Avoid The Most Dangerous Game When You Flip A House
Q: I am looking for a partner for a fix and flip property that I have under contract. I spoke to someone who is interested but expects to make a lot more money than I think is possible given the comps and the estimated rehab cost. What do you think? Jimmy, Kearny, NJ
A: Jimmy, you should thank this guy for showing interest and then run as fast as you can from him. If you and this person are not on the same page with respect to the facts of the fix and flip deal you have then you should not partner with him. Flipping houses is not rocket science, it’s based on basic math that primarily revolves on a simple set of numbers and figures: 1. Purchase price 2. Rehab Cost 3. Holding Costs 4. Property After Repair Value. Over the 20 years I’ve been doing real estate, I’ve seen many investors play what I consider to be one of the most dangerous games in real estate, which is the how much money I need to make on this deal game. As an investor, you don’t get to decide how much $ you will sell a home for or how much money you’ll earn, the market always decides those things. Therefore, you can never dictate how much profit you will make on a fix and flip property beforehand. The best you can do is make sure you buy the property as cheap as possible, your estimated after repair value matches recent sold comparables for the home you’re planning to rehab and that your repair & holding cost estimates are accurate, realistic and have plenty of slack room for unexpected outcomes and expenses. Any potential JV partner who doesn’t understand these basic facts of the real estate business is someone you should avoid doing business with. Thanks for your question, Jimmy. Good luck.
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