digest
Short Summary
Main recommendation: Underwrite every house flip with a detailed calculator (the BiggerPockets Fix and Flip calculator, as demonstrated by James Danard) before buying, using a verified after-repaired value (ARV) from comparable sales, a realistic rehab budget, and full holding and sale costs to find your maximum allowable offer. The speaker says flipping is risky but that scaling came from running numbers accurately and avoiding falling in love with a property.
Key Points
- Verify comparables carefully: they must be like-for-like in style, bedroom and bathroom count, square footage, and geographic location, since features like parking can shift value by 10 to 15%, or $200,000 to $300,000 in one example.
- Set a realistic desired profit based on local market research; the speaker cites roughly 12% return on total cash invested in Seattle without leverage, or 35 to 40% with leverage.
- Count every holding cost monthly, including hard money interest, property taxes, insurance (noted as especially high for flippers), utilities, and loan payments, because these erode profit.
- Use the calculator interactively: re-run ARV, rehab, holding, and purchase or sale cost changes as the market and quotes change to update your strike price.
- The calculator saves reports and organizes multiple active deals, which the speaker says helps reduce risk and keeps records from getting lost.
Details Worth Noting
- Concrete instructions:
- Find the ARV by pulling a detailed CMA of fixed-up properties with the same bedroom and bathroom count; in the example the ARV was $625,000 for a 3-bed, 1-bath turned into a 4-bed, 2-bath.
- Enter the property at biggerpockets.com under Tools, choose the Fix and Flip calculator, optionally add a photo, input the address, then enter ARV, desired profit, closing costs, rehab, holding costs, and sale costs.
- Closing (purchase) costs: estimate about 1% in Washington state; the example used $4,000 on a $400,000 purchase.
- Rehab cost: itemize line by line if you want granularity, or use a contractor estimate; the example used $100,000.
- Holding costs: add hard money payments (example: $4,250 monthly at 12% on a $425,000 loan), property taxes (annual tax divided by 12; example $3,500/year = $291/month), electricity (about $100/month), and water (about $50/month). Use the Advanced tab to add line items.
- Holding period: the speaker averages about five months and recommends using longer timelines rather than optimistic ones.
- Sale costs: include about 3% listing commission and 3% selling broker commission (6% total in the example), escrow fees (the calculator defaults to $1,350, but the speaker's own Washington deals run about $350, with a tip to ask your title company for deals), title insurance (about $1,000), and transfer tax (1.25% to 3% in Washington; about 1.5% in the example, $9,375 on a $625,000 sale).
- Once entered, click Finish Analysis; the calculator then shows the maximum allowable offer. In the example, the target $55,000 profit gave a maximum offer of $394,900.
- Adjust live: if the seller wants more, recheck ARV and costs; if the market falls, the example offer dropped to $372,000 at a $600,000 ARV; higher rehab quotes or lower interest rates change the offer accordingly.
- The speaker's Seattle example used a $400,000 purchase, $100,000 renovation, and financing of 85% of total project costs from a local hard money lender (InTrust Funding) at 12% interest, for a $425,000 loan; the speaker notes the lender finances 80 to 85% of total project costs.
- The speaker used a comparable property about half a mile away to show that parking deficits (one car stall off a busy road) reduced comparable values by 10 to 15%.
- The speaker recommends consulting local brokers, investors, and title representatives for local margins, fees, and sale cost deals.
Bottom Line
Flipping returns can be large, but so are the risks; a disciplined, interactive underwriting process that counts every cost and updates the maximum offer as conditions change is what the speaker credits with protecting profit and keeping investors out of emotionally driven purchases.
