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How To Not Screw Up Your First House Flip!

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No one likes to ruin.

And what’s worse, no one likes to ruin publicly at the same time, Lose Other people’s money..

That money could be family money, friend money, private lender money, bank money …Or your own money.

Naturally, this is The greatest fear Most new investors …But it doesn’t have to be.

The best way to avoid ruining the flip is analysis Of the transaction spot..

So don’t be afraid of new investors. Read below and don’t worry anymore …

Learn how to analyze transactions

Learning how to analyze transactions is one of the most important things you need to know when turning a house. This includes knowing exactly what the property can be sold for (known as ARV), what the renovation cost is, and of course what you can buy for. increase.

If you haven’t heard of it, ARV is the most important number in house flipping. – All other numbers come from this.

But as a new investor, you may be tempted to make your first deal just to put it under your belt. You might think that you can underestimate the cost of repairs here, or overestimate what you can sell your property on ARV. And everything will be fine.

It’s not.

You really have to follow to make this successful Rules, systems, officials.. These protect you from trouble and your business from catastrophic losses.

There is no “adjustable spreadsheet”

Adjustable mortgages are ok, (personally I don’t use the bank at all), BNot an adjustable spreadsheet … especially inside the house.

“Adjustable Spreadsheet” – also known as “Eraser mathIs one of the new house flippers’ biggest enemies.

But this is very common – and I see it always happen, including some of the more experienced real estate investors it’s still sacrificed.

I saw this week as well With one of my ex-coaching students, he desperately tried to convince one of my moneylenders to fund one of his fortunes. Fortunately for my old student Jerry, my lender Elliott did not give in to his skepticism – I knew that Jerry was using an “adjustable spreadsheet” for his calculations.

Jerry may need to abandon the property and move on-or find a way to avoid some of his refurbishment costs. His adjustment left him a small margin for profit, which worried Elliott about the solvency of the transaction.

Jerry aside … this is usually New investor Those who are trying to enter the property for the first time.New investors tend to want to justify or figure out why they can pay more than their money Maximum Allowed Offer (MAO) need to do it.

Are you guilty of this?

When talking about adjustable spreadsheets, this is what I mean:

  • Let’s say you decide that you can sell for $ 400,000 once all the properties you find are complete.
  • And suppose you think the repair cost is $ 80,000.
  • Next, suppose you make an offer for $ 195,000, thinking you can get it for $ 200,000, but it is rejected because you have multiple offers in your transaction.

what do you do now?

  • Would you like to make an offer over $ 200,000?
  • Do you understand how to increase ARV?
  • Do you lower your refurbishment costs?

For most investors, they look at things and start “things in adjustable spreadsheets”.

There are typically two forms of this:

  • ARV up: They begin to be convinced that with some further modifications and improvements, the property could be sold for $ 410,000, and in some cases $ 420,000.
  • Fudge repairs: They start to fudge if there is a repair cost. Investors may say, “If you can work for yourself and negotiate with a contractor, you’ll probably be able to get this refurbishment for $ 60,000 instead of $ 80,000.”

The investor then begins to be convinced that this “substitutional reality” in the trading scenario actually exists. They start “spreadsheet adjustments” and mathematically reach the point where it makes sense to offer higher prices.

Just because it’s paper (Or an Excel spreadsheet in this case) It looks good, but it doesn’t really mean it looks good. Therefore, new investors will go out and offer higher prices, have real estate refurbished, experience employment more than expected refurbishment costs, lower ARV and eventually lose money. Become.

Unfortunately, this is a classic scenario … which will lead to a big uproar later.

There are two ways to avoid this pain …

1. “sticks like superglue” to the original ARV

With an expected ARV of $ 400,000, add a marble countertop to your bathroom, a sub-zero stove to your kitchen, or a particular type of designer tile to your front door or large back deck and you’ll start to convince yourself. Get $ 410,000 or $ 420,000, you’re just hurting yourself and your interests.

When you start all this, it’s a slippery slope Rationalization at the time of rationalization – Everything just cloudes the numbers and puts your interests at risk.

The reason is House flip rule Take into account conservative ARV and the potential for ARV degradation 10% or even 20% by the time you are about to sell.

The market can change at any time by the time the renovation is complete and ready for sale. Perhaps now, even after a good competitive analysis, the neighborhood where you bought your flip now has an ARV in the range of $ 390,000 or perhaps $ 380,000.

Here’s a good maxim to flip over for posting on computer sticky notes:

Hope the best and prepare for the worst

In the current market environment, you might think that real estate prices are rising consistently (and most of the time now), but this is a very dangerous and dangerous idea.

For example, suppose you adjust your spreadsheet and you’re confident that you can sell your home for $ 410,000. If the market moves to a place where it only sells for $ 390,000, The safety net is now completely lost.

If the original ARV forecast is $ 400,000 and you sell for $ 390,000 – Not ideal – This is certainly not catastrophic.

But if the ARV for “Adjustable Spreadsheets” is $ 410,000 and sells for $ 390,000, That $ 20,000 spread could be the total profit of the transaction.

That’s why it’s so dangerous to confuse ARV. This is to eliminate the profitable safety net almost completely.

2. Don’t cheat on repair costs: they rarely go down

With almost every flip I’ve ever done, it’s My refurbishment cost Always come out taller than Than my prediction.

When I’m writing this, I’ll say it’s about Houseflip in 1 in 10 is lower than my original expectation !!!

So i can almost do Guarantee you Whatever number you come up with for repairs, it’s usually taller than..

So what we are doing now is to get a refurbishment number. Add another 10% to the refurbishment cost.

In some cases, 20% of the original refurbishment cost If you are not 100% sure.

So, in this scenario, let’s say you’ve reduced your refurbishment costs to $ 70,000. This is trying to justify a higher offer. But let’s say, by the time the project is complete, the original $ 80,000 estimate is probably $ 90,000 …Or maybe $ 100,000.

Now you are really confused.

How Not To Spoil Your First Home Flip: Conclusion

It’s easy to convince yourself that you want to be emotionally attached to the inside out of the house and move it terribly badly that is…

please forget about it. Go ahead and find something else.

You just can’t be emotionally tied to something. You really have an idea in your head, not in your mind. Stick to your math, stick to the numbers you come up with, use it, and if it works, it works. If that doesn’t work, it’s not.

Get up and fight another day.

There is always another house inside out …

And if you’ve done that so far, leave a comment belowI want to hear from you.

Did you make these mistakes? Do you have the same fear? If you don’t like it too, leave a comment and ask me any question you want!

Photo: Flickr

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