Flip Your Future by Ryan Pineda

Author:Ryan Pineda
Language: eng
Format: epub
Publisher: BookBaby
Published: 2018-06-01T15:19:11+00:00

The first rule is to protect you from getting burned on bigger deals. If you have an ARV of $200,000, then your Minimum Profit should be $20,000. Making $20,000 on $200,000 is a nice deal. Making $20,000 on a $1,000,000 ARV is not a good deal! There is too much risk for a property that expensive. If the property only sells for $900,000, you would lose $80,000! Not a risk you want to take. If you’re flipping a property that expensive, your minimum profit should at least be $100,000.

The second rule is to protect you from getting burned on the small deals. If you use the first rule and your ARV is only $100,000, then your Minimum Profit would only need to be $10,000. That’s not enough to justify the risk and time it’s going to take. If the rehab goes over budget $10,000, you have no profit. That’s why your Minimum Profit should be at least $20,000. That will protect you in case you miscalculate ARV or Repair Costs.

Minimum Profit can be whatever you want. You might only want to do bigger deals with a Minimum Profit of $50,000. Those deals are harder to find, but they’re definitely out there. Decide how much you want to make and then you can offer accordingly.

Max Offer Example

Here is the Max Offer formula again:

ARV − Repair Costs − Money Costs − Realtor Costs − Holding Costs − Closing Costs − Minimum Profit = Max Offer

We see the property 123 Main Street is listed at $129,000. We do our research and figure out the Repair Costs are $25,000, the ARV is $180,000, and the hold time on the property should be four months. Knowing that, we can figure out the rest.

Money Costs are three points plus 12% interest for four months. Your loan amount will depend on how large a down payment you put down and what the purchase price ends up being. For this example, we’ll assume your loan is for $120,000. So $3,600 for points and $4,800 for interest. $8,400

Realtor Costs are 5% of the $180,000 ARV. $9,000

Holding Costs are $400 a month for four months. $1,600

Closing Costs will be 3% of $180,000. $5,400

Minimum Profit we want on this deal is $20,000.

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