Ultimate Guide To Flipping Houses in Cincinnati

Everything You Need To Know To Flipping Houses In Cincinnati

The fix-and-flip strategy entails buying a home that needs renovations or repair work, adding value by improving the home, and then reselling it for a higher price. You must be able to purchase the home for less than market value and your estimation of the cost of repairs must be accurate.

You should also be familiar with the local real estate market where the house is located. Find a region with a low average Days On Market (DOM) indication. To successfully “flip” a property, you must sell the newly remodeled home before you have to pay to keep it up.

What is ARV Real Estate?

The term “ARV” in real estate refers to the estimated future sales price of a property that is bought with the intention of renovating it and reselling it for a profit. 

The projected market value of a property following renovations and repairs is known as the ARV. 

In order to calculate ARV for real estate investing, it is best to first do a Comparative Market Analysis (CMA) to choose suitable real estate comparables, which is then enhanced by conducting a Sales Comparison Analysis to arrive at the most precise value.

Why do you need to calculate the ARV?

To have confidence in purchase decisions

When determining the worth of a potential property, it may be alluring to rely on “experts,” such as a real estate agent or wholesaler, but you should always “trust but verify.”

To determine real estate profit

You will use the After Repair Value as one ingredient in a formula to calculate the possible profit of the deal and decide whether to proceed with it. The After Repair Value will be the goal sales price of your finished product. 

Use the following formula, which accounts for ARV calculations, to determine your real estate earnings for a flip or possible rental property: 

ARV – Buying Costs – Holding Costs – Selling Costs – Rehab Costs = Profit 

To determine the profit, all of your project expenditures (Buy, Sell, Holding Charges, and Rehab costs) are deducted from the After Repair Value.

To use the 70% Rule in Real Estate to Estimate the Maximum Purchase Price

Calculating the highest price a real estate investor should make to a seller is another crucial application of the ARV in real estate. 

Using the 70 rule, real estate investors should utilize the following Maximum Purchase Price formula: 

Maximum Purchase Price = (ARV times .70) – Rehab Expenses 

You may read a thorough explanation of the 70% rule for flipping houses, including the Maximum Purchase Price formula and why it’s a useful guideline.

The ARV Formula is:

After Repair Value = (Current Unrepaired Value of the Property) + (Value of Renovations)

What Will The Rehab Cost? 

The money spent on supplies, specialized tools, and labor is often included in the expenditures associated with rehabbing a property. It should be noted that the terms “rehab cost,” “repair cost,” and “renovation cost” are all used synonymously.

Step 1: Learn Your Market

Finding out what has to be done to the property is the first step in starting to calculate your repair costs. Start by gathering local comps. 

Create a list of the improvements and repairs a potential property will require to turn a profit or generate positive cash flow by using these.

Step 2: Property Inspection

You should be able to see clearly during a walkthrough inspection what needs to be corrected so that you may lawfully rent or sell the property in your location. It is typically required by a lender and is also an important step in the due diligence process for any house acquisition. Give the things that this inspection finds to be troublesome high priority. 

Cosmetic issues won’t be found during the property examination. For instance, a property inspection can reveal that a roof has to be replaced within the next three years, but it cannot reveal that the color of the roof is unusual and will turn off potential buyers.

Step 3: Create A Scope Of Work

A scope of work is a detailed list of all of the renovation projects and repair work that will be performed at a property. When making this list, be sure to include:  

• Interior and exterior paint – Even if the paint is in good shape, it may be necessary to switch to more modern or neutral colors.  Paint should always fit with the overall look and feel of the home and certainly the neighborhood. 

