New Year, New Goals, New Plans

[Account Closed]

Hey guys, I'm not a new member.  However, I'm reintroducing myself to this website and navigating through the site and all the functions.  Its been a while since I visited the site.  For the new year, I plan to try action and lock-in to achieve my goals in real estate.

The end of last year, I sold my first property.  Which was very exciting and motivating.  This year my goal is to flip 1 to 3 homes and find a niche in flipping houses.  Then, prepare myself to transition into buy and hold multi-family rentals.  I'm looking to start with 4 units or less to start; just want to get my feet wet.  (Just a little backstory of the property I sold).  The property I sold was my first rental property.  There were pros and a lot of cons, I admit I did not educate myself before renting, therefore, I got first hand experience of the do's and don'ts of the business, which was very informative and helped me understand the nature of the business from screening tenants, training tenants, creating systems, etc.  

Now, I'm prepared to take what I learned from my hands on experience and books I've read to make informed decisions and to put systems in place to scale my business and have success.

Thanks,

Jeff

[Thomas Franklin]

@Account Closed Many Investors that flip homes use the 70% Rule that says 0.7 x ARV - Repairs = Your Maximum Allowable Offer (MAO). What hurts Investors that use this formula is it does not account for Holding Costs, Backend Selling Costs, etc.

I use the following formula to determine my Maximum Allowable Offer (MAO). This formula is the Profit Margin Formula that accounts, for 99.99%, of everything.

ARV - Desired Profit - Closing Costs to Buy - Repairs - 10% of Repairs - Holdings Costs - Concessions - Realtor Fees - Closing Costs to Sell = Your Offer (MAO or Maximum Allowable Offer).

ARV: After repaired value or what you think it will sell for once repaired.

Desired Profit: This should be taken off the top first. Most people run their numbers to determine what their profit should be. That is backwards, you should use your profit to determine what your offer should be. As a General Rule, my Desired Profit is $20,000 or 20% of ARV whichever is greater. To have an offer accepted, one may need to adjust their Desired Profit; however, it should not be below $20,000, or what one feels is acceptable.

Closing Costs to Buy: What is it going to cost you to buy the property? If you are using hard money you need to budget for the points and fees as well as traditional third party closing fees.

Repairs: The money it is going to take you to rehab the property plus an extra 10% of estimated repair costs to account for unexpected repairs.

Holdings Costs: Here is where a lot of investors get tripped up. Start by determining an amount of time that you will hold the property, probably 4-6 months. Then add ALL costs related to holding the property (utility costs, insurance premiums, property taxes, loan payments, etc.).

Concessions: Concessions are what you give back to the buyer at closing. It could be for closing costs, unfinished repairs or something else. I typically subtract 3%, of the ARV.

Realtor Fees: What is the commission you are willing to pay your listing agent (unless you are the listing agent) and the buyer's agent. Utilize 6% of ARV.

Closing Costs to Sell: Title fees and other closing costs. You can budget around 4% of the sale price to cover these.

This is a conservative formula. If you come out ahead without Buyer Concessions, on budget, etc., this puts more money in your pocket, when you close at selling.