Deal Analyzer For Flips - Amazon S3 Deal Analyzer For Flips Deal Analyzer For Flips There are a...

Deal Analyzer For Flips

Preview Of What You Will Learn

Sections:

Introduction...............................................................................................................5

Using This Manual.....................................................................................................7

Section 1: General Property Information..............................................................8

Section 2: Property Values & Pricing………………….............…………............9

Section 3: Financing Costs……………………………………………................12

Section 4: Holding Costs………………………………………………...............14

Section 5: Buying & Selling Transaction Costs………………...........................15

Section 6: Estimated Net Profit & ROI Snapshot……………............................18

Section 7: Purchase & Deal Analysis / Potential Return & Profit Analysis......19

You Will Be Able To:

• Use the Deal Analyzer for Flips spreadsheet to perform a financial analysis on any property, and effectively use it in your business.

DAF-V2-011815

5

Deal A

nalyzer For Flips


There are a variety of tools available to help provide you with the information you’ll need to decide whether or not a deal is going to meet your own financial goals. When rehabbing a property to resell, the Deal Analyzer for Flips is a very powerful tool that will allow you to quickly and easily perform a full financial analysis on any property of interest.

The Deal Analyzer for Flips has all the formulas you need already built into it. By inputting a few sim-ple numbers, the spreadsheet will automatically calculate a variety of financial measures for you. It will provide you with the key information you need to make a fast, informed decision on whether or not you should buy a deal – such as net profit, holding costs, and return on investment (ROI).

At first glance, this spreadsheet may seem very complicated – however, once you have the opportunity to work through it using this manual as your guide, you’ll see that it’s actually quite simple and straight-forward, providing you with all the information needed to quickly and easily analyze any deal, right at your fingertips.

Introduction

6

Dea

l Ana

lyze

r Fo

r Flip

s


Introduction

Property Address:Total Square Footage: # of Units: 1 Occupied? (Y/N)

Evaluator Name: Date: 9/12/13 N

Property Values & Pricing Holding Costs (Monthly) Annually MonthlyAfter Repair Value $510,000 Property Taxes $3,600 $300Current "As Is" Value $230,000 HOA & Condo Fees $0Estimated Repair Costs $150,000 Insurance Costs $2,904 $242Purchase Price $234,000 Utility Costs (Expandable) $200

Gas $75 Water $75 Electricity $50 Other $0

Estimated Hold Time (months) 9 Miscellaneous Holding Costs $0$384,000 $742

Financing Costs Purchase+Rehab Buying Transaction Costs Perc. Of Purch TotalFirst Mortgage / Lien Amount 61% $234,000 Escrow / Attorney Fees $900First Mortgage Points 0 $0 Title Insurance / Search Costs 0.25% $1,085First Mortgage Interest 7.00% $12,285 Miscellaneous Buying Costs $0First Mortgage Monthly Interest Only Payment $1,365 $1,985Second Mortgage / Lien Amount 12% $150,000 Selling Transaction Costs Perc. Of ARV TotalSecond Mortgage Points 0 $0 Escrow / Attorney Fees $900Second Mortgage Interest 12.00% $13,500 Selling Recording Fees $500Second Mortgage Monthly Interest Only Payment $1,500 Realtor Fees 3.00% $15,300Misc. Mortgage / Lien Amount 0% $0 Transfer & Conveyance Fees 0.12% $612Misc. Mortgage Points 0 $0 Home Warranty $500Misc. Mortgage Interest 0.00% $0 Staging Costs $1,500Misc. Mortgage Monthly Interest Only Payment $0 Marketing Costs $500Miscellaneous Financing Costs $0 Miscellaneous Selling Costs $0

$25,785 $19,812

Estimated NET PROFIT $71,740 Total Costs Return on Investment (ROI) 16.37%

After Repair Value $510,000 Assumes Sale is on or before 6/9/14

Purchase Price $234,000 Purchase + Repair Estimate Cost Per Sq. Ft $384.00

Estimated Repair Costs $150,000 Down Payment Required at Closing -$148,015

Total Financing Costs $25,785 My Committed Capital $10,663

Total Holding Costs $6,678 My Annualized Cash on Cash Return 897.06%

Total Buying Transaction Costs $1,985 Total Annualized Cash on Cash Return 21.83%Total Selling Transaction Costs $19,812 Purchase + Rehab Return on Investment (ROI) 18.68%

