How Much Should You Pay For a House You Are Flipping?
When buying a house to flip it is very important that you do not overpay for the property. Most flippers make their money on a good purchase and the ability to buy a home under market value. If you overpay for a house you are setting your self up for failure.
A lot of Flippers will use the 70% rule.
This is a good guideline to use. You don’t want to pay more than 70% of the value that the home would cost after renovations minus the costs to renovate the home.
For example, if you are looking at a property that you think would be worth $500,000 when it is fully renovated and you are estimating that it is going to cost you $50,000 to get the house to its fully renovated state. Then you would take the after renovation value of $500,000 X 70% which equals $350,000 and then subtract the renovation costs of $50,000 which equals $300,000. This means that you shouldn’t be paying much more than $300,000 for that property.
$500,000 (Value Once Renovated) X 70% = $350,000
$350,000-$50,000(Renovation Cost) = $300,000 (Max you should pay when purchasing)
It is very important that you do your research when determining the estimated after renovation value. Many flippers will make the mistake of overestimating this number which results in them losing profits. Always look at the recent sales in the immediate area closely and have an experienced realtor help you determine what a realistic after renovation value is.