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Although there have been some significant changes in the real estate market the past few years, still, you can make some money in real estate by following the right formula for fixing and flipping properties.
According to Michael Gentile, a North Hollywood REALTOR®, the key and most important thing to remember is to work with the right North Hollywood real estate agent.
“Fixing and flipping properties is not only about doing the repairs or planting flowers to make the house appealing but ultimately it’s all about how you do the math. If you are not satisfied with the value that you would have just look for another property. Don’t rush into buying a house without doing the calculations first. You clearly do not want to invest into something you would have a hard time selling.
Buyers would not buy a house according to the price put into the property by the seller, instead they would check out similar houses in the neighborhood to do a comparison of prices. Say you have $110,000 for a fix-and-flip project and others are selling for a cheaper price but of similar quality, do you think you can gain something out of it? Clearly the amount you spent has nothing to do with how much you’re going to get out of a particular fix-and-flip project.
The Fix & Flip Formula
1. Get some professional help from appraisers to determine the house’s value supposedly after the repairs have been made or try to compare prices of similar house that were sold. The price that you’re going to get will become your starting point.
2. Calculate all of the cost that you would be spending on the house. This includes: closing fees, loan fees, document prep, homeowner’s insurance, title policy, repair costs, interest on loans, property taxes, sales commission, fees, title policy, and last but certainly not the least your hold cost. What you want is the projected costs of all four categories: buying, improving, carrying, and selling. Subtract everything that you have spent from the expected sales price.
3. Subtract a profit that would compensate the effort you have made. Remember to allow room for negotiations. You have to make the illusion that you are not after the client’s money but only just to make a sale.
Here’s a good example of a Fix & Flip:
Shall we say that you have determined that can get &128,000 for the property you bought after all the necessary improvements have been made. The buying cost is $2,000 and $8,000 for the repairs. Carrying cost would be around $2,500 and sales commission and other closing costs amounting to $8,000. You have estimated that the “unexpected” is about $1,500 and another $20,000 for the efforts you made. If you subtract all of this from the expected sales price, you would get around $107,500.
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