Case Study: How to Analyze a House Flip using the House Flipping Spreadsheet

either it's Dave with house living spreadsheet and this is a quick case study on how you can use the rehab analyzer tool to help you analyze a project so I've got an example project up here that I'm going to pull up for you and just kind of walk through all the different tools and features that you can use to help you analyze the maximum purchase price that you should offer for a property so I've got a property here that I've basically been doing some research on it's kind of in the market that I invest in and it's quite a bit below the values of comparable properties in the area so it's at about one hundred and ten thousand I know based upon working in this area that the properties that are about three bedrooms two baths around the same size of this property are generally going for about 185 to 200 thousand dollars so I think this one's at least worth putting together a quick analysis just to see where we're going to be for this property to see if we should make an offer so the tool we're looking at here is the rehab analyzer tool and this is included in the house living spreadsheet light version but it's also included in our basic Pro and Enterprise version as well and this is just the overall dashboard that you can use to analyze the maximum purchase price that you should offer for a property so first the first step of analyzing a deal is inputting the after repair value so based upon your knowledge of the market based upon a comparable sales analysis reviewing the comparable sales in the area you need to come up with an after a pair value so that after repair value is what you think you can resell the property for after you've done the repairs to the property so again I said that it was going to be around 185 to $200,000 so I'm just going to be a little bit conservative here and plug in 185 for a half to repair value the next step is going to be to set up our buying cost so you're buying cost of your cost that you pay when you actually purchase the property so that's going to be maybe an appraisal fee an inspection cost so a lot of times you if you are going to be hiring out a professional inspector to inspect the property you'll pay an inspection fee to that inspector to inspect a property title insurance title work so that can be about $500 or so so generally speaking you're buying costs are going to be about one to two percent of your purchase price so our purchase price we're probably going to end up purchasing around $100,000 or so and we're at about $1400 so we're at about 1.5 percent of our purchase price so that seems about right the next step is going to be our holding cost so this these are the costs that you're going to incur when you're holding the property so your property taxes your insurance your utilities and then maintenance of the property so the first step of setting up your holding cost is to think about the schedule so how long you think it's going to take to actually rehab the property and then how long it's going to take to actually sell the property so generally speaking a property of this size which is probably going to end up being for the most part a complete gut new kitchens new bathrooms new finishes throughout I would say this would take about one and a half to two months but it could probably be done faster than that but I'm just going to plug in two months for the rehab schedule the listing period is the amount of time that is going to take to sell the properties so once you get it listed how long is it going to take for you to get an offer on the property and then actually hand over the keys to the end buyer so generally it might take about in a seller's market like it is today you know you're going to if you do a good job you're going to probably be able to sell it in the first couple weeks so I'm going to soon about two weeks to sell the property and then it's going to take about 30 to 60 days to close on the property so to process all the paperwork get all the financing order in order for the buyer that generally takes about 30 to 45 days so I'm going to assume that we're going to have about two months of listing period scheduled so overall our total holding periods going to be about four months for this property so once you plug that in that's when you can start plugging in your monthly holding cost so your property taxes you can find this information on Zillow you can find it at the local property county recorders office so if you just look up the property you should able to find this information so I'm going to plug in about $200 a month for the property taxes utilities this is going to be for your gas electric water so that can generally generally run about 150 to 300 dollars a month insurance this is for your actual property insurance while you hold the property that can be about a hundred to $150 a month homeowners association dues this property is not in a homeowner's association neighborhood so we can actually just leave that blank and then maintenance is going to be for generally for mowing but maybe if you're doing something in the wintertime it could be for snow removal or something like that but if we get our property mowed maybe twice a month we'll just plug in about $100 for the lawn mowing for the property the next section is going to be your selling cost so these are the costs that you have to pay when you sell the property so the biggest expense is going to be your sellers agents commissions so generally as a seller of real