House Flip Analysis, the best mobile and desktop app available on the market for real estate investors today!
The purpose of this article is to help new real estate investors, users who bought my app, and the experienced to refresh on these terms and what my House Flip Analysis app is intended for. This was requested by one of our awesome users so thank you for the idea and keep them coming guys! One thing I love about software is the ability to use creativity to solve problems and also since the technology is so fast and readily available globally, changes can be made in hours.
Features that should be in every real estate investors toolbox:
- 70% Rule
- 65% Rule
- 60% Rule
- Fix and Flips
- Fix and Flip Rehabs
What are the 70% Rule, 65% Rule, and 60% Rule?
The 70% Rule is used today and is well discussed among the real estate investing community. This technique is nothing more than a way to find the highest bid you as the investor should ever pay for a property. That is a property you are looking to flip, wholesale, or maybe even turn into a rental unit. The reason behind this technique is to help try to have a safeguard for your investments with enough equity room to play with. One thing to remember is that while this technique can help calculate the numbers for you, there is no guarantee in buying and selling real estate. A lot of people lost more than their shirts back in the 2008 economy so this is why when we invest, only do it when the numbers make sense and your intuition is giving you the green light.
Before I show an example of how this can be used, let’s throw some definitions for these investment terms I’m about to list.
- After Repair Value (ARV) – This is the value of the property AFTER you fix it up. Investors usually can buy cheap property by the pennies on the dollar because of how poor the property condition is. So the concept here is basically the value of the property after it’s been fixed up. For realtors and home sellers, these are the comparables (comps) aka how much your house is worth.
- Repair Estimates – When looking for properties to flip we are allowed to check out the conditions so while we do walk-throughs in potential properties we can jot down what needs to be fixed and get quotes from contractors in town to try to give as much accurate repair cost as you can.
- Misc – This misc section covers all the nickels and dimes escrow adds to your transaction. Items such as closing costs of 3% if using any realtor(s), taxes, HOA, title company fees, etc… If you flip houses in California I hear they tax you for the air?
- Buffer – This is a safety blanket just in case homebuyers need help with a down payment, unexpected property repairs, or pretty much anything. There have been times when homebuyers won’t close on transactions unless something is fixed or upgraded for them at your expense. So don’t think that having a 5% buffer percentage is greedy because after it’s all said and done investors could be out of pocket for the whole deal. Almost every real estate transaction does not go as planned. Prepare for the worse and hope for the best.
- Wholesale Fee – The idea of wholesalers is someone puts a property under contract to sell that home for the homeowner. This individual takes the contract and tries to sell it to another investor for a fee. If the deal is good enough usually at least a 30% margin then the wholesaler can make anywhere from couple hundred dollars to several thousand dollars. The wholesale fee is negotiable among the wholesaler and investor. Wholesalers are valuable because they do all the dirty work on drafting up a contract with homeowners who want to sell their property and all investor has to do is close on the transaction with cash. If your the investor in this scenario make sure to do your due diligence by checking all facts, going over the contract, walk the property, research the title to make sure it’s a clean title, etc…
- Maximum Allowable Offer (MAO) – This is the number we care about, it tells us what our maximum bid amount is for this property. Never go above this number no matter how much ego you have, don’t do it! There are situations where you could have bidded more but there’s too much risk to take by not going by the 70% rule. Investors don’t let other investors overbid on properties!
So after going over those items I hope that helps you understand all the terms. Let’s check out an example using the 70% Rule:
After Repair Value (ARV): $198,000
Repair Estimates: $15,000
Misc: $19,800 (10%)
Buffer: $9,900 (5%)
Wholesale Fee: $500
Maximum Allowable Offer (MAO): $93,400
The only difference from the 70% Rule, 65% Rule, and 60% Rule is the percentage value that is put in the whole calculation. Investors use different rates but the most common is using 70%.
(ARV x .70) – Repair Estimates – Misc – Buffer – Wholesale Fee = MAO.
(ARV x .65) – Repair Estimates – Misc – Buffer – Wholesale Fee = MAO.
(ARV x .60) – Repair Estimates – Misc – Buffer – Wholesale Fee = MAO.
The calculations are easy but when dealing with these numbers on a daily basis with several properties software like House Flip Analysis helps make life easier by calculating it for you and saving property addresses and all the numbers to look up later.
Fix and Flips
This calculator focuses on the expenses of your fix and flip investment. It asks for you to input address, ARV, repair estimates, misc, buffer, purchase price, cash needed, down payment, the interest rate of the loan, years of the loan, monthly insurance, property taxes, homeowners association (HOA), monthly electricity, water, and trash. After filling this out you will get a report on your total pre-tax profit of this fix and flip. If the number doesn’t make sense walk away from the deal. It’s all about numbers in real estate so this calculator will help you know the costs. Also in this report shows all the details you inputted along with your monthly mortgage payment, and a profit forecast showing 3 different profit numbers based on time on the market. So if you can’t sell this property for 90 days it’ll show you what the profit will be, then what it is in 180 days, to 270 days. These are valuable calculations to have when flipping properties.
Fix and Flip Rehabs
We save the best for last! This calculator focuses more on the rehab costs to find the profit margin $$$$. This was actually requested by one of our awesome app users.
It asks for property details and items around the property that need repair work done, along with 5 empty text fields for custom item names and dollar amounts. Simple, concise, and straight to the point, show us the margin potential!
My goal in writing this article is to help identify certain terms used in the real estate world to those new and also a refresher for the experienced. I hope this was insightful and explained everything, if not comment below or send me an e-mail. Feel free to share and tell your investor friends about this app. Real estate isn’t only about investing with properties, it’s also about your friends too?
Cheers to your success!