How to Make a Million Dollars a Year Flipping Houses. Jerry Norton

Closing Costs = $13,855 (9% of sales)

      Approximately 9% of the sales price covers the closing costs. Carrying costs are $8,775, which is about 6%. Profit of $29,870 is about 20%. If you add up closing costs, carrying cost, and profit, it equals about 35%.

Closing costs =	$13,855 (9%)
Carrying costs =	$8,775 (6%)
Profit =	$29,870 (20%)
Total =	$52,500 (35%)

      Remember the formula, ARV x .65 minus repairs equals our buy price.

      (ARV x .65) – Repairs = Buy Price

      The difference of $52,500) covers profit (20%), closing cost (9%), and carrying cost (6%). By using this formula, you avoid breaking down the numbers every time you look at a deal. The formula is a quick way to calculate the buy price.

      **Note: If you don’t have a cost of capital ($8,775), you can adjust the formula by 6% less. However, I recommend you keep the 65% formula and just add another 6% ($8,775) to your bottom line. Let’s look at three examples:

      Breakout Session #1:

      ARV = $165,000

      Repair costs = $35,000

      What is the buy price? Do this exercise right now so that you make sure you understand how to break this down.

      Answer: The first step is ARV x .65. So you calculate $165,000 multiplied by .65, that’s going to equal $107,250. The second step is to then subtract the repairs from that number. Take $107,250 minus $35,000, which equals $72,250. The buy price on this deal is $72,250.

      ($165,000 x .65) - $35,000 = $72,250 (buy price)

      Now what’s the offer price? I like to go about $5,000–$8,000 less than the buy price to give room for a counter. So on this deal you might offer $65,000 to $67,000.

      Breakout Session #2:

      ARV = $210,000

      Repair costs = $28,000

      What is the buy price and what is the offer price? Stop right now and calculate this out.

      Answer: First, take ARV x .65 ($210,000 x .65 = $136,500). The second step is to subtract the repairs from $136,500 ($136,500 – $28,000 = $108,500). So $108,500 is the buy price. Offer price is $100,000–$102,000 to leave room for countering.

      ($210,000 x .65) – $28,000 = $108,500 (buy price)

      Breakout Session #3:

      ARV = $380,000

      Repair costs = $65,000

      What is the buy price and what is the offer price? Stop right now and calculate this out.

      **Note: Because the ARV is over $300,000, you may adjust the formula to “(ARV x .70) – Repairs = Buy Price.

      Answer: Step 1 take $380,000 multiplied by .70, which equals $266,000. Then, take $266,000 and subtract it from the repair cost of $65,000, giving a buy price of $201,000. The offer price would probably be $190,000 to $192,000.

      ($380,000 x .70) - $65,000 = $201,000 (buy price)

      Remember, when using the ARV 65%, approximately 20% is profit but when using ARV 70%, approximately 18% is profit. In this example, $68,400 (18%) is profit. How does that sound to you? Fix and flip a property and make a net profit of $68,000 on one deal! That is very exciting!