Total Buying Transaction Costs:

Total Financing Costs: Total Selling Transaction Costs:Estimated Net Profit and ROI Snapshot

Purchase & Deal Analysis Potential Return & Profit Analysis

Purchase & Repair Costs: Total Monthly Holding Costs:

131 Richards1,000

JD Esajian

Property Description: Big Single Family Colonial in Bridgeport

7

Deal A

nalyzer For Flips


Once you take a look at the Deal Analyzer for Flips, you’ll quickly notice that some of the fields are high-lighted a lighter shade. These sections are all areas where you can modify and input your own figures specific to your deal. Any field not shaded is a calcula-tion-based field that you should not change—we’ve already calculated many of these figures, and the func-tions are already provided for you.

In addition, you’ll notice a slight red bar located in the right corner of each field. If you hover over each section, you can see that we’ve provided the definition of each term listed. You’ll know why it’s included, how it’s useful, and whether or not you should change it in your business.

We want to make sure you become familiar with the Deal Analyzer for Flips and thoroughly understand how to effectively use it in your business. Throughout this system, we’ll walk through the numbers on an example property located at Preston Lane. The numbers for this property have already been pre-loaded into the spreadsheet, and will serve as a great example of exactly how to utilize this effective tool.

Using This Manual

Compiling Your Data

When you run the Deal Analyzer for Flips to work a financial analysis on your own deals, it’s criti-cally important that the numbers you input are accurate. Using the correct calculations will help to eliminate the unknown and allows you to manage risk. In turn, managing risk helps you to make offers without fear or hesitation. There’s an old saying that applies here: Garbage in, garbage out. Do your due diligence and make sure you’ve got your numbers right! Get the facts before you purchase any property—this is the first step in making a good buying decision.







$25,785 $19,812












131 Richards1,000

JD Esajian


88

Dea

l Ana

lyze

r Fo

r Flip

s


Section 1: General Property Information

Let’s take a look at the top of the spreadsheet. This section is where you should include general informa-tion about the property, such as the address, square footage, and a few other items. An extremely critical component in this section is located at the top right corner labeled: Occupied? (Y/N). In this field, you will need to note whether or not the property is owner-occupied. The answer to this question is import-ant and will affect the amount of holding cost you incur.

The spreadsheet automatically calculates property insurance based on its occupancy status. If the prop-erty is vacant, it will then calculate a builder’s risk or “vacant dwelling policy”. This is a standard coverage obtained on a vacant renovation property – however, it’s much higher and generally more expensive than an owner-occupied policy. The difference in occupancy status will no doubt influence your bottom line, so make sure not to forget this very important step.







$25,785 $19,812












131 Richards1,000

JD Esajian


9

Deal A

nalyzer For Flips


Section 2: Property Values & Pricing

To calculate your potential profit on a deal, you will first need to gather some basic numbers on your property and then input it into the analyzer. These inputs include the After Repair Value, Current As-Is Value, Estimated Repair Costs, Purchase Price, and Estimated Hold Time. Knowing these numbers and using them to calculate your offer are critical to having a successful and profit-able deal. Let’s go through each.

After-Repair Value (ARV)This is the value of the property after all repairs and rehab have already been completed. This is also known as “Fair Market Value”. Calculate your after-repair value by comparing the most recent and sup-ported sales comparables in the area.

At the property on Preston Lane, the after-repair value (ARV) is conservatively $510,000. This prop-erty will need a full rehab where we’ll more than likely do a full expansion, so the value can easily go up to $550,000. However, when evaluating a property like this, and especially in a higher-price range, you’ve got to adjust and be conservative with your numbers.

Key Terms

ü After Repair Value

ü Current As-Is Value

ü Estimated Repair Cost

ü Purchase Price

ü Estimated Hold Time







$25,785 $19,812












131 Richards1,000

JD Esajian


10

Dea

l Ana

lyze

r Fo

r Flip

s



Estimated Repair CostsBased on your analysis, this is a dollar amount of estimated repairs needed to bring the property value up. Keep in mind that you will more than likely have a ballpark figure, because your numbers may change, and you should always be prepared for surprises.

