Understanding basic numbers on a flip
The only 3 numbers that really matter:
1) Purchase price
- This is actually the last number that will be determined.
2) Rehab cost
- This cost is critical because it might be the hardest to calculate.
3) Sale price (minus realtor fees)
- The sale price can be tricky but recent sale cops in the area should give you a reasonable idea
First, you must know the after-repair value of a property (ARV) you are evaluating.
Once you have determined the ARV of the property were evaluating, you must determine the rehab cost of the project.
The purchase price, or the price that you should be willing to pay for a property, will be determined (roughly speaking) by subtracting the rehab cost from the after-repair value (minus realtor fees) and then factoring in your desired profit.
For example, let’s use a house within a ARV of $100,000 and a rehab cost of $25,000. The math would look like this:
$100,000 (ARV) — $6000 (Realtor fees of 6%) — $25,000 (rehab)
If your desired profit per deal is $20,000, then you could not pay any more than $49,000 for this property.