3 Tips for Estimating the Value of a Fix and Flip Property
If you’re trying to make it in the fix and flip game, you’ve got to become a master of prediction just like a professional fortune teller or a psychic, because you need to be able to accurately look into a property that needs some love and see the market value you can pull out of it. Without that skill, you’re just treading water and hoping you have more successes than failures. That’s not the way successful investors work, though. Instead of hoping or guessing, they make the investment look like magic through careful research and information management.
The first step toward having the information you need is determining the value of a fully renovated property. There are three ways you can go about getting this information, and all of them are preferred by some investors over others. The first method is to hire a professional. Most property appraisal professionals can tell you what a property would appraise at if it was in good condition instead of poor, fair, or needs work. That can help you get a feeling for the market ceiling before you bid, but it does require you to pay for the professional’s time, and that can get expensive.
Another way to manage your fix and flip projections are through the use of your own methods to appraise the property. This requires careful management of the data, and you will need to learn how to assess different markers of property value. Since the appraisal uses previous sales of similar properties in the area as a basis for valuation, it’s a skill you can learn with time. The downside to saving expenses this way is that you might have a few flops until you lock in your methods.
Finally, the third tip for estimating value is to learn to use a rule of thumb approach. Generally, there is an average depreciation value for properties that are in less than good condition in an area. If you can determine what it is for your area, you can calculate your likely average gain over the purchase cost after renovation. Once you have an estimate for the final property value, you can determine how expensive it will be to bring the property up to the resale condition you envision. Compare those numbers to see how much, if any, profit the fix and flip will probably bring you. That’s how you tell if a purchase is a sound investment, and it starts with good value estimations.