Factors to consider when analyzing a potential fix and flip
Most investors will look at the feasibility of a deal starting at the end and working their way backwards. They will first look at the After Repair or Renovation Value, and then subtract the cost of and the Closing & renovation costs. Then they will subtract out the amount they want to make on the deal and what is left is the maximum amount they should acquire the property for.
AFTER REPAIR VALUE – CLOSING COSTS – RENOVATION COSTS – PROFIT = MAXIMUM ALLOWABLE OFFER
- After Repair Value: This is the market value of the property after it’s completed and the amount you would likely receive if you sold it.
- Closing Costs: The closing and monthly carrying charges.
- Renovation Costs: The hard costs of labor and material to do your renovations.
- Profit: The amount of profit you need to make. This is a personal business decision that you need to make. Take in to consideration what you could otherwise do with your time and investment.
- Maximum Allowable Offer: The most you should pay for a property that you want to fix and then sell.