Flipping Real Estate Calculating Costs

Flipping Real Estate Calculating Costs



Flipping Real Estate: Calculating Costs
If you been in​ the​ real estate investing business, or​ more specifically been flipping real estate, for​ more than a​ few days, you’ve inevitably gotten an​ email that reads something like this:
Investor’s Dream .​
This property will go QUICK.
- Property Address: 1234 Main Street
- Asking Price: $100,000 (Add or​ subtract zeros!)
- After Repair Value: $150,000
- Repairs: $15,000
- Profit: $35,000
- Details: Needs paint, carpet, tile, new kitchen, update bathroom, some roof damage .​
- Tenant occupied .​
Need to​ evict!
STOP! Before you read on… Take a​ guess at​ what you think the​ real profit’s going to​ be on this real estate investment…
If you haven’t ever gotten an​ email or​ fax broadcast like this, then rest assured, you will! I’m about to​ probably tick off all of​ the​ late night infomercials and​ pitchmen out there! Sure, I​ understand that when you’ve got 30 minutes (or 90 minutes, for​ that matter), that you’ve to​ sell what’s sexy… not what’s real!
Now it’s my turn to​ expose the​ real deal on real estate investing! This goes for​ flipping real estate itself (i.e .​
properties) or​ simply flipping the​ contract (also known as​ assigning the​ contract) .​
When you’re flipping real estate, you need to​ be able to​ calculate the​ real bottom line and​ if​ your assigning the​ contract, you need to​ know your numbers so you don’t get blacklisted from investors! This one piece of​ information will keep you from getting into trouble because of​ any real estate bubble!
Purchase Costs
Here goes… Have you EVER purchased and​ sold a​ piece of​ real estate for​ FREE? if​ you're not sure what the​ answer is… It's an​ emphatic NO.. .​
You are going to​ have costs to​ buy, costs to​ hold and​ costs to​ sell .​
This holds true even if​ you are buying a​ property for​ all cash .​
(Think title fees, attorney’s fees, recording fees, etc.)
If you’re not getting a​ mortgage, your purchase costs are obviously much lower, but nonetheless, there are costs associated with any real estate transaction .​
Plus, more than likely, if​ you’re relatively new, you’re probably not paying all cash for​ property anyways .​
You’re probably going to​ be using a​ hard money investor for​ your initial real estate investing financing!
For a​ quick calculation, you can estimate anywhere between 3% - 5% for​ closing costs to​ just acquire the​ property .​
That’s 3%-5% of​ the​ purchase price .​
Holding Costs
How much is​ it​ going to​ cost you each and​ every day to​ own this piece of​ real estate? See, if​ you’re making money in​ real estate, you’d better believe that there are a​ lot of​ other people that are going to​ expect to​ get paid and​ they get paid in​ the​ form of​ mortgage interest, property taxes, utilities, property insurance, etc .​
Each of​ these is​ an​ expense each and​ every day that you own the​ property .​
Here’s an​ example… a​ hard money loan on a​ bread and​ butter type piece of​ real estate might run you 15% .​
Let’s say you got the​ property for​ $100,000 .​
Every month, you are paying $1250 in​ interest alone .​
Let’s say that taxes and​ insurance are another $200/month and​ then utilities at​ $100 .​
Right there, the​ property is​ costing you $1550/month – or​ roughly $50/day .​
See, why it’s important to​ know your not only your holding costs on a​ real estate investment, but also how long it’s going to​ be on the​ market before you can flip the​ property .​
Selling Costs
Here’s the​ third part of​ the​ real estate investing puzzle .​
When you want to​ turn around and​ sell this piece of​ real estate, it’s going to​ cost you yet again! Are you going to​ use a​ real estate agent and​ pay a​ commission or​ 3-4-5% or​ even more? On $150,000, that’s anywhere from $4500 to​ $7500 chopped of​ the​ top .​
Then, you can figure 1-2% in​ closing fees .​
If you can remember this… and​ apply what you’ve just learned to​ each and​ every real estate deal that you do, you’ll be safe flipping real estate in​ any market .​
You see, if​ it’s a​ hot market, you can calculate less time for​ holding cost .​
But, in​ a​ slower market, make your offer based on 6 months or​ 9 months of​ holding costs .​
It’s really simple math! and​ real estate really is​ a​ numbers game…
Recommended Resources:
Finding Deals: www.motivatedsellermarketing.com
Estimating Repairs: www.fixingandflipping.com
Finding Contractors: www.servicemagic.com




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