Metro · Member since 2019 · 13 posts · 3 votes
    3y

    @John Seitz Thanks for looking into this example, how is that ARV calculated?

    That ARV x 75% calculation shown is what the Hard Money lender maximum amount they could lend based on the ARV I give them (max funded loan amount by LTV), so out of the $185,000 they can lend me up to $138,750 and the difference I need to pay it when closing. Perhaps I label it incorrectly?

    0Reply
  • John Seitz
    Investor · St. Louis, MO · Member since 2019 · 59 posts · 30 votes
    3y
    Quote from @Daniel Llauger:

    @John Seitz Thanks for looking into this example, how is that ARV calculated?

    That ARV x 75% calculation shown is what the Hard Money lender maximum amount they could lend based on the ARV I give them (max funded loan amount by LTV), so out of the $185,000 they can lend me up to $138,750 and the difference I need to pay it when closing. Perhaps I label it incorrectly?

    I believe your HML should be able to loan you 75% of the ARV, so 75% of $233,333.00.
    0Reply
  • Daniel Llauger
    OP
    Real Estate Agent · Kansas City Metro · Member since 2019 · 13 posts · 3 votes
    3y
    Quote from @John Seitz:
    Quote from @Daniel Llauger:

    @John Seitz Thanks for looking into this example, how is that ARV calculated?

    That ARV x 75% calculation shown is what the Hard Money lender maximum amount they could lend based on the ARV I give them (max funded loan amount by LTV), so out of the $185,000 they can lend me up to $138,750 and the difference I need to pay it when closing. Perhaps I label it incorrectly?

    I believe your HML should be able to loan you 75% of the ARV, so 75% of $233,333.00.
    I'll check with other HM lenders but a couple that I have contacted their MaX LTV funding is ARV X 75%
    0Reply
  • Daniel Llauger
    OP
    Real Estate Agent · Kansas City Metro · Member since 2019 · 13 posts · 3 votes
    3y
    Quote from @Account Closed:
    Quote from @Daniel Llauger:

    Hey BP flippers pro's

    This is the first time I've been doing a flip using Hard Money, and I've been struggling with the numbers to the point if I'm doing the math correct or not. 

    I have used BP calculator and I also created an spreadsheet, but most of my numbers for profit are too low or negative... If I have a deal like this for instance below, what would be your numbers?

    Hard money lends 75% ARV, 10% of loan and 2.5% origination fee, assuming I'm paying closing costs when selling the property ($5,000), here are my numbers...

    I might be doing (substracting) something that I shouldn't ?... Any help is appreciated, 

    Purchase Price - initial$118,000.00
    Earnest Money$5,000.00
    Fees from wholesaler$295.00
    Purchase price$113,295.00
    ARV$185,000.00
    Rehab$45,000.00
    Purchase Closing Costs$1,500.00
    Loan Amount calculationARV x 75%
    Max Loan Amount$138,750.00
    Actual Loan Amount $138,750.00
    Monthly Interest payment$1,035.63
    Max Monthly Interest payment (after all draws)$1,300.78
    Final Loan Amount to pay back lender$124,875.00
    Holding Costs in Fix & Flip BP report
    Rehab and sell property (months)5
    Costs per month$620.00
    Total Holding Costs$3,100.00
    Financing Cost
    Highest monthly interest payment x months$6,503.91
    Purchase Cost in Fix & Flip BP report
    10% of loan$13,875.00
    2.5% origination fee (min $2,500)$3,121.88
    Prepaid interest$36.33
    Total$17,033.21
    Initial investment
    Out of Pocket pp+rehab - loan amount$19,545.00
    Out of Pocket - EMD$5,000.00
    Purchase Costs / Lender fees$17,033.21
    Total$41,578.21
    Sale Cost (from bp report)
    Agent commission/fees 6%$11,100.00
    Sale closing costs5000
    Profit
    Total (pre-income tax)-$3,657.11
    ROI based on 5 month flip-17.59%
    I'm a little confused. ARV isn't a calculation, it comes from comps. 3 properties of like kind that have sold in the last 3 months within 1/2 mile of the subject property. Is that how you got to an ARV of $185,000 ?
    Yes, that is correct!
    0Reply
  • John Seitz
    Investor · St. Louis, MO · Member since 2019 · 59 posts · 30 votes
    3y

    I think we're saying the same thing with a different approach. There is a calculation you can use to get what your ARV should be. Once you have that number compare it to 3 or more comps. If the comps aren't matching your projected ARV then it's likely not a good deal.That 185K you have is probably about 17.59% short of my calculated ARV.

