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Updated over 5 years ago on . Most recent reply

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Michael L.
  • Rental Property Investor
  • Delray Beach, FL
0
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2
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House Flipping Performance & Risk Measuring Indices

Michael L.
  • Rental Property Investor
  • Delray Beach, FL
Posted

Greetings friends, I’ve got a question related to measuring risk and reward of house-flipping, beyond the basics.

Particularly, I’ve developed an application for my wife’s flipping business that uses historic indices to determine risk level on the asset. More than just “how much profit will I make”, the indices give insight as to how one asset compares to the group of prospect assets based on top performing historic assets (similar to the way equity markets are measured; how much better or worse does a category perform against the moving average of the S&P 500).

By example, a given “fix/flip” asset is compared against a set of 6 performance indices, and if any of the asset’s index metrics fall above or below a given index, a score is assigned (up to a maximum of 6 points, which is good/strong).

One of the indices is ‘List Price to TAV’ (LP-TAV Index) value, for instance. The asset would need to outperform this one index (an average that has been derived from many previous successful flips in a given market). If it outperforms, the assets score increases by a unit of “1”. That is, if the LP-TAV Index for historic assets in the portfolio is 10%, and the prospect asset being considered is 15%, the asset risk policy assigns a “1” for LT-TAV, which is a positive factor for that particular risk. It means the prospect asset is outperforming the LT-TAV Index of last performing assets.

My question is, what are some good indices and their public sources I could consider in order to (1) make my existing indices rich with market relevant data and (2) validate that indices I’m using are productive for measuring risk profile?

Beyond Profit analysis, my current Risk indices are:

1. Price Per Square Foot Index (1 or 0)

2. List Price to TAV Price Index (1 or 0)

3. Buy Price to List Price Index (1 or 0)

4. Gross Margin Index % (1 or 0)

5. Net Profit Index $ (1 or 0)

6. Net Profit Index % (1 or 0)

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