Steps to fix and flip real estate
You are interested in a house. You think you can make a decent solution and turn it around and come out with a huge profit. What is your plan? A lot of people would just go in, do their renovations, and then put the desired profit above cost and use it for the sale price. At first glance this seems sensible, how else would you make a profit? However, this approach ignores the critical consideration of price competitiveness.
When buyers are interested in a home, one of the first things they’d want to talk about is price. Now, you can say you’ve done all these major renovations, sparing no expense to transform this once plain property into a dream home. Consequently, of course, the sale price would be a bit higher, although still reasonable. Our buyer would then remember that house they saw on the other side of the neighborhood. Sure it’s not as fancy as this one, but it’s similar in structure, and most importantly, it’s cheaper. It doesn’t take long for our buyer to decide that he can decorate that other house at his own pace, once he’s settled in, but thanks for showing us around.
Buyers don’t really care how much you’ve put into the house, what they care about is how much they’re going to shell out. It’s important to plan how you’re going to handle a fix-and-change real estate project with that consideration in mind. Here are some steps to take on how to keep your asking price attractive without killing your profits.
First, find out how many houses that are more or less similar to the one you want to work on are selling for. Keep in mind that it is how much they sold for and not the asking price that you are looking for. Then calculate all the costs involved in the project, from buying and improving to carrying out and selling. Don’t forget to add a small “miscellaneous expense” for those unexpected costs. Next, determine the profit you want to earn from the project. Now, from the selling price you were able to determine, subtract your estimated cost and the desired profit. What you get out of that is how much you can afford to buy the house you want to fix up and flip. More would mean giving up part of your earnings.
So let’s say you have a house for $50,000 that you want to fix up and flip. Looking around you see that you can get $80,000 after the renovations. You have estimated that all costs will be $25,000. Let’s say you want a profit of $7,500 from all of this. That would mean you need to get the house for $47,500 to make your profit. Of course, you can go the other way and just settle for a $5,000 profit and pay the full $50,000. However you want to do it, you’ll know where you stand and what to expect.
