Fixing and flipping, or renovating and selling, is when a real estate investor purchases a property with the aim of remodelling the property and improving its value, and then selling it for a profit.
Here at HtAG, we have developed a handy property flipping calculator for you. By inputting all the numbers into our property flipping calculator, we want to help you plan and execute your next fix and flip!
Let’s break down how the calculator works so that you can calculate the profit on your next fix and flip as accurately as possible.
What information do you have to put into the Renovate and Sell Calculator?
The numbers you enter into the calculator should include all the money you are likely to put into your fix and flip project. Our Renovate and Sell Calculator has the following categories:
- Acquisition costs. These include the price that you purchase the property for, but also includes transaction costs such as closing costs for transferring the property, costs and fees related to getting a home loan or other form of financing, real estate agent commission, legal fees, and so on.
- Disposal costs. When you sell the property, there will also be transaction costs involved. Again, you will have closing costs from the sale, real estate agent commission, and taxes. Depending on the market you are selling in, you may also need to consider “marketing costs” for selling the property, such as home staging, landscaping, or getting professional photos taken.
- Rehab costs. Whether you are doing a major or a minor rehab on the property, you need to factor in the costs of material and labour, as well as construction permits and fees. It can be hard to estimate these costs because often additional expenses come up during the renovation that you weren’t expecting. It is a good idea to be conservative when estimating rehab costs.
- Holding costs. You will have holding costs from the time that the property registers in your name until you sell it. This includes home loan payments, property taxes, municipal rates, water, and electricity charges, and insurance. Remember, any delays in your renovation mean you hold the property for longer and pay more holding costs.
Use our house flipping calculator below to calculate a cost breakdown for your next project!
What does the Renovate and Sell Calculator calculate?
Based on the numbers you put in, our property flipping calculator will give you three important pieces of information.
Maximum Offer Price. This is based on the 70% Rule which states that an investor should, as a rule of thumb, pay no more than 70% of the after-repair value (ARV) of a property minus the repairs needed. The ARV is what a home is worth after it is fully repaired and ready for sale.
To follow this rule, you will need to find properties to buy that are priced significantly under market value. This will mean one of two things: The homeowner is in financial distress and needs to sell urgently OR the property is in a bad state of repair. Most likely, it is a combination of these two things.
You don’t know everything that will come up when you start rehabbing the property. The less you pay for the property, the more of a cushion you have to make a profit even in the worst-case scenario.
Rehab and Expenses. This number is based on the information you put into the calculator. It is very important that you estimate and calculate these numbers as accurately as possible. Rehab costs and holding costs can be very tricky when you don’t have a lot of experience in renovating properties.
You only make a profit when the price you sell the property for exceeds ALL the money you have put in. It goes without saying that you need to plan for all these costs and be as spot-on in your budget as possible.
Estimated Profit. The estimated profit represents your income as a real estate investor, it is the money you will have to go forward and invest in more properties and grow a successful real estate investing business. A point that shouldn’t be missed is that the estimated profits represent all the hard work you put in as a real estate investor.
Want this real estate calculator to feature on your website? Get it for free from WordPress plugin directory here.
For many Australians, renovations are a popular strategy to add value to their property. Whether it’s your primary place of residence or an investment property, a well-executed renovation can enhance the appeal of a home, making it more attractive to renters and potentially accelerating capital growth.
Budgeting for Renovations
A common rule of thumb is to spend no more than 10% of the current market value of the home on renovations. Ideally, any money invested in renovations should yield a return of at least double the investment.
What to Renovate?
The choice of what to renovate can range from aesthetic improvements like painting and fittings to more structural changes such as adding or removing walls (subject to council approval). The key to successful renovation is problem-solving. For instance, transforming a three-bedroom, one-bathroom house into a three-bedroom, two-bathroom house by adding an ensuite can significantly improve the home’s liveability and value.
When deciding on what renovations to focus on, consider the following:
Advantages and Disadvantages of Renovations
Renovations can create equity faster, attract higher-quality tenants, and offer depreciation benefits on renovation improvements. However, they also come with potential downsides. Sticking to a strict budget can be challenging, and over-capitalising is a common pitfall for new investors. Renovations can also lead to rental income loss due to property vacancy during the renovation period.
Council Approval
Before embarking on any significant renovation, ensure you get council approval. Building permits are necessary to ensure your remodel meets structural and fire safety requirements. Non-compliant work can lead to expensive corrections down the line, so it’s always best to check with your local council before starting any renovation work.
Summary
In conclusion, while renovations can be a powerful tool for adding value to your property, they require careful planning, budgeting, and execution. Always consider your financial goals, risk tolerance, and the potential return on investment before deciding to renovate.