estate you're going to have to pay for the buyer's agent Commission and you're gonna have to pay for the sellers agent Commission which are generally about three percent each so overall you're going to pay 6% of the after repair value so 6% of whatever that sales price is going to be and then you'll also have other costs costs for home warranties so generally I will include a home warranty with the sale of the property so this will help ensure if any kind of equipment goes bad so if a furnace goes out if a hot water heater goes out or if maybe a refrigerator for some reason breaks down this will provide a warranty on the equipment of the property so generally I'll provide that title insurance this is going to be for title work to ensure that you're providing title to the the environment are generally going to be about 7 to 10 percent of your after repair value so we're floating around six to seven percent right now which which I feel pretty comfortable with next you can set up your financing cost so you'll see there's a little setup tab next to the financing cost section this is where you can set up your loans so if you are going to be an all-cash investor you actually don't even need to set this up you can just skip this step but if you are going to be receiving outside funding from a private money lender or a hard money lender or a bank or maybe even a business partner this is where you can set that information up so basically real quick you've got all of your different loan options over here these are pre calculated based upon the amounts on the rehab analyzer so you could get a loan for your purchase price you get a loan for your purchase and repairs you could get a loan for all project costs or the after repair value so again those values are all being calculated over here on the rehab analyzer and pulling from this tool we've got a drop down menu so you can select which option you want to to use so some lenders will lend for just the purchase price some will lend for the purchase and repairs some will lend for a percentage of the after repair value so you really need to get in touch with your lender and figure out what their lending requirements are and then plug those in our lender in this scenario the lend for the purchase and repairs amount so right now we've got a purchase and repairs value of a hundred and forty-one thousand dollars here and they generally lend at about 80% of that amount so you can see our initial value was one hundred and forty one thousand but basically we're going to have to come up with 20% of that one hundred and forty-one thousand so the lender is only going to really be providing us with a hundred and twelve thousand dollars so we've got to come up with twenty percent which is twenty eight thousand dollars here so our loan balance that we're actually going to receive from the lender is going to be about a hundred and twelve thousand dollars and then we're going to pay six months worth of financing costs and our interest rate is going to be about twelve percent which does seem expensive but that's pretty typical for a hard money lender and then you might pay two to five percent up upfront for points which are just points and fees that you have to pay to the lender to originate the loan so now that we've got that set up our total financing costs are being calculated over here at the bottom which is you're buying costs hold cost selling cough in financing cost added together so our total financing costs or a total fixed costs are twenty five thousand six hundred and seventy four dollars which is roughly about fourteen percent of the after repair value so generally speaking investors use a rule called the seventy percent rule which allocates about fifteen percent for your fixed costs in fifteen percent for your profit so we're pretty close to 15 percent of the after repair value here so I feel pretty comfortable with where we're at since we're at about 14% of the ARV with our fixed costs so generally I would say for your fixed costs you need to be anywhere from 10 to 17 percent of the ARV would probably be the range there next you can look at your repair cost so we do have a detailed repair Cost Estimator over here this is pre-built with 24 scopes of work each of those scopes of work are pre-built with unit prices so you can basically just plug in your quantities here it'll multiply the quantity by the unit price to give you a rough budget for that scope of work so this can be used to create a detailed scope of work for your project in a detailed estimate once you start to plug in those values it will actually feed over to this section over here in this scenario we actually haven't walked the property yet we've basically just driven by the outside we're assuming that we're probably going to need to gut the property and do a remodel of the kitchens bathrooms all new finishes throughout and based upon our experience we're generally at about 30 to 40 dollars a square foot so we are actually not going to use the detailed estimate but we've got a couple other options for you so you could do quick bid quick bid we'll essentially just let you throw in some quick numbers here for each of these scopes of work so if you just had some rough ideas of what the scopes are going to be you could do that here otherwise you could do a lump sum and lump Sun sum basically just allows you to input a lump sum number directly into the cell so based upon our experience you know 35 to 40 Virgen square foot for an extensive remodel this is about a 1,500 