Vinnys House of Real Estate

Calculating your break-even price is crucial in the flipping world. If you don’t know the lowest amount you can go, then you have no basis for pricing reductions. Lately we have had no action on three of our houses, so we have to keep lowering them small amounts every week. A large lower will attract some attention, and you might get a low ball offer out of that. Having a good Realtor help negotiate can convert you from a losing house to a small profit.

Here is an example of a property.

Purchase price: $77,500 on 2-24-10 (past 90 days here)
Rehab costs: $17,103
Total outlaid: $94,603

Break-even with 10% closing: $105,115
This is calculated by dividing 94,603 by .9 or 90%. So (94,603/.9 = 105,115).
The .9 comes from 1 minus 10% or .1 (1 -.1 = .9).

The 10% number comes from my past experiences. Title costs are typically 1%, Realtor fees 5%, taxes and then any concessions to the buyer are around 4%. Make sure to setup your escrow/title company before you get a contract, typically you can get 50% off the rates by doing this. Any little bit will help!

Don’t forget to add to the total outlaid any expenses you might have to pay, such as future insurance payments, water, electricity, and if you have a loan on it, interest payments. Also check the taxes that are owed on the property, if its over a year past due, that can really add up.

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