Foreclosure.com Flip Formula for Success Part II

In our last post, we introduced the Foreclosure.com Flip Formula for Success.

Today, we’re going to break down all the factors that go into making it a helpful tool that can successfully guide you through the real estate investment process.

Let’s get started.

First, it’s important to establish a realistic re-sale value (RRSV) so that you will avoid having to market a property that is overpriced and takes too long to sell. It is a smart idea to price your flip 2-3 percent less than the competition. The attractive price along with the like-new appearance of your property should make for a desirable new home.

Next, determine the seller closing costs (SCC). Items like a brokerage commission (if you require the services of a real estate company), state stamps on the deed, possible buyer closing credit, prorated taxes, title search fees and any attorney fees are all possible expenses for which you need to account.

Then, figure out how much it will cost to carry the debt service (DS) on the property. Monthly mortgage payments add up quickly. So a good rule of thumb is to factor into your budget at least two extra mortgage payments in case it takes just a little longer to complete the repairs or get an acceptable sales contract from a qualified buyer.

After a thorough inspection of the property, you need to sharpen your pencil and arrive at a realistic estimate of how much the repairs will cost. This happens to be where most investors run into trouble. For some reason, the repair costs (RC) almost always tend to run over budget. Unexpected problems emerge and suddenly you are faced with spending possibly thousands more than you first calculated. Therefore, it is imperative to add a minimum 10 percent cushion into your repair budget.

You must then factor in the minimum acceptable profit (MAP). Most people think that the profit is whatever is left over after the flip closes and everything has been paid off. This leaves too much room for the unexpected. A better way to analyze the deal is to choose upfront how much profit you would like to make. Keep in mind that you have to be realistic in accounting for your time and money spent in taking on this project.

Just as there are closing costs to be paid when you sell a property, there are also closing costs that must be paid when you purchase one. Buyer closing costs (BCC) can include items such as mortgage broker fees, mortgage discount points, lender processing fees, escrows for taxes and insurance, appraisal fees, survey charges, title insurance, property inspections, recording fees and other miscellaneous charges. Consult with a mortgage specialist to have a good faith estimate prepared so that you know how much it will cost you on top of the property purchase price.

Lastly, we come to the Maximum Property Purchase Price (MPPP), also known as the X-factor. This is the number at which you are trying to arrive. The X-factor is how much you can afford to pay for this property and still have it meet your requirements. If you are able to purchase your next flip below the MPPP, each dollar you save will directly increase your net profit by that same amount.

Do not ever pay more for a property than the maximum purchase price you arrive at by following the Foreclosure.com Flip Formula for Success. Forget about how much the seller of a property from whom you are interested in buying is asking. Instead use the Foreclosure.com Flip Formula for Success to make a deal that will greatly benefit you.

Rest assured, if you follow this formula you won’t end up saying, Where did all my profits go?