Making a flip budget

By
Real Estate Agent with DeLex Realty

I do a budget FIRST

I have found that most clients look for a flip with the price of the flip in mind. I personally do not care about the price, I worry about my budget. My budget takes into account three things, the price of construction, hold time and interest on my money. I use an excel spreadsheet and have created is so I can quickly fill in the data points and move forward. 

 

Construction Costs

My constructions costs are lower than most becuase I tend to do the work myself or using those under my employ, as my partner is the General Contractor. However, even when I use a licensed sub-contractor I just fill them in the line item. I have a separate page in my spreadsheet just for construction costs. I go line item by line item (basic line items) and fill in a cost. 

I personally work my construction costs like there is no more money. If I overspend on something (say the electrical is not working and I thought it was), then I cut back on something (normally for me, counter tops are the first to take the hit, they can be offered as an upgrade later). I do my best not to spend a penny over my budget, doing so is a kiss of death to a project. 

 

Hold Time

If you have read my other posts, you will know this is what I consider to be the most important of all things on my spreadsheet. This does not change, unless for the better. Hold time includes, construction time, market time and escrow time.  Hold time is money, ever day you hold the property you are paying out more money you will not get back. 

Say you are paying on  a hard money loan. The interest is 14% and the loan is for $150,000. You paid out of pocket to buy the deal $50,000. Knowing that you can easily earn 10% on money in today's economy you MUST include earning 10% on your money and DO NOT COUNT THAT AS PROFIT in the deal. It is an expense. This means every day you hold the property you are paying $58.34 on the first and $13.89 on your second (your cash investment). Thus, every day you can cut from the deal, you make another $72.23. 

If you work backward

If you add your hold time costs to your construction costs and then add in your profit desired it becomes easy to see what you need to pay for the house and that is what your offer should be. Simple math, ARV-Construction Costs- Profit - Hold Costs = Purcahse Price

Posted by

James (Jim) Lord

jim@jimlordregroup.com

www.jimlordregroup.com

480-648-3378

Comments (5)

Kathy Streib
Room Service Home Staging - Delray Beach, FL
Home Stager - Palm Beach County,FL -561-914-6224

Hi Jim- this is such helpful information for anyone considering doing a flip. Many don't start or stick to their budget. It's a must if they plan on doing a flip successfully. 

Apr 07, 2018 05:33 PM
William Feela
WHISPERING PINES REALTY - North Branch, MN
Realtor, Whispering Pines Realty 651-674-5999 No.

You have to plan a budget when buying to sell or even  to rent

Apr 07, 2018 06:04 PM
LaShonda Solomon
Atlanta Communities Real Estate Brokerage - Kennesaw, GA
Serving Cobb, Paulding, Douglas, Bartow Counties

Great advice for investors.  Thanks for sharing.  

Apr 08, 2018 10:51 AM
Golden1 Agents
San Mateo, CA

Thank you for Sharing this useful information. 

Apr 11, 2018 07:00 AM