Keeping All Your House-Flipping Deals Profitable
What’s your biggest fear with real estate investing?
I know my answer, and after working with thousands of investors to flip homes, I’m pretty sure I know yours, too.
Real estate is expensive. For 99% of people, a property is the most expensive thing they’ll ever purchase. That’s a double-edged sword for investors – even a 5% profit of the total value of the deal can lead to you getting rich. But on the other hand, a 5% loss on the deal can bankrupt you.
Of course, I wouldn’t be teaching this stuff if every other person was losing their shirt on deals – I teach this stuff because I’ve been able to virtually eliminate risk and help people start their path to financial freedom. And on the rare occasion that my students lose money on a deal, it’s usually because they tried to shortcut something.
But there’s one skill that you absolutely, positively have to master that takes your risk to practically zero:
Sure, negotiating, finding properties, finding buyers – all of that’s important. But those aren’t the things that derail a deal and kill you financially.
Rehab Costs & After Repair Value
There are all sorts of shortcut tips I can give you for estimating rehab costs – but they’re too rough to depend the success of a deal on (in my opinion).
I’ve rehabbed enough homes that I can look around for 15 minutes and know how much I’ll spend. But until you’ve done hundreds of deals, stick to a professional quote. This number is too important to mess up.
The next is your After Repair Value, or ARV. For this, I recommend doing heavy research online. Find the 3 most comparable comps as near as possible to the property you’ve got eyes for. Use ones with comparable bedrooms, square footage, and any other features you can closely match up to your property.
I’m also going to tell you to throw out the highest comp you found. That’s usually a best-case scenario, but crunching numbers on best-case scenarios rarely work out.
How to Know You’ll Profit
Once you know rehab costs & after repair value, then you can make real decisions. It makes it easier to stick firmly to a number during negotiations. If you know that you MUST have the property for less than $150k or you can’t make a profit, it’s easy to stick to that – and walk away if necessary.
Here’s an example:
You find a property that you calculate to have an ARV of $200,000. You know that Do Hard Money can lend you up to 70% of the ARV, which equals $140,000.
Let’s say that you estimate rehab costs at $30,000. Now you know (if you want to get 100% financing) that you can’t spend more than $110,000 on the property ($110k + $30k = $140k).
(and yes, I’m ignoring some of the extraneous costs for simplicity. You’d simply add those in when calculating your costs)
Now here’s the beauty of this:
With this deal, you’d spend very little out of pocket, and walk away with $60k. Sure, after loan fees and other costs, maybe that’s only $45k, but that’s a nice payday any way you slice it.
To make things simpler in crunching all these numbers, I built a tool called Advanced Deal Analyzer. When you find a property you might be interested in, you’ll plug in all the numbers, and the ADA will spit out the back-end numbers. You’ll know how much capital we’d be willing to lend on that deal, what all your costs would be, and how much profit you can expect.
I insist that all my students use it – in fact most of them will put in 5+ deals before they find one that works out how they want!
That’s a small part of what I offer students in my 100% Financing System – I’ve also got hours of REI training videos and of course access to my funds when you’re ready to purchase a property. Click the link below and let’s get you started flipping homes!