calculated decisions. Oftentimes, these are learned through many painful and expensive mistakes.
profit margin. Personally, I suggest using 60-65% if you are not a seasoned “Flipper.”
Decoding the Finances
Purchase Price: This should be carefully negotiated to leave ample room for repair costs and potential profit. Repair costs: It should detail the repair costs, including materials, labor, and a full and realistic estimate of a margin for contingencies. After Repair Value (ARV): This is to be that value that the property might sell for after the necessary refurbishing is completed. This is best determined with accuracy through a comparative market analysis (CMA) by using very relevant “comps.”
One of the most common misconceptions is that, typically, in order for one to be able to make a nice profit, only superficial improvements would need to be done during a fix-and-flip project. Most financially successful flips call for major rehabs, dealing with cosmetic and structural issues; only then does the value rise appreciably. The other myth is overestimating the returns without considering the myriad costs from purchase, renovation, to sale. Thus, accurate computation of purchase price, repair, and the After Repair Value (ARV) is key to the success of this form of fix-and-flip investment. Such investors generally work with the 70% rule. According to this rule, they should not buy the house and fix it at a cost that sums 70% or more of the ARV. This metric cushions one against market variations and makes sure there is a good
The Challenges of Assembling a Great Team
A fix-and-flip project largely depends on the reliability and efficiency of the team involved, such as the contractor, realtor, title company, and wholesalers, to name just a few. Of course, this is not an exhaustive list.
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