Many people are fascinated with get-rich-quick schemes. While some are just gimmicks, others have been tried and true. Some projects require a massive gamble of your money, which means eliminating the odds of taking a loss is vital. Flipping homes is no exception. Many individuals have come across a considerable amount of profit flipping homes. Yet, there is also a fair share of horror stories you may have heard. Flipping your first home can be intimidating. You need to make sure you spend time researching market value and how to fix up a home. If you are looking at making proactive steps into this lucrative business, you need to master the “flipping formula.” With this knowledge, you will be able to calculate how much money you can make off flipping a home.
The Flipping Formula
Right in the beginning, you need to calculate what your home’s value will be after repair. The best way to determine this is to find similar properties in the area with the same number of bedrooms and baths and assess their value. After you calculate the price you anticipate selling the home, take 70% of this value to eliminate closing cost, caring cost, and profit. Next, subtract the number of repairs costs you believe you will be putting into the home. This value will allow you to determine your buy price.
Example
$100,000 ARV = $70,000 – $30,000 in Repairs = $40,000 Buy Price
Since buying a home at $40,000 to sell for $100,000 may be challenging, you may need to invest in a more expensive property to make money. Really understanding and determining your ARV (After Repair Value) and knowing how much repairing your home will cost is critical to this formula.
If you are handy, you can save money on having other installers and contractors in your home. Know the rates of who you will need to hire. All these fine details will determine what your profit will be in the end. Your first property can be scary. Do not anticipate the project to go as smoothly as you see on television and expect the unexpected. If you are uncertain on how to calculate resell value or repair cost, make sure to check out part two of this flipping your first house series. For more insight on home improvements projects, make sure to subscribe to our blog. Thanks for reading!
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