I need some help. I am analyzing my first single family fix and flip property and I am trying to total all expenses for the project in order to present it to my gap funder, but when I run the numbers they do not seem right. I know I am doing some thing wrong but I don't know what. Can you take a look at my math and help me out... Thank You
A few Questions off the bat-
1.Is property taxes paid in a lump sum when property is purchased or is is broken up over 12 months?
2. I read somewhere online to estimate around 6% for closing costs- should that be budgeted for purchase and sale or only purchase?
3. With closing costs- are escro, titling fees lawyer fees and all that included? or should i budget an additional 10% estimate aside for those fees or additional fees?
I used a analysis i found on BP, modified a little to fit my needs, and the house flipping calculator. They are attached. Thank You.
Hey @David Fantell - I shall dig in tomorrow and help you look at this more! I'm heading to bed now though :) If I forget, remind me!
Hey @David Fantell -
So first, your questions:
1.) Property taxes are typically paid twice a year (not always, but that's the norm in most areas of the US.) When you buy a property, you are responsible for taxes from the day of closing on, but usually (again, not always) you will pay for a year in advance when you use a mortgage. If you are paying cash, you might pay taxes at closing up until the next tax due-date (So, if taxes were due on July 1 and December 1, and you buy in May, you will pay for the taxes up until July 1.) Your title company will usually figure all this out for you.
2.) I'm not sure about 6% (I've never really thought about it like a percent, but that seems high for buying a property. but maybe that's just my area. I dunno.) I always figure around $2000-$3000 for the title/escrow fees, plus whatever other loan fees you might have. Then, about the same when you sell, PLUS the real estate agent commission, which is usually 6% (not always) and doesn't include any other fees (To answer your question #3.) This all depends on the purchase price some, but that's how I think of it.
As for your analysis:
First, on your spreadsheet, I'm not sure where the 70% number of 183,000 comes from. Technically, the 70% rule would be 290,000 x .7 - [repairs], so $163,000. Maybe it's a typo? I looks like you have $163,000 correct on the BP calc. Or maybe the 6 just looks like an 8 to me.
But that's really not important anyway, since you are doing the full analysis.
So, if you work backwards from your $290,000 Purchase price:
- $29,000 Sales Closing Costs (I figure, 6% for Realtor, 4% for the rest. Just an estimate)
- $24,000 Holding Costs (An estimate of $4k per month x 6 months)
- $40,000 Rehab Costs
- $12,000 Purchase Closing Costs (an Estimate, about 4%)
- $5,000 Loan Fees/Points (I'm rounding)
- $163,000 Purchase Price
So, on a project like this, that's about what I see. Now, I rounded a bunch of numbers so it's slightly different than what you saw in your reports. Of course, that's not a lot of profit on a deal of this size. The holding costs with the hard money can be painful, and if the project takes longer than you think, it could quickly turn negative.
Then there is the loan stuff. According to your docs, you were looking for a loan for around $188,500. But if we add up the bottom 5 numbers from the list above, we get $244,000 in total charges for the project. So you'll likely, by the end of the project, need to come "out of pocket" with about $55,500. If you made $17,000 in profit in six months, that's a 30.63% return on investment, or annualized, that's 61.26% ROI. That's pretty good. But again, a bit risky for my taste for a project that big.
And - 100% of this analysis depends on getting that ARV right. How confident are you that it will fly off the shelf at $290k? If you have to drop your price 10% to get it sold... well, there goes the profit and you'll be paying an expensive lesson.
Also @David Fantell - I noticed, on the BiggerPockets Calculator, you put $1700ish dollars for insurance PER MONTH - this is what likely caused a big different in your profit.
So, above, even in my calculation - I put $4k per month for holding costs. But It would actually be more like $3,000 I think, which means the profit would be $6000 more than what i have above. SO Maybe $23,000 profit. Better, but still not a slam dunk. For a deal like this, I probably wouldn't touch it for an under $30k profit, and ONLY if I knew the ARV price was solid.
thank you for the reply and detailed analysis. It definitely gives me a lot to think about. Its amazing that a house with a difference of over 100k between purchase price and estimated ARV can possibly net a loss for the investor.
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