    0Reply
  • Daniel Llauger
    OP
    Real Estate Agent · Kansas City Metro · Member since 2019 · 13 posts · 3 votes
    3y
    -6162.9
    Quote from @Account Closed:
    Quote from @Daniel Llauger:
    Quote from @Account Closed:
    Quote from @Daniel Llauger:

    Hey BP flippers pro's

    This is the first time I've been doing a flip using Hard Money, and I've been struggling with the numbers to the point if I'm doing the math correct or not. 

    I have used BP calculator and I also created an spreadsheet, but most of my numbers for profit are too low or negative... If I have a deal like this for instance below, what would be your numbers?

    Hard money lends 75% ARV, 10% of loan and 2.5% origination fee, assuming I'm paying closing costs when selling the property ($5,000), here are my numbers...

    I might be doing (substracting) something that I shouldn't ?... Any help is appreciated, 

    Purchase Price - initial$118,000.00
    Earnest Money$5,000.00
    Fees from wholesaler$295.00
    Purchase price$113,295.00
    ARV$185,000.00
    Rehab$45,000.00
    Purchase Closing Costs$1,500.00
    Loan Amount calculationARV x 75%
    Max Loan Amount$138,750.00
    Actual Loan Amount $138,750.00
    Monthly Interest payment$1,035.63
    Max Monthly Interest payment (after all draws)$1,300.78
    Final Loan Amount to pay back lender$124,875.00
    Holding Costs in Fix & Flip BP report
    Rehab and sell property (months)5
    Costs per month$620.00
    Total Holding Costs$3,100.00
    Financing Cost
    Highest monthly interest payment x months$6,503.91
    Purchase Cost in Fix & Flip BP report
    10% of loan$13,875.00
    2.5% origination fee (min $2,500)$3,121.88
    Prepaid interest$36.33
    Total$17,033.21
    Initial investment
    Out of Pocket pp+rehab - loan amount$19,545.00
    Out of Pocket - EMD$5,000.00
    Purchase Costs / Lender fees$17,033.21
    Total$41,578.21
    Sale Cost (from bp report)
    Agent commission/fees 6%$11,100.00
    Sale closing costs5000
    Profit
    Total (pre-income tax)-$3,657.11
    ROI based on 5 month flip-17.59%
    I'm a little confused. ARV isn't a calculation, it comes from comps. 3 properties of like kind that have sold in the last 3 months within 1/2 mile of the subject property. Is that how you got to an ARV of $185,000 ?
    Yes, that is correct!

    Good. Comps is the way to go.
    Okay, I do things a bit differently: I start with the ARV (projected sales price) then, I subtract the selling agent's fees, selling closing costs, the purchase amount, the rehab amount and HML origination fees.

    Then I list and add per month: HML payment, taxes, insurance, water, electricity, internet, yard maintenance, etc

    So I have Oct, Nov, Dec, Jan, Feb each with the monthly amount and I add in a couple of blank months in case something goes haywire and it takes 7 months to sell instead of 5.

    Then I have a couple of lines for things like HOA fees, swimming pool maintenance, etc.


    Then whatever is left over from ARV after subtracting hard costs and holding costs, I come to a gross profit amount. Then I multiply that by my IRS tax rate and by the state tax rate, subtract those costs and I get how much is supposed to go into my pocket.

    Keep in mind, it's all "best guess" until the final check clears the bank and you get your wire.

    That’s the general idea. I may have left out a couple of expenses but I always start with the projected sale amount and subtract everything else. If there isn't a nice profit, I look for another opportunity.

    I do something most flippers don't bother doing. I take the profit and divide by the number of hours worked to get the "per hour pay". If I can't make more than delivering pizzas, (a LOT more), then I don't do that project? ;-) My time has value.




    So assuming in this example the ARV I got for $185,000, I'm not that far with my numbers and it is not a good deal, did I miss anything?

