My first deal - Rehab Profit Margin

Rehabbing, Fix and Flip, Rental Properties
1

My partner and I looked at some properties yesterday and we found one we really liked. It is 170k, and we plan on putting around 70k into it, and selling it for 305-315k. We believe our holding time will be around 7 to 9 months. And estimate closing costs around 7k. IF my calculations are right our costs will be

Holding costs and taxes 1,100 x 9mos - 9,900
Closing costs - 7,000
Supplies 70,000
Total money put out 86,900
Minus 6% realtor fees when sellin

According to my calculations this shows that we will make around 200k, before taxes. This seems way to high. What am I not accounting for here?

2
What am I not accounting for here?
$2 for calculator batteries.....

$305,000
-9,900 holding
-7,000 closing
-70,000 rehab
-18,300 commission
-170,000 purchase price
= 29,800

3

Ps- I think you failed to subtract the initial purchase price.

4

30k isn’t much to split between 2, BEFORE taxes for 9 months of work. You’ll make less than minimum wage by doing this deal.

5

OK, yes I know i did not subtract the original purchase price and forgot to include that as a sub question. In holding costs you calculate in your mortgage payments, if you are subtracting the full purchase price at the end. Sorry if it seems ridiculous, but I’m no mortgage guru.

Thanks :slight_smile:

6

$29,800
8,940 Income Tax
4,470 SS tax
= 16,390

7

You could always try selling it yourself and pocket 3-6% of the commission.

8

Sorry if you already knew this, but I wasn’t sure from your reply. You subtract mortgage payments made and total purchase price because the amount of principle on the original loan that is paid off in the first 9 months is negligible. You are mostly paying interest.

9

thanks for all the input.

so, most of you are implying that i should include rehab costs in the 70% arv calculation? so the 70% arv = (purchase price + rehab costs + holding costs)

10

70% of arv minus repairs is your offer. Your offer should be no more than 140k I feel

11

ok, thanks! I guess I assumed it did not include repairs.