• Flooring – It is unquestionably necessary to replace any damaged tile and worn carpet. But, if the flooring gives a space a dated appearance, it might also need to be replaced. Even if only a few rooms require restoration, think about refinishing the entire house because the cost difference is typically insignificant.
• HVAC – This stands for Heating, Ventilation, and Air Conditioning. If it’s old replace it. If it’s in good shape replacing it may not make sense.
• Roof – How much you may get for a property depends a lot on how old the roof is. It could be time to replace it if it is more than 25 years old.
• Electrical and lighting – Prioritize the repairs over almost all other items on the list if your house inspector notes any electrical issues. In most areas, it is against the law to rent a house with faulty wiring, and if you’re attempting to sell the house, you should be aware that many potential purchasers will walk away from a house with electrical problems.
• Plumbing – Your home inspector should make you aware of broken pipes and existing water damage. When choosing projects to fix water damage, exercise caution. Merely hiding the signs of this harm could get you in serious danger.
• Baths, including cabinetry and fixtures -Sometimes all a cabinet needs to be updated is a coat of paint. Discuss rehabilitation possibilities with your contractor.
• Kitchen, including appliances and countertops – The type of appliance being selected and the countertop’s finish should both be carefully considered. Cheap stuff in a higher-end property will make it very difficult to sell, while expensive items in a lower-end home are sometimes a waste of money.
• Landscaping, sheds, and porches – Landscaping is the first thing a potential buyer or renter sees when evaluating your property for purchase or renting. Make sure your property has curb appeal. 
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Step 4: Obtain General Contractor Bids

Obtain at least 5 bids from qualified contractors in the area. You can find them through referrals, or online. Always ask for a break down of materials versus labor cost. 

Step 5: Compare Quotes And Add A Contingency

Get at least three quotes for each item on your list. Don’t just go with the lowest price while comparing these quotes. If you’re investing in a flipper, the contractor’s availability and the amount of time needed to finish the project can have a significant impact on carrying expenses. 

Investors in rental property will also want to take the caliber of the repairs undertaken into account.

How Much Does It Cost Per Square Foot To Rehab A House?

Real estate investors frequently ask themselves this question. The truth is that estimating expenditures in terms of square footage can be very challenging. 

Certain properties will require significant repairs, some of which could be very expensive, such foundation work or HVAC replacement. Some homes could merely want fresh paint and new appliances. 

Depending on whether you choose laminate, carpet, tile, or hardwood, the cost of new flooring will normally range from $2 to $6 per square foot. 

If professionals are engaged to paint, paint typically costs $20 per linear foot. 

A complete cosmetic restoration, which includes new lighting, plumbing, etc., costs about $35 per square foot.

Complete rehab projects are those that really alter or significantly repair a home’s structure. This can entail getting a new roof, water heater, or HVAC system. 

Whole remodels of bathrooms and kitchens frequently require the removal or demolition of all cabinets and appliances. 

Between $85 and $100 per square foot is a rough estimate for a complete repair. For reference, new homes typically cost between $180 and $250 per square foot.

What Is The Most Accurate Method Of Estimating Repair Costs On A Rehab Project?

Obtaining genuine quotations from contractors is the best way to determine the repair costs connected with a rehab project. Contractors can provide rates for the actual project and account for all project factors. 

Just be sure to pay attention to the length of time that the quotes are good for. On their material estimates, many contractors give very short time frames.

What is the Cost to Flip a House? Purchase, Sale, & Holding Costs

If you’re wondering how much it costs to flip a property, this piece goes over the comprehensive list of purchase, sale, and holding charges, combined sometimes known as “fixed” costs, involved in a house flipping endeavor. 

This page is aimed to offer you an explanation and an approximate sense of how much you can expect to pay for each cost. This also includes the Transfer Tax, which is sometimes overlooked but can be significant enough to derail a deal at times. 

The breakdown of costs for house flipping is as follows:

1. Purchase Cost

Purchase Commissions: 0% to 3% 

You might not need or have to pay for a realtor when buying a house off the market. You might need to pay a realtor for their services if you continue to use them as your on-the-ground representatives. In an on-market sale, they would receive around half the fee agreed upon by the seller, or about 3%, and the seller would typically be responsible for paying them. This is negotiable between you and your agent for off-market properties, but I wouldn’t anticipate having to pay them anything less than 1.5%.

Wholesale Fee: $5000+

You must pay this fee if you are purchasing a property in a wholesale transaction. Property wholesalers earn money by negotiating to buy a property and then putting it under contract (usually from a distressed seller). They then go back and, in exchange for a fee, assign that contract to a buyer. 

