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Thursday, September 20, 2012

House Flip #9: Final Financial Analysis

House #9, our latest house flip project is now sold! 

Although there is no such thing as an easy house flipping project (those only happen on TV) this one made me loose quite a bit of sleep. Between the disagreements with the contractors that worked on the job and the running around to get the work done on nights and weekends while still keeping my daytime job, this flip was a challenge.

However as you will see, I think it paid off:  

Financial analysis of my latest house flipping deal

I think we did alright not just because of the profit but also because I was in and out of that house in 119 days of which about 20 was just waiting for the buyers mortgage to be approved. Notice that the house was on the market only 14 days.

Also, this could have been a better deal if the buyers lender appraisal had come in at contract price. Although the initial sales contract was for $141,000 the appraisal came in at $133,000. And it was either sell it for that price or find a new buyer because this buyer was not willing to put $8,000 to bridge the difference between appraised price and contract price. 

The column on the right is for me to keep track of what percentage of after repair value (ARV) each portion was. So you will see that I purchased the house for 45% of what I was able to sell it. 

The ARV, in my opinion, is the most important financial figure when flipping houses, period. The key about it is that I have to figure it out at the beginning, before I buy the house. 

As a flipper and investor if I get the ARV wrong at the beginning then everything else goes downhill from there. Because, depending on the ARV I come up with, it determines how much I can spend repairing the house and even if the deal makes sense. 

As you will see close to the bottom of the chart I had projected the ARV of this house to be $135,000. So I based all my other calculations on that figure. So selling it for $133,000 was close enough but not great considering that typically I am conservative with my ARV calculations. 

Also, part of the overall profit was the fact that my wife was the real estate agent on both purchase and sale so she gets a commission on each transaction. 

Having said all that my return on investment (ROI) of 25% and internal rate of return (IRR) of 58% are very decent figures. They sure as heck beat my stock market returns!

What do you think?...

P.S. - you can also check out the results of House #7 and House #8 to see how they compare.

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