I am excited to start my new video series on flipping houses. Today, I’ll go over the first golden rule of house flipping: You make your profit the minute you buy the home.
I’m excited to start a new series on how to buy and invest in your first flip property.
There are a few golden rules that I follow when investing in a flip property. My dad and I have been fortunate enough to invest in a lot of flip properties.
The first golden rule you need to know is that you make your profit when you purchase the property. All of your gains from this property are made the second you buy it.
Now, you can mess things up by over-repairing the property or doing the wrong repairs. However, as long as you buy a property with good margins, that is where the profits are.
When selecting a property, you should look for about 80% of the after-repair value. After-repair value is what the property will be worth once you have completed all of the work on it. Buy the home at 80% and give yourself a 5% margin for repairs.
So when you buy a property, the total development cost cannot add up to more than 85% of the sale price. The development cost includes the purchase price and repairs.
"The total development cost cannot add up to more than 85% of the sale price."
Let’s say that the property has an after-repair value of $600,000. That means you cannot buy more than $510,000 before repairs.
If the property needs $35,000 in repairs, then you cannot pay more than $475,000 for a property that will be worth $600,000 when it’s finished.
If the property is under 85% in total development costs, your profit will be 15%, which is a good deal.
In my next video, I’ll go over how you can find these deals and how to fund them. In the meantime, if you have any other questions about investing in flip properties, just give me a call or send me an email. I would be happy to help you!