Flipping your home can be scary. As we explored earlier, calculating your profit will come down to a simple “flipping formula.” This formula consists of you 70% of ARV (after repair value) subtracting your repair cost will create your buy price. Unfortunately, if you are unable to calculate your resell value and repair cost, this formula is useless. Learning and mastering these numbers will make your formula more accurate and eliminate the margin of loss.
Over Calculating Resell Value
Many home flippers tend to be overly optimistic about this number. Research your area and see what homes are selling for with similar square footage. It is better to be safe than to over calculate. Also, if homes are not selling in the area, this will be a foreshadow to the market in this area and how long you may sit on the property. Do not assume that your investments will allow the home to sell for higher than homes generally sell for in the area. Continue to research until you have five to six homes that begin to show a pattern in the market. When you feel confident about the resell value, purchase the home, and prepare it to sell. Remember, the goal is to sell the property as quick as possible after you are done renovating it.
Over Repairing and Personalization
Do not get personally attached to the home. You should see what competitive homes that are selling in the area have. Do not add your preference, but what sells. If every home that has sold recently has carpet, installing hardwood will not be an upgraded selling point. While it is essential to understand what gets the buyers attention, you also do not want to invest too much. Know what is necessary and what is not. Maybe upgrading appliances can be left for the consumer. Knowing what you need to fix before buying the property will help you understand repair cost.
The better you get at understanding and generating these numbers, the more accurate your flipping formula will be. If you missed part one, be sure to visit it here.