Rehab homes can make you a lot of money if you do your homework!
Rehabbing houses for profit can be a lucrative business if done correctly. One of the most common mistakes made by real estate investors purchasing a fixer upper is to pay too much for the home up front. This easy method for calculating the maximum price you should pay for your rehab will help ensure you leave plenty of room for profit.
Instructions
1. Determine the ARV, or after repair value. This is the price the home will sell for after all repairs and updates are made. This will be the price you would want to try and sell the home for after you fix it up.
2. Gather estimates of all the work to be done by reputable contractors. It is important to obtain the most accurate estimates possible to save you money in the long run. Add 10 percent to your total work order estimate for incidental and accidental expenses.
3. Subtract the repair estimate you obtained in Step 2 from the ARV you obtained in Step 1.
4. Multiply that number by .65 to obtain your maximum purchase price for your rehab property. For instance, the ARV is $150,000. Repairs are $50,000. Subtract $50,000 from $150,000 for a result of $100,000. Multiply that by .65 for a final price of $65,000.
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