Property Flip or Hold – Flip Analysis

February 10, 2017

Property Flip or Hold - Flip

When purchasing a home for investment with the intent to Flip or Hold you need to consider the Value Analysis of the property. In Real Estate Investment you make your profit when you purchase. We are going to look at the Flip Analysis.

We are going to look at the Instant Flip (or wholesale) Profit, 1, 3, 6, 9 and 12 Months Profit. Of course the longer we hold the property the less our profit will be because of Holding Expenses.

  • Sales Price – This is the actual Final Sales Price (or best estimate at this point of the decision process) that the home will sell for. In our case it’s $180,000. It’s not necessarily always the same as the ARV. Could be more or less. I have address this in the previous post here.
  • Soft Cost – Soft Cost includes items like Real Estate Commission, Architectural, engineering, financing, legal fees, and other pre- and post-construction expenses. Let’s use 10% of the ARV which will be $19,250 but this number depends on the situation for each property. Perhaps we need to add an additional structure and the Architectural price would be higher or none at all.
  • Holding Cost Mo. – It’s very important not to forget about your Monthly Holding Cost while repairing the home and this number is not the actual Repairs. Some examples are the cost of having services turned on like electricity, water, possible HOA (Home Owner’s Association) and son on. In our case it will cost us monthly $130.
  • Mortgage Cost – If you obtain a Mortgage just for the duration of the Flip then we need to enter this information. In our case this was a cash deal but in most Flips it’s a great idea to leverage your cash with a short term Mortgage either by a Lender, Private Money or Hard Money.
  • Taxes Mo. – The Taxes for the property will be $1,620 yearly and we divide by 12 months and we get $135 monthly. Keep in mind if the property is currently taxed with Home Owner’s Exemption once an Investor purchases the Taxes will go up next year cycle.
  • Insurance Mo. – The property Insurance will be $900 yearly and we divide by 12 months and we get $75 monthly. Something I have done in order to get the insurance premium lower was to insure for less than 100% (80%) of the value, sometimes the Insurance Company over estimates replacement value. Be very careful not to under insure a property.
  • Repairs – We need to estimate how much it will cost to repair (Rehab) the property which in this case is high at $70,000.
  • Purchase Price – This is the price you will pay for purchasing the property which will be $52,500. In previous post I spoke about how to calculate the M.P.P. (Maximum Purchase Price or Best Offer). You can read it here.
  • Profit – If we Flip this property quickly our Profit can be $38,250. How do we arrive at this number? Pretty straight forward we take the Sales Price – Soft Cost – Holding Cost – Mortgage Cost – Taxes – Insurance – Repairs – Purchase Price.

What happens if we cannot Flip our property quickly? Well let’s take a look noting that in some months our holding cost might be higher because of un-expected events 🙂 Yea, they happen. The main numbers that effect the profit are the monthly Holding Cost, Mortgage Cost, Taxes and Insurance.

  • 1 Months – If we sell our property after 1 Month our Profit will be $37,910
  • 3 Months – If we sell our property after 3 Month our Profit will be $37,230
  • 6 Months – If we sell our property after 6 Month our Profit will be $36,210
  • 9 Months – If we sell our property after 9 Month our Profit will be $35,190
  • 12 Months – If we sell our property after 12 Month our Profit will be $34,170

It’s time to put it all together and see what our Profit can be.

Sales Price $180,000
Soft Cost $19,250
Holding Cost $130
Mortgage Cost $0
Taxes $135
Insurance $75
Repairs $70,000
Purchase Price $52,500
1 Month $37,910
3 Months $37,230
6 Months $36,210
9 Months $35,190
12 Months $34,170
Profit $38,250

 

Property Flip or Hold

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