When a real estate investor has their sights set on a specific property, there should always be some initial questions to take into consideration before pulling the trigger. Tracking and calculating the market value of your property is not an easy task, here’s how to determine the market value of your fix and flip.
How Do I Know If a Property is Worth Flipping?
Before jumping into the market of fix and flips, there are several ways to determine if a property is worth your hard-earned cash. The ideal fix and flip property should have:
- A price below the market value
- Suitable property records
- Promising ARV
- Minor Repairs
Once you’ve found the ideal property that meets your investing standards, it’s now time to decide on a timeline for renovations and your projected market value. How do you determine the market value of your fix and flip? Continue reading to find out.
Think About Your Costs
Many investors find it helpful to think about the costs of their fix and flip when determining the final projected value. There are many costs associating with flipping a property, including:
If you’ve ever acquired a property before, then you’re most likely already familiar with the acquisition costs you encounter when transferring ownership. For many investors, they will encounter lender origination fees, title fees, and hazard insurance at some point in their journey. Knowing the acquisition costs helps an investor correctly value their property on the market since buyers will be thinking about these conditions when finalizing their purchase.
Direct Rehab Costs
Generally speaking, your rehab costs are some of the most upfront expenses when flipping a property. When determining the value of your fix and flip, it’s important to remember the costs you have already contributed to determine the final value of the property and your overall profit margin. These costs can include:
- Material costs
- Direct labor costs
- Contractor profit margins
Knowing your property’s direct costs can help guarantee appropriate profits and keep you competitive in the market when pricing your property.
Loan Holding Costs
Unless you’re self-financing a property, you will need to acquire a loan to purchase a home to flip. As with any type of financing, interest rates are attached to these loans and they must be considered when estimating your profits. To accurately calculate your holding costs, you will need to know the length of the loan, the interest rate, and the total amount of money you were loaned.
Determine Your ARV
Calculating an accurate ARV will determine if the property is worth investing into. After all, this is how many investors reduce their risk when flipping houses. Typically, your ARV is computed by adding the property’s current value and the value of the renovations you plan to make. For an investor to successfully determine their ARV, they need to be able to accurately predict the property’s current and future value while factoring in multiple market conditions. It’s recommended to have a professional appraiser to evaluate the property to estimate the value of its current condition, as this can sometimes be tricky for an investor to figure out on their own. Once you know your ARV, you can determine the real value of your fix and flip and reduce your overall risk in the market.
Look at Comparable Sales
Comparable sales are houses that have recently sold and are similar to the subject property. When determining comparable sales, investors will typically look for:
- Properties sold within the same location
- Comparable House Size
- Comparable House Age
- Comparable House Condition
- Recent Closing Date
It’s recommended to not base your values on properties that are currently for sale to determine a value, but for some properties that have less available comparative data this may be necessary.
RCN Capital offers short-term and long-term financing options for real estate investors. Whether you are looking to fix & flip properties or hold properties for rental income, RCN has flexible options that are suited to your needs. Connect with us today to discuss your next real estate investment.