• purchase price: $100,000 • renovation cost: $50,000 • total investment: $150,000 • sell price: $200,000 • equity position: $200,000 – $150,000 = $50,000 • ROI: $50,000 ÷ $150,000 = .33 (33% ROI)
The Out-of-Pocket Method
• loan amount: $100,000 • down payment amount: $20,000 • renovation cost: $50,000 • total investment out-of-pocket: $70,000 • sell price: $200,000 • equity position: $200,000 – $70,000 = $130,000 • ROI: $130,000 ÷ 200,000 = .65 (65% ROI)
As you can see, using a loan in the out-of-pocket method can bring in a higher ROI because the amount of their own money the flippers spent on the project was lower.
COSTS TO CONSIDER
I briefly mentioned holding costs earlier, but it’s important you know exactly what they can entail. The following should be considered when you’re working out your financial plan for the property: • interest (if you have loans) • real estate taxes • insurance premiums • utilities (water, electricity, HVAC, sewer) • landscaping (if you hire someone for lawn care, snow
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