The idea for Flip Margin came about while I was looking for investment properties in Phoenix, Arizona. The number one thing I have learned from the three flips we have done is that 'you make your money when you buy'. With this constant reminder in my head and pressure to perform by choosing the best property, I knew that I needed to utilize as many tools as possible during the property acquisition. My realtor introduced me to the idea of this sort of reverse margin formula and we began using it in our property search.
If you are not aware the Phoenix area real estate market is going crazy right now. This location currently has one of the strongest if not the strongest market in the country. The competition is crazy. Everyone and their mom seems to be buying up houses. The need for on the spot phone applications in the real estate market is strong and I felt that I needed to have an advantage.
Flip Margin gives me the advantage of easily and quickly estimating the profit margin of a particular property and save it for later use.
What you need to know:
Property Comps - This will allow you to estimate your Sale Price
Purchase Price - The price you pay for the property
Holding Cost - What will your lender charge in interest, utilities, etc. during the time you hold the property
Realtor / Closing - I use 7.5%. (3% Buyers Agent + 3% My Agent + 1.5% Closing Costs)
Renovation Cost - What will it cost to get the property updated (I estimate this on the spot, but you can have your contractor give you that number during the showing)
When we estimate a property we typically use 10% as the multiplier for Holding and Realtor / Closing Cost combined. This is always a fixed percentage for us. The Sale Price, Purchase Price and Renovation Cost varies on each property. After a margin is calculated the property can be saved for analysis later. Up to five properties can be saved at any given time.
Below is the concept I put together for my developer and partner on the project, Mike Havrilla. As you can see we have already changed the name. FlipStimate might end up being the umbrella for the estimators and calculators where Flip Margins falls within.