Equation For Flipping Houses

HGTV shows the glorified process of buying an abandoned old house, and turning it into something beautiful. They also show the investor making some quick change with no issues. Unfortunately, they leave out most of the expenses and the real costs involved with flipping houses.

There is an equation we use if we are flipping a house and we want to share it with you.

The first step is to determine the after repair value of a property. What this means is to locate comparable properties in the neighborhood that recently sold that are updated and in great condition. This is the closest number to real market value as you can get. The end product will also be completely remodeled so you can expect to get a similar sales price.

Next, you must account for holding costs, closing costs, and misc costs that are incurred along the way. We suggest taking 70% of the market value you just calculated. Now that you have found this figure, it is time to incorporate the actual construction costs that it will take to renovate the property and bring it back to life!

For this we need to estimate each repair needed as well as the cost of labor and the material. It's also important to include a contingency for any unknowns that pop up during the construction process. This always happens so it's important to account for it and be prepared! Once you've determined the all out cost for the different trades, materials, and that emergency buffer, you subtract the budget from your current figure you found in the previous step.

Finally, we have arrived at the purchase price. This would be the price we would need to buy the property for. Anything higher and you risk not being very profitable, or worse, losing money on the deal. The number one rule with buying houses in Pittsburgh is to stick to the numbers and never over pay!