4. Buying Property To Flip
Use this formula: Take the estimated future sale price of your property after renovations. Subtract 10% of that future sale price for buy and sell expenses (commissions, transfer taxes, closing costs, interest or lost interest on the funds needed to do the transaction & miscellaneous), subtract the estimated cost of renovations, subtract the minimum pre capital gains tax profit you wish to make and that is the most you can pay for the property.
Example: A home that should sell for $400,000 after renovations
less $40,000 (10%) buy/sell expenses,
less $30,000 in proposed renovations,
less say $35,000 minimum pre-tax profit
= $295,000.
So $295,000 is the highest price you could offer for this hypothetical home if you are willing to do this for $35,000 profit.
Everyone is looking for fixer-uppers. Fixer-uppers offered for sale at a cheap price attract investors like ants to candy. You will be competing with investors offering all cash and quick sales. Everyone has become an expert on the cost of carpet, paint, kitchens and baths and where the cheapest place to get them is so you need to be creative. Maybe you can spot a property typical investors miss. I once bought a tract home with a water view from outside the home but no windows on that side of the home. Three windows later I owned a home with a water view that was worth significantly more than when I purchased it. Pocket doors are very old school but often are structurally framed for openings near twice the size. If that is the case, open them into a large archway for a more modern look. A barren backyard can be made to look warm and inviting with very few dollars spent on bark, pavers, some shrubs and tasteful patio furniture. (The furniture you will take with you at close of escrow.) If you plan to keep the property a few years plant some trees. They will increase the desirability of the home when you sell it. Look at the pictures on my home page. What you see represents a small investment in landscaping, painting, and carpentry to change the look of the front of that home. That is called curb appeal. Be creative and good luck.
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