My Secret Weapon for House Flipping
I've flipped 100+ properties and I've never lost money (so far). I'm going to share my secret weapon with you.
It's a calculator.
If you have a google account, you can have your very own copy here:
https://docs.google.com/spreadsheets/d/1xGe89w_dy8FY80MwZDQRqQ_F_gZhxxA6a66D9GIKk-4/copy
Or you can look at it / download it here:
https://docs.google.com/spreadsheets/d/1PfJhzwTR5_o4hIdOtrYkOpwTZLxeuHFt-EPaiiDwb3Y/edit?usp=sharing
What's so special about this calculator? It saves me time. I DO NOT drive by, walk through, or otherwise spend any time on a property until it's been through my spreadsheet. This is first a high level sanity check on any deal, then later a tool to make me a better flipper. Here's how to use it.
Profit Sheet!
This is where we all like to be, salivating over our profits before we've even bought the property. You'll see 9 darker shaded cells, those are the only ones you need to mess with. Let's go down the list.
- ARV - What do you think it will sell for?
- Purchase - How much are you willing to pay?
- Rehab - From looking at pictures, what's your gut number on repairs?
- Origination Points - How much is your lender charging?
- Appraisal, Title, Processing - Let's add in all these fun fees.
- Interest Rate - What is your lender charging?
- Holding Days - How long do you think it will take to rehab and close the sale?
- Sell Commission - Don't forget to feed the vampires!
- Sell Closing Costs - More fees! and maybe some seller credits
Ok, so you've thrown in your numbers. Now the spreadsheet will have worked its math magic. Look at the green box, do you have a PROFIT? If yes, proceed to step 2, if no, you need to adjust your offer!
Step 2 - This might be worth buying
Let's dive a little deeper into the math. Back to the big green box.
- Cash to close - This is how much you're going to be forking over up front at signing.
- Total Cash - This includes monthly payments, you're going to need at least this much cash to make this deal happen.
- Monthly Interest - Here's your payment when the loan is fully drawn. Note - Your payment will start out less, and grow as you draw the rehab funds, which makes your holding costs slightly higher here than in real life.
- PROFIT! - Come to me you sweet, sweet cash!
Just below the green box are some other numbers, they could use an explanation.
- Purchase finance - This is maximum we will loan on the purchase price
- Construction finance - This is the maximum we will loan on the rehab budget
- Maximum Loan to Value - If you have a property worth 1 million, we'll NEVER loan more than $750,000, no matter what your budget says it's going to cost.
- Actual Loan to Value - Compare your proposed LTV to the maximum.
The middle of the sheet has all the actual dollar figures. Bottom left has some fun math ratios.
- PROFIT! - Just a reminder of how much sweet cheese you're going home with.
- Total Return - This is profit divided by the total cost. The higher this number the better.
- Cash on Cash Return - This is your profit divided by total cash invested. The higher the better, if it's below 50%, that's a risky deal.
- Total cost if held - If you're going to keep the property, this is the number to look at.
Alright, you LOVE the property, it's going to make a TON of money, now it's time for the detail work. Go over to the rehab budget and start filling it out. Just make up numbers from what you can see in the pictures. Go through every item, does the final number match your gut number from earlier? When you walk through the property, fill out the 2nd Budget column, and when you get bids, fill out the final column. This will help you estimate better in the future.
On the comps tab, find 3 or more recently sold properties and see how close your estimated ARV was to reality. Maybe even double check with an agent, make them earn their commission!
Now take those numbers back to our profit worksheet and plug them in. If it still looks good, go tour the property, make and offer, and most of all PROFIT!