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Selling Investment Property  

Final Analysis on House Flip #5

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This is part of an ongoing series on my adventures Flipping Houses.

Selling investment property can prove to be a challenge in this real estate market. The area where I am operating has an increasing number of foreclosure properties coming on the market. Just last month a new record in the number of foreclosures being filed was reached.

You would think that after the two years that we have been through, things should be starting to stabilize but I see no signs of that happening. Therefore flipping real estate will continue to be challenging and I have adjusted my expectations accordingly.

When flipping real estate property of course you want to sell for as much as you can. However, since holding on to a house for a long time eats away at your profits I decided to try something a bit different this time. When I initially assessed this rehab real estate opportunity, I figured that $115k to $120k would be a realistic selling price. Although that could have been the case, I have now learned the hard lesson of what happens when you don’t price a house right from the beginning. So instead I priced this one aggressively from the start based on the properties around and the fact that I wanted to sell quickly!

Knowing that I could be leaving money on the table is a hard pill to swallow but when selling investment property your concern is making sound business decisions not emotional ones. Believe me; it’s harder than it sounds. But it worked…it took us all of 6 days to get an offer on this house when the houses around me are sitting unsold after 30, 60 and 90+ days on the market.

So how did I do? Here is how the numbers shake out:

Selling investment property, flipping real estate property, flipping real estate

There are a few things I want to point out when trying to figure out if this was a good deal or not, look at the figures highlighted in yellow:

  • My net profit was slimmer than I would have liked and under my target profit. This was mostly due to overshooting our rehab budget due to unexpected repairs and for accepting a lower sales price than I should have. Could I have gotten more? Maybe…but in hindsight everyone is 20/20…
  • After Repair Value (ARV) – I bought this house at 60% of ARV. That is high by most investor standards. The only reason I accepted this was because the house was only 15 years old and compared to my other projects was in good shape. Perhaps 55-57% would have been more reasonable
  • IRR – internal rate of return is a measure of how well your money performs over a certain period of time considering both positive and negative cash flows. So 60% is nothing to be shy about.
  • Days on Market – do I need to say anything else?
  • Rehab price per square foot – I have begun to keep track of this so that I can compare all my rehabs equally. At $13 per sft. this is my lowest cost rehab to date.
  • Other Factors:
    • Total hold time – I was in and out of this house in just over 3 months. The rehab really did not take 49 days, that was just the time from the day I bought it to the day I got the offer on it. Actual rehab working time was about 18 days which is pretty low.
    • Rehab costs - $18,000 was high considering what my initial projections were. Serves me as a good reminder of why buying low is still the most important factor!!
    • My time – I probably, personally spent 80-120 hours working on the different aspects of this house. So that breaks down to about $110 to $160/hr salary for me. Not bad.

I hope this analysis helps you understand some of the numbers involved when selling investment property. The numbers don’t lie so when you are flipping real estate you have to look at the right numbers to ensure the deal makes sense.

If you have any questions or comments about flipping real estate property, feel free to leave a comment below.

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How is Internal Rate of Return (IRR) calculated for investment property Not rated yet
Hola! How was IRR calculated? Thank you. LM says: Hi there, this is a good question and something important to know when analyzing your investments. …

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