Understanding Numbers on Buy, Fix, and Sell Deals
When looking to buy a property to fix and sell for a profit, you have to understand the numbers behind the deal. Here are the all the relevant numbers we must take in to account when flipping a property.
Rehab cost – This is the total cost to fix the property to get it into a move-in-ready state to maximize profit.
Profit – Make sure your profit margin is enough to make the flip worth your time and effort.
Closing cost – When you by a property, the buyer is responsible to pay closing cost. 3% is a typical number to plan throughout the US for what we will pay for closing cost. I would suggest doing 3% of the after-repair value (that is the value of the property once it is fixed up and ready to sell).
Real Estate Agent commission – The seller is responsible to pay the real estate agent once the property sells. A 6% commission rate will be standard throughout the US and Canada. The Real Estate Agent commission will be figured on the After Repair Value as well. When you have fixed the property and sold it, you will pay the agent 6% of what the property sells for.
Holding Cost – Holding cost accounts for the money you spend on owning the property while you fix it up to sell. Use 1% per month of the After Repair Value to calculate your holding cost. Holding cost will always very depending on the amount of time it takes to fix the property and the amount of time it takes for the property to sell. To get these numbers, ask the contractor how long it will take to fix the property and talk to the real estate agent about what the average days on market is for the area your property is in.
When you run your numbers, make sure you take all these items into account. There is always risk in doing flips on properties, so make sure you do your due diligence and your numbers are accurate before you move forward.