I got a lot of people that come to me because they see me flipping all these homes on YouTube. There’s hundreds and hundreds of videos of me flipping homes on YouTube. I have flipped so many homes, that I’ve won multiple awards, like Rich Dad International Hall of Fame. People always ask and they say, “Stephen, I want to flip houses. How can I do it? What’s the secret?” Now, there’s only one secret to flipping houses. It looks like a complex business, and it can be complex, but in essence, at the very base of flipping houses, it is a very simple business.[embedyt] http://www.youtube.com/watch?v=IW2Ws4obVTY[/embedyt]
Now, if you want to flip houses profitably in your market, what you need to do is buy at 40%-60% of ARV. ARV, what does that stand for? After Repair Value. Whatever the home is at … Typically with flipping houses, we buy distressed assets. There’s two types of distressed assets. You’re either going to have distressed owners or distressed assets. Either the house is screwed up or the owner is screwed up. Because you have a screwed up owner or a distressed house, that’s where you need to buy it 40%-60% of ARV. Now, what happens is people try to buy at eighty cents, ninety cents, ninety five cents, or even a 100 cents to try to flip a house. It just doesn’t work at all. I have many realtors I use. They will try to sell me homes that don’t fit this criteria. You just simply can’t make money using that formula. In any market, you want to buy at 40%-60% of ARV.
You want to fix to 70% of ARV. This number, depending on your market and the circumstances, can change. I think most markets in most circumstances, 70% is acceptable. Some people, I know in Florida, they like to say sixty five cents of ARV, because the dollar volumes aren’t as high and maybe the market swings a little more. I have traditionally also flipped houses at 75% of ARV, which means there’s a little less margin. The market where I was doing that in was so hot, hot, hot, we made money every time. We would sell at a hundred cents or a hundred and five or a hundred and three cents.
The cost to sell is ten cents of ARV. It’s going to cost us, even to do the deal, ten cents. How this works … We’re going to spend about 3% in discounts or staging. I have a home staging company, so there is a cost to putting furniture in the home to make it look great. You’re probably going to spend about 3% in transactional costs. That’s buying, selling, closing costs on the buy and the sell, taxes, insurance for six months. If you do the deal in about six months, this is the transactional cost in most markets. 3% of ARV, which rolls into about 10%. Then we’re going to spend roughly 4% on a realtor.
When you do the math, we’re going to net on this deal … Net is 20% of ARV. We’re netting 20%. Now, this is where finance comes into play. Some of you guys might think that you can’t flip houses because you don’t know how to finance properties. In truth, you can’t flip houses because you don’t know how to negotiate. Now, all the deals I’ve ever done have been with other people’s money: OPM. I don’t do deals with my own money traditionally. I do them other people’s money because real estate is something that other people want to invest in and you can give them a nice return.
I’m going to use in this example the most basic form of real estate investing, which is a joint venture. We’re just going to split the profit. I’m going to assume that we’re just going to split this profit with somebody, which is a very expensive way for you to do you business, but it’s also a very simple way for me to explain it. There are better ways to finance properties. Maybe we can do another video for that. The net on this, 20%, you are going to split and you are going to take 10% of the ARV and you partner will take 10% who puts up all the cash. Now, in this example, I’m doing the deal all cash and the partner is supplying all the cash.
Some of you guys might think that this is difficult to do, but in fact, there’s more people out there looking to finance you than deals. If you really want to learn how to do this, you got to go get my book Self Made from SelfMadeConfessions.com. Go pick up the book. Check out how I did this is in the past. I have done so many of these deals. I don’t even know how many I’ve done over the years. This has been my bread and butter for a long time. It’s an absolutely great way to make money as long as people are buying homes, as long as people want home ownership, this business is going to work. I’m Stefan Aarnio guys, respect the grind. Like, share, and leave a comment or ask me a question in the comments below