Example: 

A wholesaler might sign a contract to purchase a house for $50,000 and then offer it to their list of purchasers for $55,000 the same day. The cost is that extra $5,000. 

There is no set amount for the wholesale charge; instead, it will depend on how much profit the wholesaler believes they can fairly carve out while still giving you enough money to flip the house.

Appraisal: $400-$500

This fee is is paid by you to have an appraiser determine the value of the real estate. If you choose not to use a lender, you may still want to get an appraisal done to validate your ARV and determine whether your finished product will sell for enough to make the deal worthwhile. 

Attorney, Closing, and Settlement Fees: $500-$1000

These are legal fees for attorneys reviewing documents, as well as escrow fees.

2. Selling Costs

Commissions: $0-7% (Plan for 6%)

The majority of sales take place on the open market, and listing agreements normally stipulate that you will pay a commission of between 5 and 7 percent. 

You may alternatively use an open listing, in which case you wouldn’t have to pay the broker until the house actually sells thanks to their efforts. 

You might not have to pay a realtor if you intend to sell your home privately or as a For Sale by Owner (FSBO).

You can also use a discount realtor like Redfin which charges 1%. 

Staging and Photography: $1500

Staging aids a buyer in determining the potential uses of a room. It’s crucial in problematic layouts where it can be challenging to visualize where furniture or other items should go. Although staging might seem like an unnecessary extra investment, I strongly advise it. 

Staging may provide warmth and friendliness to a renewed but empty environment. If that’s not enough, staging frequently offers a high return on investment. Staged homes sell more quickly and for more money, which lowers holding costs and frees up cash for the next transaction. 

The best approach to increase foot traffic, other than competitive pricing, is excellent photography that evokes a strong emotional response. If you are planning a property.

Buyer Closing Costs: 2%

There’s a very significant chance that the buyer of your rehabbed and staged flip may ask for assistance with their closing fees when you sell it. While planning your rehab budget, I advise you to set aside 2% of the property’s ARV to accommodate for this possibility. Even if you don’t need it, it’s a good idea to factor it into the economics of your agreement.

3. Holding Costs

What are holding costs when flipping a house?

From the time you buy the property and the time you sell it, there are expenses known as holding costs. 

It’s crucial to know what your holding expenses might be, not just for the time frame you have set for them, but also for the worst-case situation in which your rehab comes to a grinding halt owing to, say, problems with the building permit. 

There may be a one-time setup fee associated with some utilities, such as the installation of an alarm or the transfer of a HOA membership, which should not be overlooked.

Insurance: $100-300/mo

You need top-notch Builder’s Risk protection that covers theft, vandalism, and other mischief-making as well as risks common to your region. You won’t have to pay out of pocket if your contractor has his tools stolen or your staging furniture vanishes over night (depending on your deductible.) 

During your flip, you’ll also need liability insurance. 

Get vacant house insurance to protect the structure in the event that the home does not sell as soon as anticipated in case there are any thefts of copper, air conditioning, or arson while the property is vacant.

Utilities: $200-500/month

Your remodeling contractors will require access to electricity, running water, and frequently, heat. Your holding costs will vary depending on the type of property (multi-family, SFR, old build, new building), city, and seasonal temperatures in that region.

Taxes: $500+

Yearly taxes, as a rule of thumb evidenced by many jurisdictions, are around 1% of the property’s assessed value. So, a property with an assessed value of $600,000 will receive a tax bill of approximately $6,000.

Hard Money Lender: Interest & Fees 7.5% to 15% + 1-5 points

If you opt to employ Hard Money, you should make sure that your holding time analysis is as correct as you can because it will typically be the most expensive holding cost you have. Hard money interest typically ranges from 7.5% to 15%/year, with 1-5 points origination, depending on the loan amount and the schedule for repair. Each point is equal to 1% of the loan amount. 

Hard money lenders like Upfront Dollars will offer up to 90% of cost and 75% of ARV. Borrow today to lock in your rate. 

Housing Stats

Home Appreciation Rate(2010-2018)-0.06%Median Home Value$129,100Median Gross Rent$709Price To Rent Ratio15Home Ownership Rate37.8%Tenant Occupied Rate62.2%Average Property Tax Rate$2,382