Improving ROI for your Fix & Flip

Flipping houses is an excellent investment opportunity, but it isn't easy money. Making a significant profit in residential rehab investing requires both a big picture perspective and attention to the details. You need to be able to see the potential in a property and have good instincts about how to move forward, but you also need to be able to do a lot of math.

If numbers were never really your thing, hire an accountant before you do anything else, because the most essential part of finding a good investment property isn't instincts, it's math.

In order to determine whether a residential rehabbing investment is worth the cost, you'll need to do a thorough analysis of all of the upfront costs as well as your potential earnings. First things first, you'll need to add up all of the money that you'll have to pay out in order to obtain and renovate a good investment property.

Beyond fees for hiring an accountant and potentially a realtor, your first major expense will be the down payment on the home itself. If you were purchasing a home for yourself, you'd expect to put down somewhere between 15 and 20% of the purchase price. With investment properties, it's a bit different. In today's ultracompetitive house flipping environment, many investors are paying 100% of the purchase price in cash.

Of course, in order to do this you don't necessarily need to have that much money on your own. Many investors turn to private money lenders in order to better leverage their own assets and mitigate the risks that go along with putting that much money down on a single property. If you receive residential rehab financing from a private money lender, you'll need to add the associated fees and interest payments to your upfront costs.

Next up, you'll want to calculate your costs for repairs and improvements. Bear in mind that almost any renovation you plan has a calculable return on investment. Be smart about not making improvements that you would like to see, but rather making improvements that will yield the highest interest from the greatest number of potential buyers (and thereby improve the value of the property). Many updates like additional rooms or changes to the foundation simply aren't worth the cost, where as other fixes like fresh paint and new carpets can add immense value to a home at very little expense.

Calculating the cost of renovations may be the most difficult part of determining your potential ROI, because these costs can be the hardest to predict. Factors that will help you keep costs low include staying on top of your permits, finding the best possible contractor you can, and sticking to your schedule as closely as possible.

Once you've determined all of your costs including taxes, fees, insurance, interest payments, and emergency expenses, the next step is to compare that figure to your potential profit. Keep in mind that there is always risk involved when it comes to flipping houses, and you may not sell your property for nearly as much as you would hope. You should also consider that if your investment will yield a low profit, it may be less risky and just as profitable to invest in the stock market.

One of the simplest ways to get a sense of whether or not an investment property is worth the risk is by using a free online house flipping calculator. At ZINC Financial, we have a free Deal Analyzer that lets you plug in some basic figures and determine whether a property is worth exploring further.