Flipping is one the best-known real estate strategies to make upwards of 20K within a couple of months… so long as you do it right. Use this 2-step formula to run the numbers and make profitable flips to build your capital.
Flipping real estate can be a great way to make money.
The rule to smart flips is to follow the numbers. There is more than one way to eat profits on a flip and it all starts with your initial assessment. For smart flipping, you’ve got to evaluate the Flip Value and Your Maximum Cost to Buy.
Let’s break it down right now.
1) Determine Your Flip Value (FV)
When you want to buy a property to rehab and sell, you need to determine your flip value upfront. Once you get your flip value, you reverse engineer to get your budget.
Be sure to stick to your budget so you do actually make money on the deal!
To get your FV, you need 3-6 months of comps for nearby housing values (your realtor should do be able to send this information to you). This will allow you to have a reliable account of what the house should sell for. Once you land on your flip value, plug it into your budget and see if the house is well-suited to a flip.
2) Determine Your Maximum Cost to Buy (MCB)
After you have your FV, you want to be able to generate a budget to see if buying the property will be worthwhile.
In general, you want to have at least 30% profit from the initial cost and price of rehab. Typically, 10% goes towards financing so you are actually clearing in the ballpark of 20%.
Use this equation to check your numbers: FP * 70% – rehab cost = MCB.
If your numbers work, then all you need to do is stick to your budget and you’ve got yourself a money-making flip.
If you do find a property that is close to the numbers, don’t fudge it. If it doesn’t work as a flip, it may be better suited for rental income property or just not worthwhile. Either way, remember to be committed to moneymaking, not a particular strategy.