square foot property so I'm just going to do a formula in here real quick 1,500 square feet times let's go let's go 35 and that's going to put us at about 52 thousand dollars for our budget so based upon our experience we think that that fifty two thousand dollars or $35 a square foot would really have us covered but you need to really know your numbers in order to use cost per square foot values don't just plug in a cost per square foot based upon what I've told you here today make sure that you're really doing a detailed analysis of everything that needs to go into the project once you get comfortable estimating costs have some projects under your belt you'll be able to get a better idea of what where these projects need to come in at from a lump-sum perspective or a dollar per square foot perspective so generally I'd recommend go through a detailed estimate if you can that way you're actually doing the estimate thinking about all the scope of work items on the project but if you just don't have time you can use the cost per square foot or a lump sum number but just make sure that you know what you're doing when you're using those values next is the adders which is going to be where you can modify your cost by your location you can add in building permits contractors overhead and profit and contingency so the location modifiers this is what you could use if you did an estimate using the detailed repair Cost Estimator so the detailed repair estimator utilizes national cost averages but if you're going to be in a more expensive market like New York Boston you can see that those are about 35% to 25% more expensive than the national average or maybe if you're going to be in San Francisco you can see that's about forty to thirty five percent more expensive than the national average you'll want to modify those prices so you'll want to include a factor there to account for your additional cost that you're going to incur by being in a more expensive market so if you're in San Francisco I've plugged in one point four five five here as the multiplier so you can see that added twenty three thousand dollars to our budget so the same exact project Kansas City or a national average town this project in San Francisco would cost potentially twenty-three thousand more dollars so you need to make sure that if you are going to be in one of those more expensive markets just take a look at this location modifiers tab here and review these multipliers to see where your market is at and then adjust these costs as necessary but of course it's always best if if you are going to be using that repair estimator call around to your local subcontractors get in touch with them then just plug in your real unit prices here so that way you don't even have to use that location multiplier just customize this for your specific market and you won't even need to use that location multiplier building permit cost so this is going to be for building permit expenses so generally if you are going to be doing a just finishes on a property maybe it's just paint carpet you won't need a building permit but if you're really going to be modifying the electrical modifying the plumbing HVAC doing any kind of structural repairs to the property building a deck that's when you probably need to account for a building permit but the best way to figure that out is to look up your local building codes go to your local building codes website they'll have permit fees they'll tell you when you might need a building permit or not and then you can just plug in that percentage directly into the cell but generally it's about one to two percent of the repair costs which is typically about five hundred to a thousand bucks so we've got one percent currently plugged in for the building permit and then contractors overhead and profits so this is what you'll pay to a contractor if you hire a general contractor to manage your project so the cost and the repair cost estimator these are costs that are assuming that you're just you're managing the project yourself so these are just strictly subcontracted out costs and they don't have a general contractor managing the project so if you are going to be hiring out a general contractor to manage your subcontractors schedule the project and just manage the overall construction of the project then that's when you to really include about 10 to 15% on top of your repair cost estimate to account for compensating your contractor them to manage a project and then finally contingency so this is going to be used to cover any kind of unforeseen issues on the project so so maybe you miss something in your estimate maybe there's something in a wall that you weren't anticipating maybe there's a structural repair on the property that you hadn't anticipated that's what this contingency is really for is to cover any kind of budget overages that might arise from unforeseen issues on the project so generally since we haven't looked at the property it's it's one of those situations where you should probably include more contingency once you've kind of figured out the scope of work and feel comfortable with the scope you might be able to reduce that contingency down but I would say five to ten percent is pretty typical if you do not feel comfortable with the scope of work having walks to the property maybe you're uncomfortable with estimating or don't have a lot of construction experience or flippin experience this is really something where you should get real contractors involved get real pricing from