On this property, we estimate renovation costs to be about $150,000. This is not a concrete number, but strictly an estimate to renovate the property and expand upwards. Although a licensed contrac-tor provided the estimate, it’s not an exact number. Remember that these numbers often change, so always calculate some cushion in the rehab cost.

Current “As-Is” Value

Located directly underneath the ARV is where you will need to enter the current “as-is” value of the property. Now this value is what the property is worth exactly the way it sits – in its current “as is” condition, without repairs or improvements. As you can see here, our current as-is value is right around $230,000.







$25,785 $19,812












131 Richards1,000

JD Esajian








$25,785 $19,812












131 Richards1,000

JD Esajian


11

Deal A

nalyzer For Flips



Estimated Hold Time (Months)This factor is very important. The amount of time you hold on to the property will determine your month-ly holding costs and financing costs. Estimate the number of months you plan to own the property from the date purchase to close of escrow sale date. Now of course, this will depend on the length of time it takes to renovate, market and resell. It’s important when you’re first starting out to use at least 6 months as your hold time on a standard renovation. On Preston Lane, we know this is a much larger project that will involve architects and many visits from the city so we anticipate holding for at least 9 months.

At the end of this section, it will calculate the figures above and automatically give you the total for Purchase & Repair Costs. Our total on the subject property is $384,000.

Purchase PriceThe last cell in that column is where you will enter the amount you plan to purchase the property for. In this example, our purchase price is $234,000.







$25,785 $19,812












131 Richards1,000

JD Esajian








$25,785 $19,812












131 Richards1,000

JD Esajian








$25,785 $19,812












131 Richards1,000

JD Esajian


1212

Dea

l Ana

lyze

r Fo

r Flip

s


This is by far one of the best sections in the Deal Analyz-er For Flips – this calculates all costs related to Financing the actual purchase and rehab. In this section, you will enter the different amounts you will borrow to purchase the property.

No matter what method of financing you’re using, you can calculate your costs – including the first, second, and third mortgage amounts, along with any points and interest and other misc. points and financing costs.

Section 3:Financing Costs

Key Terms

ü Mortgage / Lien Amount

(1st, 2nd, 3rd)

ü Mortgage Points (1st, 2nd, 3rd)

ü Mortgage Interest (1st, 2nd, 3rd)

ü Mortgage Interest Only Payment

(1st, 2nd, 3rd)

ü LTV (Loan-to-Value)

ü ARV (After Repair Value)

This financing section was created with the “versatile” real estate investor in mind. You have the option of determining your financing costs based on the way your deal is set up with your lender. You can choose from one of three options to determine your financing costs:

ü Percentage of ARV: After Repair Value ü Percentage of LTV: Loan to Value (Purchase+Rehab) ü Percentage of Purchase Price only







$25,785 $19,812












131 Richards1,000

JD Esajian


13

Deal A

nalyzer For Flips








$25,785 $19,812












131 Richards1,000

JD Esajian

Property Description: Big Single Family Colonial in BridgeportSection 3: Financing Costs

There are many different financing options you can utilize when flipping deals. How do you want to finance your property? Here are a few different scenarios:

On this property, we’re calculating the financing costs for the purchase & rehab. Let’s say we found a private lender to fund the full purchase price of $234,000. So $234,000 is our first mortgage amount. We have no points, but we’re paying the lender 7% interest on that loan.

The second mortgage is going to consist of the repair costs of $150,000. We’ve financed this with a differ-ent lender, who charges a higher interest of 12%.

So at this point, our total financing costs at the end of 9 months will total roughly $25,785.

Let’s try a different scenario, using owner financing for this property. Let’s assume that the seller will finance the full purchase price of $234,000. They own it free and clear, so we would put that as our first mortgage. They agree to take 7%. You’ll see that our monthly payment is automatically calculated, if we were to pay on a lease monthly. Remember, this is for a 9 month hold.

The second mortgage is still the same as the first scenario – we’ll get a private lender to finance the rehab of $150,000 at 12%. Our total financing costs we’ll pay out at the end of 9 months will total roughly $25,785.







