*Flipping Houses-Pillar 1: Buying*
Knowing how to find, analyze, and buy houses is the single most important service we have to offer when it comes to flipping houses. Essentially the process of “Buying” can be broken down into 4 areas.
Depending upon a clients particular needs we help them decide and pursue upon the following:
- Inventory: What kind of houses will you focus on buying?
- Farm Area: Where (what location) will you focus your efforts in looking for these houses?
- Deal Analysis: What will you offer for these houses?
- Acquisitions or Buying Methods: Which methods will you use to find and acquire these houses?
First off what kind of inventory are you most interested in? Your best bet is to focus on a standard home with 3-4 bedrooms and probably anywhere from 1,200-2,000 square feet with a standard “entry level” price range. This is not a hard and fast rule and may change from area to area but key point being you want to buy a house that will be EASY to SELL.
You’ll want to focus primarily on homes that are typically distressed or need work. Things to be aware of are structural damage, electrical or plumbing issues, heating/cooling issues. Everything usually has a solution, however being cost effective is a priority through the process. Colossal Construction Group has the experience to be able to walk our clients through this with the knowledge and experience of licensed contractors and an onsite project manager.
The next step is choosing your “farm area” or the place you will focus your efforts on buying houses. This can be as small as a neighborhood or as large as several counties.
Really being familiar with the farm area a particular client is interested in gives us a great advantage when it comes to buying homes because we know the neighborhoods, and streets as well as what is expected to be done to those houses to bring up value. I cannot over emphasis the importance of partnering with a company who has this kind of knowledge and expertise.
DEAL ANALYSIS-THE KEY TO FLIPPING HOMES!
If buying is the first pillar, then deal analysis is the cement from which that pillar is made. It is the process by which you determine the amount you can pay for a property in order to cover all the required expenses involved in flipping houses and still ensure a profit.
Basically the goal behind analyzing a deal is to first come up with the ARV (after repair value) this is the price the house will sell for once you have done the rehab and improvements and brought it up to “retail” condition. Once you know what you can sell the property for you can work backwards and subtract repair costs, closing costs, holdings costs, and lastly desired profit in order to come up with your office price.
We will go over exactly how you come up with the ARV, and outline all of the expenses involved in buying, holding and selling a home. We will also cover some of the quick, and more detailed formulas used to calculate what to offer as well as what you may want to expect for a profit. In a separate post we will also go over estimating repairs since this is a crucial part of the deal analysis equation as well.