Lately the reality TV world has been all about the “fix and flip” property trend. Saturday mornings on HGTV consist of over 5 hours of Fix or Flop episodes. While admittedly these shows are fun to watch, they often gleam over (or even ignore) the massive amount of work required in analyzing the different properties to find the one with the highest potential return on investment (ROI); I suppose it’s because showing someone plug numbers into a spreadsheet isn’t as captivating as watching the demo phase of the remodel. And that is unfortunate because it’s in the planning phase where the real fortunes in real estate are made.
“You make money when you buy, not when you sell”
Simply said: if you purchase the home for too much, you will never make a profit. Remember, the market chooses the selling price of the home, regardless of how much you purchased it for or the amount of improvements done. To avoid overpaying for fix and flip investment properties I use a few handy spreadsheets: flip costs & maximum purchase price calculator; and estimation & bid spreadsheet.
Maximum Purchase Price Calculator
Maximum Purchase Price is a term that is not often used with real estate investing. The idea is to remove the “feeling” part of the offer to purchase by starting the calculation with the expected ROI and working backwards to get a purchase price. Many new investors fail to account for costs associated with the selling of the property like: Realtor commissions, real estate transfer taxes, title policies, etc. By having those costs automatically included in the spreadsheet, you’re able to get a better understanding of the maximum offer amount to ensure profitability. Traditionally I work with another investor, so I’ve added cells to account for splitting of the potential profits based on cash invested in the project. Find the spreadsheet here.
Estimating and Budgeting Worksheet
The devil’s in the details, right? Well, so are the profits in real estate investing. This spreadsheet has saved me thousands of dollars in lost profit due by breaking down every room and exposing the potential hidden expenses in a remodeling project. Having a central place to add all the subcontractor bids and actual expenses is also a huge time saver. It’s real value is in the accurate data available for future projects. Walking into the next project with a full set of pricing data will allow you to more accurately determine the rehab costs. Additionally, many investors over-estimate for certain fixes like mold remediation. By utilizing your data, you’re able to find those over-estimated projects and potentially large profit investments. Find the spreadsheet here.
Investing in fix and flip real estate is a rewarding investment. Utilizing tools like these two spreadsheets will help in reducing expenses, increase profits, and help uncover potential investment opportunities. Hopefully in the future, HGTV and DIY networks will show the mundane activities of real estate investing. But until then, sit back and enjoy all the “fun” your spreadsheets will bring you (and by fun I mean profits).
Happy housing from your favorite Realtor
This article was originally published on Tolicious.com