$25,785 $19,812












131 Richards1,000

JD Esajian








$25,785 $19,812












131 Richards1,000

JD Esajian








$25,785 $19,812












131 Richards1,000

JD Esajian


1414

Dea

l Ana

lyze

r Fo

r Flip

s


This section calculates your monthly costs incurred while holding a property. This estimated Holding Cost analysis provides you with information on Property Taxes, HOA & Condo Fees, Insurance Costs, Utility Costs, and other Miscellaneous Holding Costs for the subject property. This is the section that most investors rarely take into account when analyzing profit margins on a deal. We know the longer that you hold a property, the higher your holding costs will be – so this is a crucial component that could make or break a deal at the end of the day.

Section 4:Holding Costs

Key Terms

ü Property Taxes ü HOA & Condo Fees ü Insurance Costs ü Utility Costs

On this property, the total monthly holding costs will be about $742 per month. We’ve entered in annual property taxes of $3,600, which will automatically calculate the monthly cost of $300. The insur-ance cost is also automatically calculated for you. For this property, there are no HOA or condo fees.

Although it may not be necessary to change the utility numbers, you do have that option. If you have any other miscellaneous buying costs, you can include them in that field. For instance, let’s say we want to include engineer plans to assist in the renovation; you can add the cost there.

Holding costs are always just an average – never an exact number. The amounts can slightly vary from month to month but shouldn’t affect your margins that much.

Helpful Tip!







$25,785 $19,812












131 Richards1,000

JD Esajian


15

Deal A

nalyzer For Flips


The transaction cost section of the Deal Analyzer For Flips is comprised of a mix of standard, pre-programmed figures (such as Attorney Fees and Title Search) and other costs associated with buying and selling property. Much like holding costs, this is another area in which many new investors don’t calculate these costs when analyzing a deal.

Section 5:Buying & Selling Transaction Costs

Buying Transaction CostsItems such as escrow/attorney fees and title insurance are standard costs incurred when buying any real estate deal. Depending on your area, you will need to use either an attorney or an escrow company for your clos-ings – they will usually charge a percentage of the sales price. On average, title insurance is usually about 0.25% or ¼% of the purchase price, depending on your area. You will always need to obtain a title insur-ance policy to ensure that you have a clear and marketable title. When you enter the percentage in the spreadsheet, it will automatically calculate a total dollar amount for you.

Enter any other additional costs you have in the Miscellaneous Buying Costs field. This is a custom nam-ing field, which you can modify. According to our calculations on the subject property, the total buying transaction costs will be $1,985.

Key Terms

ü Escrow / Attorney Fees

ü Title Insurance / Search Costs

ü Selling Recording Fees

ü Realtor Fees

ü Transfer & Conveyance Fees

ü Home Warranty

ü Staging Costs

ü Marketing Costs







$25,785 $19,812












131 Richards1,000

JD Esajian


16

Dea

l Ana

lyze

r Fo

r Flip

s


Section 5: Buying & Selling Transaction Costs

Selling Transaction CostsJust as when you buy a property, there are always fees associated with re-selling a property. In this sec-tion, you will enter and track your closing costs, such as Escrow/Attorney Fees, Realtor Fees, Conveyance Fees, Recording Fees, and more. Most of these transaction fees are pretty static – of course depending on your location and the deal, they will change; but if they do, not by much. Recording fees are those taken from the HUD and charged by escrow or title company. This is usually a flat-fee, based on your city or county.

Let’s refer to the Preston Lane property for a moment.

The typical Realtor Fees are 6%. However, this particular fee can change your numbers significantly, de-pending on whether or not you are a Realtor yourself. We are Realtors and own a real estate brokerage; so as you can see in the example deal above, we’ve adjusted the Realtor Fees to 3%. Now keep in mind that these are selling transaction costs – so in our case, we don’t have to pay Realtor fees on the listing side, but only to the buyer’s agent who brings the buyer. Once you enter in your percentage, the dollar amount will automatically calculate to the right.

Realtor Fees are negotiable and can change. If you’re a Realtor and own a brokerage, you should change your Realtor Fees to 3%.

Helpful Tip!







$25,785 $19,812












131 Richards1,000

JD Esajian


17

Deal A

nalyzer For Flips


As part of your closing costs, your County charges transfer/conveyance fees for the transfer of land. This will typically amount to a certain percentage of the land value based on county assessor valuation. It's crucial that you research the correct percentage based on your location, as it can be vastly different. Based on our area, we’ve entered 0.12% for the conveyance fees on this deal.

