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Unknown
how do I make sure I make money? How do I make sure I don't lose money? This is how you do it.
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Unknown
Everybody just says you win when you buy, but nobody talks about what that means.
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Unknown
Welcome back to the seven Figure Flipping Podcast. I'm your host, Adam Whitney, the CEO of seven figure flipping and blackjack real estate,
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Unknown
let's talk about the things that investors are leaving out of their deal analysis, which is
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Unknown
they get into a flip. They think their numbers look good. It takes a little longer cost a little bit more money. And they go, oh my gosh, where did my profit go? So what are what are those things that are sitting on the investors play.
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Unknown
First off they under value what a closing cost is going to cost. Now the closing cost, if you get a closing statement from your title company are all the government fees document tax stamps. It's the owner's title policy and all these things that it cost you to close a house regardless of what kind of transaction you're doing. So you have closing costs, and I'll see investors underwrite this at 2% of the RV, and I'll see them under it at 5% of the RV.
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Unknown
I think you want to be more conservative on this. Here's the real key is when you're an end buyer, if you're going to flip, purchase and flip the house, you actually have closing costs twice. Once when you buy it, once when you sell it. Now here's a little hack. You use the same title company from when you bought it, when you sell it, and you're going to save on cost because it's going to be cheaper to do the it's going to be cheaper to do the title policy.
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Unknown
So you have closing costs, which are eating investors profits a lot because it's just two, three, four, five, $6,000 here and there. And that's a big percentage of a $30,000 profit. Now you also have money cost. This is cool because you control a lever on money cost. When I say money costs, you borrow capital from a hard money lender or private money lender for a percentage point and admin fee and all this stuff.
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Unknown
Now your money cost. Typically in today's market, you'll see anywhere from 8 to 13% and zero to 2 to 3 points right on the high end. So let's just say 10%, one point for most flippers or 12% and two points somewhere in that range. What's a point? A point is one percentage point of the total loan you're getting.
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Unknown
So if you're getting a $200,000 loan, one percentage point is 2000. So if you're paying two points, you're paying for thousand, then you have interest payments. If it's 10% interest on a $200,000 loan, that's $2,000 per month in interest payments. If that deal takes you six months from purchase to sale, man, that's $12,000. So now if you're 1 or 2 points, let's say you're two points in on a $200,000 loan.
00:03:07:15 - 00:03:40:07
Unknown
That's $4,000 plus another 12,000. That's 16,000 just on money cost. Okay. So you have money costs. The other three things that are very seldom we looked at are, utilities, insurance and lawn care. So when you buy a flip, you have to keep the lawn up for when you sell it. And it could take 30 to 60 days to sell house.
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Unknown
So you're going to get that grass cut 3 to 4 times. If it's 50 bucks each, that's 200 bucks. I know it seems small, but it eats away. Same thing for utilities if you have electricity and water and that's costing you two 300 bucks a month over six months. You're talking other $1,200 now. Insurance. A good rule of thumb for insurance for a builder's risk policy is $100 a month per every 100,000.
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Unknown
So if you got a $200,000 house, 200 bucks a month, six months, 1200 bucks, now these things start to add up. What are. What are those other costs that, you can plan on the front side so you win when you buy. Okay. The other cost are two costs. One you're going to be familiar with and one nobody's planning for.
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Unknown
Okay. The first cost is the realtor fee. Now realtor commissions get paid are negotiable. It would be it is not uncommon for the seller and the buyer to want 3% each. But that is not what you have to pay. You can offer 5%, two and a half each. 2%. You can offer whatever you can negotiate. But again, that's going to impact your service.
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Unknown
So let's just say 5%. If you get that $200,000 loan and you're going to sell this house for $400,000, that's $20,000 in just realtor cost at 5%. So now that's another big chunk. Now here's the one that you should be planning for. That you're probably not is concessions. There's something there's a piece of data called list to sell price ratio.
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Unknown
And you're seeing that hit 96%, 97%, 94%, which means the price you list at and the price that you sell at is a little bit lower. Plus, the sellers who can't get into these houses due to affordability are asking for concessions. Now. Concessions are often a controllable number based on the type of loan. So for example, like an FHA loan I believe is like 3 or 4% or something like that.
00:05:49:16 - 00:06:19:12
Unknown
But again, if your price is 100,000 bucks and or 200,000 bucks and you have 3% on that, that's $6,000, 6000 additional dollars. So all of these things can be planned for on the buy. So what are the pros doing in today's market? Okay. The pros are planning number one for a longer hold times because they are looking at days on market before they buy one two.
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Unknown
They're also looking at when they're going to go to market. So you might look at the sales data in your market and see that it slows down October, November, December, January, February. Then it starts to go back up. So if your flips coming to market in the fall or at the turn of the year, you might be sitting a little bit longer.
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Unknown
Okay. So that is that has got to be planned in that gets planned in your whole time. So if I'm buying a house, say in September, I might extend my holding days, which is going to extend my money period. So I'm factoring all this in when I make my offer. And on the by. So the pros are factoring in the holding time.
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Unknown
The pros are factoring how that impacts the money cost. The pros are factoring in concessions. The pros are factoring in realtor fees and negotiating them before the fact. Utilities, insurance, cutting the grass, all of those little ankle butter things. That's what actually protects. That's what actually protects your net profit, the amount of money that you actually make on ideal.
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Unknown
So when you're done with a deal, you can say that was a great experience. Actually made 40 or $50,000. And you're very clear on your numbers. Now, if you don't plan for those, if you don't do deal analysis, well, you don't make those considerations. You're going to feel like you lost money, you broke even. You're going to feel like you don't have control.
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Unknown
It's not going to be as good. That's why for you guys is you're listening to this podcast and you're thinking about, well,
00:07:55:12 - 00:08:06:17
Unknown
how do I how do I make sure I make money? How do I make sure I don't lose money? This is how you do it. Everybody just says you win when you buy, but nobody talks about what that means.
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Unknown
This is what that means. You are factoring in all the costs you're expected to have from the time you purchase a house to the time you sell the house and you're doing it, and the best and most predictable way possible. So I want you guys to be pros in this market. And I know that understanding what costs go into deal analysis are super, super critical.
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Unknown
And without them you can literally lose money. So understanding what those costs are, planning for them, baking them into your offer, making good offers, and buying houses where you know you're going to make money. Now, if you flip the house in the past or you're thinking about flipping houses, did you even know that those were costs you should consider?
00:08:49:01 - 00:09:09:05
Unknown
Or did you have a time when you did a flip but didn't consider those costs and a bit you at the end of it? Drop that in the comments, let me know. And for everybody else, if this might have saved you on a future deal, go ahead and leave me a five star review on this podcast so that seven figure flipping can impact and serve more people.
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Unknown
Thanks for listening in, and I'll catch you on the flip side.
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