Rehabbing a Home and Earning From It
Some people still can't believe how profitable rehabbing a home today is.
As they say, no amount of explanation will suffice for non-believers.
But for those who at least want to know how rehabbers count their profit, here is a sample computation you might find useful in your real estate investing career.
There are many ways to determine how much you will earn from a rehabbing project.
Most beginners do not earn a fixed amount in every project because they use a different formula.
What they do is buy a fixer upper home for whatever price it is being sold.
They then make repairs and later check how much they spent on repairs.
They add the repair costs with the purchase price of the fixer upper and other expenses.
They feel like earning $10,000 with this project and add that amount to the total amount of expenses.
This might sound like a good formula but it is actually flawed.
First of all, never start rehabbing a home without a proper budget for repairs.
Your expenses for repair must be limited, otherwise, you might not earn anything at all because you spent too much in fixing the property.
Second, your targeted income of $10,000 will be reduced once the buyer disagrees with your selling price.
If his offer is $2,000 short of the selling price, then you'll instantly lose $2,000.
Here is one formula you can actually use to effectively set how much your minimum income will be from rehabbing a home: Inspect the fixer upper and quickly determine its possible ARV, or after repair value.
Do this by hiring a professional appraiser.
Then look at the prices of similar properties from the same area.
This will help you determine the ARV faster.
After getting the ARV, determine how much money you will spend on repairs.
Set a cap for this, for instance $15,000.
If that's your budget than do not spend more than that amount for repairs.
Calculate other expenses like closing fees and add them to the repairs cost.
That amount will be your "partial expenses.
" Now, decide how much you want to earn from rehabbing a home.
If you want to earn $15,000, then set that as your "minimum income.
" Add this amount to your partial expenses and subtract that total from your ARV.
What is left is the maximum amount you are willing to pay for that fixer upper.
With this formula, you will not compromise how much you are earning.
The owner of the fixer upper will most likely agree to your offer even if it is lower than his asking price, especially is he really needs to dispose of the property.
As they say, no amount of explanation will suffice for non-believers.
But for those who at least want to know how rehabbers count their profit, here is a sample computation you might find useful in your real estate investing career.
There are many ways to determine how much you will earn from a rehabbing project.
Most beginners do not earn a fixed amount in every project because they use a different formula.
What they do is buy a fixer upper home for whatever price it is being sold.
They then make repairs and later check how much they spent on repairs.
They add the repair costs with the purchase price of the fixer upper and other expenses.
They feel like earning $10,000 with this project and add that amount to the total amount of expenses.
This might sound like a good formula but it is actually flawed.
First of all, never start rehabbing a home without a proper budget for repairs.
Your expenses for repair must be limited, otherwise, you might not earn anything at all because you spent too much in fixing the property.
Second, your targeted income of $10,000 will be reduced once the buyer disagrees with your selling price.
If his offer is $2,000 short of the selling price, then you'll instantly lose $2,000.
Here is one formula you can actually use to effectively set how much your minimum income will be from rehabbing a home: Inspect the fixer upper and quickly determine its possible ARV, or after repair value.
Do this by hiring a professional appraiser.
Then look at the prices of similar properties from the same area.
This will help you determine the ARV faster.
After getting the ARV, determine how much money you will spend on repairs.
Set a cap for this, for instance $15,000.
If that's your budget than do not spend more than that amount for repairs.
Calculate other expenses like closing fees and add them to the repairs cost.
That amount will be your "partial expenses.
" Now, decide how much you want to earn from rehabbing a home.
If you want to earn $15,000, then set that as your "minimum income.
" Add this amount to your partial expenses and subtract that total from your ARV.
What is left is the maximum amount you are willing to pay for that fixer upper.
With this formula, you will not compromise how much you are earning.
The owner of the fixer upper will most likely agree to your offer even if it is lower than his asking price, especially is he really needs to dispose of the property.
Source...