The 15% Rule In Real Estate Flipping
When it comes to real estate flipping, a mistake that many rookie investors make is of miscalculating how much profit they will be able to make if they buy, flip, and sell a house. There are some basic formulas and ideas that new real estate investors follow that might be hindering them in their journey, in turn, to maximize profit on their flip. If that is you, read below to find out what you can do to improve your odds in the real estate game.
Real Estate Flipping Can Seem Confusing at First, Let Our Simple Formula Help You Out
There is a formula that people who are new to the real estate game tend to use which actually can do more harm than good when trying to determine your profit level. This basic formula is as follows:
Purchase Price - Renovations = Profit
This formula is deceptively simple and it can deceive first-time house flippers as it is actually more complex than this. Someone who uses this formula will often make less money than they could and might even lose money because they do not take into consideration a number of other fees. These fees include legal fees, realtor fees, discounts, financing costs, insurance, and carrying costs. These fees add up quickly and generally come to an additional 10-15%. To keep it safe it is better to estimate that it will be around 15%. It is preferable to turn a higher profit than expected as opposed to the other way around, especially when you are dealing with other investors. When calculating, analyzing and making the decision of whether or not to purchase a specific investment property check to see if the profits are still within a desirable range for you after applying the 15% rule. If you are still satisfied with the predicted profits then moving ahead with the deal would be a wise investment decision.
The 15% rule for fees includes:
5% realtor commission,
5% for insurance, carrying costs, etc.
2% Legal Fees
3% discount (It is a safe assumption that the property will be discounted for sale)
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