    ARV:185000 -
    Agent fees: 11100 -
    Selling closing costs: 5000 -
    Purchase price: 118000 -
    Rehab: 45000 -
    HML orig. fees: 3121.88 -
    Holding costs for 5 months (water, electricity ,etc): 3100 -
    HML monthly payments 5 months average: 5841.02

    Total : -6162.9

    1Reply
  • Daniel Llauger
    OP
    Real Estate Agent · Kansas City Metro · Member since 2019 · 13 posts · 3 votes
    3y
    Quote from @John Seitz:

    I think we're saying the same thing with a different approach. There is a calculation you can use to get what your ARV should be. Once you have that number compare it to 3 or more comps. If the comps aren't matching your projected ARV then it's likely not a good deal.That 185K you have is probably about 17.59% short of my calculated ARV.


    I think I see what you're saying now, with your calculation can quickly compare the actual ARV from comps against the calculation and check if it's likely a good deal or not, right?

    2Reply
  • John Seitz
    Investor · St. Louis, MO · Member since 2019 · 59 posts · 30 votes
    3y

    Correct.

    0Reply
  • Carlos Ptriawan
    Member since 2019 · 7k+ posts · 4k+ votes
    3y

    If you want to do it right , don't do all these calculation but
    1. Find out the trend of PSF comps and its low and high range
    2. Really really analyze the trend
    3. When you purchase this house, how much is the PSF and the discount factor compare to #1.

    You need to come with scenario where your rehab is inaccurate and run again the number.

    1Reply
  • Daniel Llauger
    OP
    Real Estate Agent · Kansas City Metro · Member since 2019 · 13 posts · 3 votes
    2y
    Quote from @Carlos Ptriawan:

    If you want to do it right , don't do all these calculation but
    1. Find out the trend of PSF comps and its low and high range
    2. Really really analyze the trend
    3. When you purchase this house, how much is the PSF and the discount factor compare to #1.

    You need to come with scenario where your rehab is inaccurate and run again the number.

    Can you please explain further with an example if you don't mind?
    0Reply
  • Carlos Ptriawan
    Member since 2019 · 7k+ posts · 4k+ votes
    2y
    Quote from @Daniel Llauger:
    Quote from @Carlos Ptriawan:

    If you want to do it right , don't do all these calculation but
    1. Find out the trend of PSF comps and its low and high range
    2. Really really analyze the trend
    3. When you purchase this house, how much is the PSF and the discount factor compare to #1.

    You need to come with scenario where your rehab is inaccurate and run again the number.

    Can you please explain further with an example if you don't mind?

     If next door comp is sold for 1k PSF , you purchase with 750 psf

    1Reply
  • John Seitz
    Investor · St. Louis, MO · Member since 2019 · 59 posts · 30 votes
    2y
    Quote from @Daniel Llauger:
    Quote from @Carlos Ptriawan:

    If you want to do it right , don't do all these calculation but
    1. Find out the trend of PSF comps and its low and high range
    2. Really really analyze the trend
    3. When you purchase this house, how much is the PSF and the discount factor compare to #1.

    You need to come with scenario where your rehab is inaccurate and run again the number.

    Can you please explain further with an example if you don't mind?

    Your comps will show you the price per square ft. Compare that to your property's ARV price per sq foot to get a more accurate comparison. You could take the average of all your comps per sq ft price and use that as the factor.

    1Reply
  • Kyle EbersoleBusiness Member
    Real Estate Agent · Lancaster, PA · Member since 2022 · 78 posts · 75 votes
    2y

    Ken Na's response was really good on how he goes about calculating his costs. I do it the same way he does it. When I run numbers, I use an excel spreadsheet that calculates everything involved in the process. My first section is all my rehab categories broken down, the next section calculates the Purchasing/Holding/Financial costs, (Origination fee, interest, closing costs, utilities, taxes, mowing fees etc), then my last category is my selling  costs (Transfer tax, commission fees, sellers assist/inspection contigency, etc.) What that does is it shows me really quickly if a deal is going to work or not. With the numbers you showed as an example, I'd recommend turning this one down and looking for your next one. 

    Also just wanted to touch on your hard money lenders. I have connections with hard money lenders that give me 100% of the purchase price, rehab budget, and closing costs of a deal. I pay them 10-12% interest and 1-1.5% as an origination fee. I would suggest pushing to find some lenders that give you those terms. Completely changes your deals and keeps you from having to bring money out of pocket! 

    4Reply
  • Daniel Llauger
    OP
    Real Estate Agent · Kansas City Metro · Member since 2019 · 13 posts · 3 votes
    2y

    I sent you all a DM/connect, the only one that I know that got it was Kyle

    0Reply
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