So you want to buy a flip house? Or is it a real fixer? How do you know if oyu can make any money on it? Make a list. If you don’t already have a formula (and you should already have a formula) for how much it is going to cost you to fix that flipper, than you better have detailed cost figures so you at least give yourself a chance.
Most experienced flippers know the exact amount of money they are going to spend before the ink is even dry on the contract of sale. In my business we use $25 sq.ft. This gives us enough budget for the unforeseen big things. Like new electrical when you thought the electrical was perfect. Or that new roof you were sure was in excellent condition.
But what makes us our money is buying smart. It is often said that experienced flippers make their money when they buy, not when they sell. It’s true. We don’t buy any property unless we know there is roughly 30% -35% potential equity when we buy. That formula, with our $25 sq./ft/ fixer budget, ensures we can walk away from a flip with a tidy profit.
But we also make lists. We have a database of all of the appliances we normally put into a house. We know the cost, where to buy them, and how long it will take to get them on site. Same with light fixtures, granite counters, carpet, tile, hardwood flooring, paint, etc. You get the picture. When we look to buy a house, we take extensive notes and pictures. We want to know going in what the house needs to make it sell quickly. We then go back to the office and price out everything. We compare that to our $25 sq./ft. formula and see where we are. We calculate what we think we can get the house for and run the numbers. If it looks profitable, we jump. If not, we walk. That is how we stay in business.
We walk away from 9 out of 10 homes we look at. That is what I said, 9 out of 10. Our lenders trust us when we come to them with our numbers. They know we can make it work. So, don’t forget to make your lists. Have that database of costs handy. Know what the contractors are charging in your area. If you know labor costs and product costs, you can get a pretty good idea of your cost. Remember, it is all about the numbers and NEVER, EVER, fall in love with an investment. If you do, you are doomed to fail.