A couple of months ago I made an offer on a home to flip. I’m not actively looking for homes to flip in Austin, and I don’t help buyers locate flip opportunities, but when I come across a candidate property that I like, I’ll make a run at at. All of my attempts the past several years have fallen short. This is mainly because I have a formula for evaluating flip candidate properties, and I stick to it. The result is, my offer is never accepted because someone else is always willing to pay more.
On the most recent lost project, which is a few blocks from where I live, I stopped in yesterday to meet the buyer, who turns out to be a contractor, and take a look at what’s being done. I was impressed with the work and the approach being taken. I had a couple of assumptions before I even stopped in.
Knowing that the home sold for $30K more than I offered, and that my numbers are fairly accurate estimates, I assumed the eventual buyer 1) was a hands-on contractor with better remodel cost points than I can achieve (not doing any of the work myself) and 2) used a higher more optimistic ARV (After Repair Value) than I did.
I was right on both accounts. I plugged in $225K as a resale value after repairs and, sure enough, the contractor thinks he can sell it for $250K.
Let’s look at my basic math:
|
Me
|
Winning Buyer
|
|
| Purchase Price |
$132,000
|
$162,000
|
| Remodel Cost |
$50,000
|
?
|
| Silent Costs |
$24,750
|
?
|
| Total Cost |
$206,750
|
?
|
| Finshed Value |
$225,000
|
$250,000
|
| Profit |
$18250
|
?
|
Let’s go through the numbers above.