Flipping homes can be both a personally rewarding and highly lucrative business…if you know what you’re doing. You may think it’s simple enough to take a dumpy home, pretty it up, and put it back on the market for a nice profit, but how do you know where to start? What are the criteria you should be used to identify the ideal candidate for your fledgling home renovation business?
Given the amount of time, effort, and (most importantly) money that goes into a venture like this, you want to make sure you have the tools and knowledge necessary to properly evaluate a home and determine its real potential as a flipped property. You should make sure you understand the variables, expenses, and other considerations that need to be taken into account to calculate the return on your Vancouver townhouse.
In the interest of helping you make truly informed, calculated risks in this market, let’s look at four of the most critical tips for evaluating a house and determining how much of a return you can expect on your investment, and indeed, whether there’s a return to be made at all.
Determine the After Repaired Value (ARV).
In short, After Repaired Value, or ARV, refers to the projected value of a property once the upgrades, repairs, and other improvements are finished. This is the first tip on the list for a significant reason: unless you expect to make a good amount of return on your investment, there’s no point in starting in the first place. This is why determining this value should be the first thing you do in any scenario.
Figuring out the expected ARV is essential for another reason: once you have worked out how much you can expect to gross on the project, you can figure out all the expenses you plan to incur during the renovation phase and determine what your net profit will be. Again, you’re in this to make money, and you need to know your ARV before you can work out any of the other numbers involved.
Estimate the total cost of renovating the property.
Before you can calculate your net profit after renovations, you have to have an idea of how much those renovations will actually cost. At a minimum, the costs you can expect to incur include repairing or replacing carpet and or/hardwood floors, electric and/or plumbing repairs, fresh paint, upgraded kitchen and bathroom, new doors and windows, and any exterior work such as landscaping and tree management.
Calculate closing and holding costs.
Don’t forget that the regular costs associated with buying and owning a home will fall to you for as long as you own it. Just like when you buy a home for yourself, closing costs can be expected to run well into the thousands, and if you’re using an agent to sell the house when you’re done with it, you can expect them to take around 5% on commission, and possibly expenses incurred as well. Also remember that you’ll be on the hook for property taxes, homeowner’s insurance, utilities, and any relevant HOA fees as well.
Figure out your offer price.
Finally, it’s time to give the current owner of your prospective flipped property your offer price. This is actually relatively simple to work out: start with your ARV, then subtract your calculated renovation costs, closing/holding costs, and the desired profit, and that leaves you with your offer price.
As you can see, there’s a lot more that goes into flipping a home than just new rugs and a fresh coat of paint. By following the tips above, you’ll have a great idea of how to determine a house’s real value, and calculate your expenses accurately enough to ensure a nice profit for all your time and effort.