How to Flip a House With No Money Down
Using other people’s money, having a firm understanding of after repair value and an accurate maximum allowed offer is key to successfully flipping houses.
A little math can go a long way when house flipping. I recommend using the 70% rule to accurately determine the profit margin on a potential house flip deal.
How to Flip a House with No Money Down
Hello everyone, this is Mike from House Flipping School. We are doing a series of videos. We like to keep them short so if you are busy, you can take a look at them one at a time. We have been talking about a few key elements in the house flipping real estate business or house flipping investing business.
One of the most common questions that I get is “how can I do this if I don’t have any money”? If you look at the OPM Video, (Other People’s Money), you can get some good information on that. So you’ve worked on the OPM, and you have some resources that you are going to work with, maybe a friend, or family member, or someone that you’ve meet at an investment meeting. You’ve hooked up with a real estate broker or agent to help you determine the ARV, which is the After Repair Value, what that house is going to be worth when you go to sell it, because without that, there is not deal. There is no determining what a good price is without knowledge of the ARV. I hear about potential real estate investors who say, “Hey I have a house for under $100,000”, and if they don’t know what they can sell it for, it doesn’t mean anything, doesn’t even matter if the house is $30,000.00 if they don’t know what they could sell it for. At that point we determine the MAO (Maximum Allowed Offer). That is the most I will pay for that property. How do you put all of these things together to determine what the MAO will be?
A little bit of math involved. I do this a lot of times without a calculator, but I’ll show you on a calculator today so that you can do it too. Your real estate broker has convinced you that the ARV is $200,000, that’s an aggressive price. Others have said maybe $205, so $200 would be a good, conservative value on that property. So we have $200,000.00 for the ARV (After Repair Value). You may have heard this from other real estate investors; they use the 70% formula. It is pretty standard; it’s the one I use. If you are going to go with the 70% as far as an offer price There are two ways that you can do this, take 200,000 times 70% = $140,000.00 or you could take $200,000 times .7 (which is 70 percent) which equals $140,000.00
So we have taken 70% of $200,000.00, that has given us a maximum allowed offer of $140,000.00, if the house was in perfect condition, but we don’t by houses in perfect condition, that’s where the end buyer comes in.
Excuse me, up late last night working on my business plan, a little groggy this morning, so forgive me. At $140,000.00. Where do we go from there? Our repairs will be $40,000 that leaves us with $100,000 MAO (maximum allowed offer). We deduct $40,000 from the $140,000 and get $100,000.00. So from there, we put our offer in with the bank at $80 or $85 thousand dollars.
Consult your real estate broker, depending on the competition; they’d be the best to advise you to determine what the best offer is going to be.
I am hoping that this series of videos have helped you to make an offer, how to determine the after repair value is, and get out there and start getting excited about this business.
Please feel free to leave a comment below, I’d be happy to get back to you. I want to see you succeed in this business.
Thanks again, this is Mike from House Flipping School
Please feel free to leave a comment or question below if you’d like more insight regarding how to flip a house with no money down.