Once you have completed your inspection and collected your estimates, you should have a ballpark number of what it’s going to cost to complete the rehab.
Use the calculator on this site to help determine your profit margins.
Shooting for a 25-percent return on your investment is a fair number.
Be cautious. Make sure you are giving yourself enough of a buffer.
Evaluate the house against the neighborhood. Don’t create a house that is too expensive for the area.
Is the risk worth the reward?
That’s the question we ask for every home. Let’s look at some numbers.
For example, you determine that a house, after rehab, will sell for $100,000. Your rehab costs will be $15,000. (Remember this, nothing is ever as cheap as you think it’s going to be.) You take out a mortgage and pay $3,000 in closing costs. It’s going to take you three months to do the repairs. During that time you’re paying a mortgage, taxes and insurance. Thus, your costs climb to about $20,000. If it doesn’t sell right away, that investment goes up every month.
If you want to make $10,000 on the deal, you need to get the house for no more than $60,000 to give yourself some breathing room.
Also, don’t forget that you’re going to pay a real estate agent a commission – 6 percent.
Consider all these factors before making the purchase.