• 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 removal, etc.) • security On security, it’s important to remember that empty houses being renovated can attract criminals. This means that your home must be locked when no one’s there. If you have to fire someone who has a key, you need to change the locks, just in case. You should also consider getting a security system. Also, even if you skipped the loans and paid cash, that money’s still tied up until you get the property sold. So, while you’re not technically losing money on this property, you’re theoretically
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