Did you know that the total value of the U.S. housing market is roughly $45 trillion? For many investors, these homes are an ideal real estate investment. But how can you calculate the fix-and-flip expenses of your latest home?
If you’re curious about house flipping, we’re here to help. Read on for a brief overview of the most effective fix-and-flip calculator to work out your expenses. We’ll also look at some of the features that will affect your loan, expenses, and net profit.
What Is a Fix-and-Flip Calculator?
A fix-and-flip calculator is a tool to help you work out the costs of your fix-and-flip loans, expenses, and more. Essentially, this calculator will help you see your costs, revenue, and net profit. It’s a crucial tool for understanding the financial situation of your latest house-flipping venture.
A fix-and-flip calculator requires several inputs to see the costs. These include acquisition, renovation, repairs, carrying, and closing.
Additionally, you should have an estimate for the after-repair value of the property.
But why bother with such complex calculations? Some prefer to go in blind, but doing so is an enormous financial risk.
If you calculate the estimated after-repair value and find the value lower than your input cost, you know not to attempt the flip. Your net profit is negative if the home sells for less than you spent fixing it. Knowing such things beforehand can stop you from losing tens of thousands of dollars.
How to Calculate Fix-and-Flip Expenses
Now that we better understand the fix-and-flip calculator, let’s take a deeper look at how to use the formula.
One factor is that there are many automated tools you can use for these calculations. However, it’s rarely more complex than adding, subtracting, and dividing. You can do these calculations by hand but don’t hesitate to use tools to ensure accuracy.
Acquiring the Home
Your first step is to see how much it will cost to acquire the home. In most cases, this is the most expensive step in your fix-and-flip journey.
The price of a home varies drastically depending on location, condition, size, age, and more. For a house flipping project, you should look for homes that are in need of repairs and renovations. Primarily, this is because these homes are cheaper than others.
Research the area you’re investing in and think carefully about if a home is worth it. Is the home in an area where you’ll struggle to sell it once you’ve fixed it up? Will you make enough for the flip to be worth the effort?
What Needs Fixing?
One of the best ways to decide if a home is worth it is to look at how intense the repairs will be. How much will you need to sink into the home to make it a sellable property?
You shouldn’t only calculate costs. Some house-flipping projects can take months. Homes in need of significant repairs or renovation can take a year or more.
Before purchasing a property, learn as much about it as possible. If the owner will allow you to do so, you should have it professionally inspected.
Furthermore, don’t only look at the home itself. Survey any attached properties such as sheds, garages, yards, and other properties that you’ll acquire with your purchase. These will all be part of your renovations.
Once you know what needs fixing, get estimates on the financial cost and time they’ll need. You’ll need these costs for your fix-and-flip calculator.
Time On Market
One step that first-time house flippers sometimes overlook is how long a home will take to sell. For every day that a home is on the market, you’re continuing to accrue costs.
A home that takes too long to sell may need to drop in value. If the home is in an undesirable area, such as far from cities or in too cluttered of urban space, it may struggle to attract buyers.
Deciding a Loan
Another critical factor in your fix-and-flip calculator is the cost of the loan to purchase the home. Here are three factors in deciding your fix-and-flip loans.
To start, calculate how much money you’ll need for your project. To do so, you should add up all of the previously-discussed costs: acquisition, repairs, and the time to sell the home.
With this number, you can see how high of a loan you need. You shouldn’t take a loan for significantly more than the home requires. Doing so can cause extra interest fees.
Additionally, look at how long you’ll need the loan. Loans are almost always given with a term of duration. Common durations include three, six, nine, and year-long loans.
The longer a loan, the more time there is for interest to accrue. However, a longer loan also can give you lower monthly payments.
Consider both factors for your fix-and-flip calculations. It’s a good idea to run the calculations on all possible loans so you know which will leave the most capital gains.
Interest and Profit
Your last factor in deciding on a loan is to look at the net profit of each loan. Are you taking out a loan that’s more expensive than the property? Will you struggle to pay off the fix-and-flip loans if the home doesn’t sell fast enough?
The longer it takes the home to sell, the more interest will accrue. If the home doesn’t sell soon, the interest can add up to cost more than the home did. As such, your net profit has vanished.
Calculate the worst-case scenario and see how much profit is left. These risks are baked into investing, so don’t let them scare you away from your dream investment.
Fixing Up a Property
Having a fix-and-flip calculator will help you to weigh the risk of investing in a property. Knowing the costs of your house-flipping requirements will show you whether fixing up a property is worth your time, money, and effort.
For more information on house-flipping, be sure to contact us. You can also browse our site to learn more about fix-and-flip expenses