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Investing Strategies

My 5-Second Formula to Analyze Fix & Flips

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formulaHey guys, it’s Rob Swanson here. Fasten your seat belt because we’re gonna be speeding down the track in today’s lesson. We’re gearing things up a notch or two.

If you’re like most investors – and especially those who are new to the business – you’re probably spending too much time when it comes to analyzing a fix & flip deal. The bigger your business grows, the more leads you’ll have, and the faster you need to move through them. So let’s take a look at how you can speed things up when analyzing the deals that come your way.

As a real estate wholesaler, one of the things you want to do is get good at figuring out what your cash buyers will pay for a house. The math I'm going to walk you through here is a simple and quick way to get to that number.

After that, I'm going to show you a formula that speeds the whole thing up and allows you to do the calculations in about 5 seconds. (You read that right – 5 seconds!)

The Primary Focus

A landlord investor, one who invests in a rental property, never talks about the value of the house. Instead, the focus is exclusively on the rents and the net rent and an annualized return on investment from a cash flow standpoint.

Not so with a fix & flip...

The fix & flip investor is interested in something else. They don’t really care what the house is worth. The starting point when you're evaluating a retail fix & flip property is the after repair value or the ARV. The after repair value is the future fix-up value of the house.

In our example, we're going to say that the after repair value is $100,000…

Fix-Up Costs

The next thing we do is estimate (or actually have someone help us) figure out all the fix-up costs. In our example, we're going to say that the fix-up costs are about $20,000.

For $20,000 on most properties, you can do a fairly substantial rehab. You can pretty much do all carpets, paint, drywall repair, utilities, plumbing, electrical, and also gut the kitchens and bathrooms. You can do a lot for $20 grand.

mathThat gives us the as-is value. The AIV is $100,000 minus the cost of the $20,000-fix up, which is $80,000.

Where most real estate investors make their mistake is when they try to figure out what the house is worth in its current condition. That's the wrong way to tackle this.

The question to ask should be, "What will the house be worth when it's fixed up?"

That's always the starting point. It gives you the ability to figure out everything else, because the difference is this fix-up cost. From the as-is condition, after you put $20,000 into it, it's worth $100,000.

Now, we need to start breaking down all of the costs.

Calculate the Expenses

Closing Costs

The first expense to figure is the closing cost. In our example, we're going to estimate $1,000. Generally, the closing costs are going to be about 1% of the future value of the property. (That’s the quickest way to estimate it.)


Next we come to the taxes. Taxes vary from state to state, from jurisdiction to jurisdiction and from county to county. In this case, we're going to estimate taxes at a $1,000.


With the insurance, we're going to estimate $500. Just think about what most fix & flip investors are doing. They're going to hold the property for three, four, maybe 6 months, and then try to resell it. Insurance on a property that's under construction is going to run around $500. That may seem a little high to you, but that's about the right estimate for a property that's under construction and vacant.

Cost of Money

Now we will figure in the cost of money (COM). This can be a pretty big variable.

In this example, I'm going to set this at $2,000. The way I came up with this number is that I took the future fix-up value of the house at about 2%. That's what the money is going to cost me through the life cycle of this fix & flip.

Holding Costs

problemAnother expense will be the holding costs. For holding the property, you've got the utilities and different things that are going to be cost to you throughout this period of time. I'm going to estimate $4,000 in holding costs over this period of time. What I’m saying is that it will cost $1,000 a month for four months.

Now that we have all our expenses listed it’s time to add it all up. So, $80,000 minus the $8,500 in expenses, which leaves us with $71,500.

How Much Profit?

Here's the question you must ask next – “How much profit do you want to make? How much profit do you need to make on this particular property?”

A lot of fix & flip investors are looking at a couple of things...

A standard target is either a 20% cash-on-cash return or a minimum profit. Let me explain the difference between the two.

If the investor knows he needs $71,500 cash to do this deal, all of the costs associated with the deal, plus the cost of repairs, plus the cost of the house, what's the minimum profit?

Most investors are going to say they want to make $20,000 cash minimum profit after all costs.

Some investors are going to say, "I want to make a 20% cash-on-cash return."

So here's how we get a 20% cash-on-cash return: If the investor has to put in $71,500, what's 20% of that? It's about $15,000.

You can see that two different investors are going to analyze this deal slightly differently. Some are going to look for a minimum profit on every deal they do. Others are going to say I want a return on the cash that I invest.

Let's break this down a little further...

If we know that we're at $71,500 and we want a minimum profit of $20,000, what's the maximum that an investor can pay? $51,500 is what the investor will pay. If he pays $51,500, puts in all of these costs, puts in the $20,000 to fix it up and sells the property, they've got a $20,000 minimum profit.

Here's the next thing that we have to ask ourselves: “What are we going to do to make our fee as a real estate wholesaler?”

Well, let's say that you want to make $7,000. Now you're going to take $51,500 minus $7,000. It puts you down at about $40,000. That's your maximum allowable offer as a wholesaler for this retail fix and flip.

teenQuick Formula

Now, let's do the quick formula like this…

The after-repair value, minus the fix-up cost = the as-is value.

We take $80,000 X 60% or $0.60 on the dollar. It gives us $48,000 minus our $7,000 wholesale fee. It puts us at $41,000.

When you hear people talk about investors buying at $0.60 on the dollar – or making an offer at 60% – what I just walked you through is why.

$44,000 is the maximum allowable offer doing it the long way. $41,000 is the maximum allowable offer doing it the 5-second formula way. We get roughly to the same place.

You have to remember that real estate is a little like tossing grenades. It’s not like shooting a sniper rifle. All of these figures are estimates, so we’re trying to get as close as we can. But now you can understand why investors talk about buying at $0.60 on the dollar or less.

Knowing and using this quick formula will save hours of time and propel you forward in your business.

Well, if you like what you got here, be sure to check out some great training calls I’ve done here and here. Oh and don’t forget my newest one!

Talk to Me

Got any formula questions? Drop ‘em in the comments section below.


Do It To It! Immediate Action Steps

Know the after repair value (ARV), or the future fix-up value of the house.

Ask the necessary question: “What will the house be worth when it's fixed up?"

Calculate all of the expenses – insurance, taxes, closing costs, etc.

Use the formula: The after-repair value, minus the fix-up cost, equals the as-is value.

Speed up your deal analysis time by using my quick formula.

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