contractors and subcontractors otherwise I mean you could be including 25 up to 50% in your estimate which just really isn't going to be that accurate so if you aren't comfortable with estimating costs then you really need to be getting in touch with your contractors and subcontractors to get those real values from them to help minimize some of that risk so you don't have to carry such a large contingency in your budgets so again five to ten percent would probably be pretty reasonable anything above that just make sure you're getting in touch with the contractors because they'll be able to help you out and eliminate some of that contingency and then finally the final step is to evaluate your profit so how much profit do you want to make on the project so right now we've got a pre plugged in as a formula at 15% of the after repair value which is pretty typical generally investors will shoot for fifteen to twenty percent of the resale value so that's what we've currently got it defaulted as but maybe you're an invest that just looks for a minimum so maybe you're like I just want to make $20,000 on this project so you just plug in 20,000 and you'll be happy with that value because that's how much you want to make on the deal so you could just do a lump sum number if you want to do it that way or if you do want to type in your own formula you could say 15% x the after repair value so now you're at 15% of the ARV so right now our our calculated maximum purchase price for this property is only 67 thousand dollars so if you recall the seller was asking a hundred and ten thousand dollars so currently based upon our current analysis of this deal we think that their asking price is pretty overpriced and overvalued so in this scenario it's one of those situations where you could go ahead and submit an offer where where you're at see if they accept it as competitive as it is out there it's probably not likely that they're going to accept this offer but I've had offers accepted when I'm forty to fifty thousand dollars lower than their asking price they sat on the offer for a few months and then came back to me and said fine we'll accept your offer that you offered so you just never know we're currently quite a bit lower than their asking price but this is these are the numbers that went into the deal and the numbers don't lie so if you want to start fudged in some numbers then you start to get a little bit riskier so maybe you could say that you're at all maybe what if you sold it for 195 well then you could offer a little bit more for their property what if you only took twenty thousand dollars in profit then now you're at eighty three thousand so you can start to fudge the numbers but generally speaking I wouldn't advise you to do that because that just starts to add risk to the project for you so generally if you can stick to your guns stick to your numbers make the offer at what your initial offer was at and you'll have more successful projects under your belt so currently if we go back to our previous numbers here so we were at because about sixty seven thousand dollars was our offer price so we're at about 71% of the ARV so again there's a rule called the seventy percent rule this is a rule that investors use as a quick rule of thumb to analyze deals so basically what it says is they want to buy the property at seventy percent of the after repair value that's that seventy percent basically includes a cushion of 30 percent for your fixed costs and your rehab profit so basically 15 percent for your fixed costs 15 percent for your profit so we are roughly at 70 percent currently where we're at because we're at three thirteen point nine percent for our fixed cost and 15 percent for a rehab profit so we've got about twenty eight point nine percent in those costs there so we're pretty close to the seventy percent rule again that's just a rule of thumb so you could you could very well easily be at seventy five percent you could be at eighty percent so some markets are different than others and you're going to have to be a little bit more aggressive in certain markets so but currently in our market we like to be at about seventy five percent so maybe maybe we could be a little bit more aggressive on our offer maybe we could decrease our profit here to get us up to seventy five percent and so right now I bet seventy five thousand dollars is about as high as I would want to go on an offer for this property so that's a quick way a quick overview of how you can use the rehab analyzer tool to analyze a deal you can see we've got some quick features in here that can help you do it a little bit quicker than going through an entire detailed analysis of all of your repair costs but this is really going to be a good tool to help you do your due diligence on your projects to really determine what you should offer for a property to make sure that you're not over paying for their property and that way you're maximizing your profit on your deals if you have any questions at all about the rehab analyzer or analyzing a deal feel free to shoot me an email or give me a call thanks

Channel: HouseFlippingSpreadsheet.com

Views: 7,392

Keywords: Houseflippingspreadsheet, house flipping spreadsheet, house flipping software, rehabbing software, rehabbing spreadsheet, flipping houses, rehabbing houses, flip this house, flip case study, flip example, flip deal analysis example, flipping software, flipping houses training

Id: PxO05_HGAm4

Length: 22min 13sec (1333 seconds)

Published: Thu Jul 13 2017