How to do a Financial Analysis of a Home Flip
Comparable Market Sales
- Pending Sales
- Active Sales
- Walk the Neighborhood Local Realtors
Identify Repairs and Improvements Repair
When it comes to renovations you really need to think in terms of the different possibilities. This is a fun and exciting part of fixing and selling properties. It’s a chance to use your creativity and you imagination. But then you need to temper all that with the reality of the cost verses the value added to the property. So consider breaking down your options in to these three categories:
Repairs – “Must”
This are repairs that are causing a safety hazard or that are required by building standards.
Renovations – “Should”
These will be mostly dictated by what is standard and customary. So if all the other properties in the neighborhood have 3 bedrooms and two bath and your property has 3 bedrooms and 2 baths then you really “should” consider adding a bathroom.
Upgrades – “Could”
This is where your creativity and financial analysis could make or break a deal. If most of the houses in the area don’t have a pool, and it will cost you a whole lot to put in a pool, but not sure if buyers are going to value it, that’s the “could” that you need to really think on.
Opportunities to Add Value
- Openings (Walls)
- Layout Changes
Account for Holding Costs
- Buying costs
- Holding costs
- Costs of money
- Selling costs
Set Minimum Profit
This should be a percentage of your After Repair Value that you set for every flip.