Hey guys, it’s Torsten Coulson again, bringing you back to our great series on fix and flips. (Catch up with Part 1 here.)
Last time we talked about critical step #2 finding that deal. So if you missed it, you should check it out. I shared a few tips on where to find a deal and about negotiating a deal. Something I didn’t talk about is the importance of negotiating multiple deals at once, so you can pick the best deal out of the ones you’re working. If you only negotiating one deal at a time you might stop short because you just need a property!
But, let’s move on to critical step #3 – what’s a good price to pay for a fix and flip?
This question about price is one that I’m asked about from my students daily.
My short answer is - if you can make money, then it’s a good price!
But, lemme walk you through some steps to really explain some numbers.
Step 1 - Come Up with Value
Do your research online to come up with a quick value. Look at what has sold in the area and what is listed in the area.
Talk with a real estate agent who works in the area of your potential deal and get their opinion on value. Ask them, “If you would list this house once it’s fixed up, what price would you list it for so it will sell within 30 days.”
Drive the area and write down all the numbers you get from the for sale signs. Call and ask them their price and how long it’s been on the market. You can also ask if they are getting a lot of showings at that price and if they have had offers.
Once you gather all your info, make an educated guess on value. Remember, your number will be for the house to sell within 30days – don’t look at the highest sale price in the area and make that your value.
Step 2 - Look at Cost
Besides rehab costs, you must look at cost to sell.
I use 8% cost to sell because you need to pay 3% to your listing agent, 3% to your buyers agent and 2% closing costs.
How to estimate rehab cost, is another question I’m asked by my students daily. Get quotes from subcontractors. If you’re not going to manage the rehab project, you’ll need to get a quote from a General Contractor.
The other option is to take a field trip to Home Depot and get prices for material. Home Depot can also give you a price for labor.
Here’s the math
Value - cost to sell of 8% of value - rehab cost = break even
Break even – min. profit = max. buy price
Step 3 - Make an Offer
When you make your offer, it needs to be lower than your “max. buy price.” If they don’t accept your offer, keep following up with the seller until you can get them to accept your offer.
If you make a verbal offer ALWAY give the seller a written offer, even if they tell you that your offer is too low.
Well, that wasn’t so bad, right? Pretty simple equations to follow, which can help you easily and accurately determine the price for your fix and flip.
Stay tuned for the next part of our awesome series on fix and flips.
See Ya then…
Torsten Coulson
P.S. Need a Mentor?
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