Make sure to request a preliminary settlement statement (HUD) from your closing attorney or title company and figure out what your transferring conveyance fees will be on average in your area.

Helpful Tip!

We’ve pre-populated the next sections with standard costs for home warranty, staging, and marketing. Home warranties offer protection for mechanical systems and attached appliances against unexpected repairs not covered by homeowner's insurance; coverage extends over a specific time period and does not cover the home's structure.

By staging your home, you’re preparing the property for sale by bringing in furnishings and other items that show as if someone lives there. This will help to sell the property much faster and in most cases, get a higher price for it. Typical staging cost is around $1,500 but may vary depending on your listing timeframe and the staging company you choose. We also estimated $500 in marketing costs, which are related to offline and online advertising, printing, and promotion to help sell the property. Our total selling transaction costs are calculated at $19,812.

Section 5: Buying & Selling Transaction Costs







$25,785 $19,812












131 Richards1,000

JD Esajian








$25,785 $19,812












131 Richards1,000

JD Esajian


1818

Dea

l Ana

lyze

r Fo

r Flip

s


Now that you’ve entered all your numbers into the Deal Analyzer For Flips, the first place you should look is the bright yellow section towards the end. Here, you will find a quick snapshot of your bottom line, and give you an idea of your Estimated Net Profit & Return on Investment (ROI) that you can expect on the property. Your ROI is the percent of interest you’ve earned based on your purchase plus ALL costs – regardless of how long the property was held. When we refer to your Net Profit, this is the difference between the revenue and expenses of the entire project before income taxes are paid.

For most real estate investors, this section is going to be of greatest interest, because this is where you’ll find out your Estimated Net Profit after accounting for the Sales Price and all typical selling expenses.

Based on all of our inputs on the example property, the spreadsheet calculated our Estimated Net Prof-it to be about $71,740, with a total ROI of 16.37%.

Section 6:Estimated Net Profit & ROI Snapshot

Key Terms

ü Escrow / Attorney Fees

ü Title Insurance / Search Costs

ü Selling Recording Fees

ü Realtor Fees

ü Transfer & Conveyance Fees

ü Home Warranty

ü Staging Costs

ü Marketing Costs







$25,785 $19,812












131 Richards1,000

JD Esajian


19

Deal A

nalyzer For Flips


There’s many different ways you can use this Deal Analyzer For Flips. If you look at the very bottom of the spreadsheet, you’ll notice two sections labeled: Purchase & Deal Analysis and Po-tential Return on Profit. These two sections are a summary of the numbers and details entered throughout the Deal Analyzer. It breaks down the revenue and expenses of the entire project, and provides a summary of key profit and deal value measurements. After all figures are entered into the spreadsheet, the numbers are automatically calculated in these sections for you. Keep in mind that you do not necessarily need these sections in order to make a buying decision. However, if you want to dig a little further into the numbers of your deal, then you’ll find this section extremely valuable.

Section 7:Purchase & Deal Analysis /Potential Return & Profit Analysis

Key Terms

ü Annualized Cash on Cash

Return

ü Purchase + Repair

Estimate Cost Per Sq. Ft

For example, if you want to know how much money you’ve come out of pocket on the property, just take a look at the Committed Capital field. This can give you an overall view of how much money you’ve put into the deal as the purchaser. The amount of Committed Capital we’ve invested in the property on Preston Lane comes out to $10,663.







$25,785 $19,812












131 Richards1,000

JD Esajian








$25,785 $19,812












131 Richards1,000

JD Esajian


20

Dea

l Ana

lyze

r Fo

r Flip

s


Section 7: Purchase & Deal / Potential Return & Profit Analysis

But let’s say you want to dig a little deeper and figure out where your property falls in comparison with others listed on the MLS in your area. That’s where knowing the Purchase + Rehab Estimate Cost Per Square Foot of your property can be extremely useful. Dividing the Purchase + Rehab costs by the total square feet of the property will give you a cost per square foot. This is a great tool that can be used as a measure-ment market indicator. On this property, our estimated percentage of cash on cash return earned over a year period calculates to 897.06%.

If you are a new investor, don’t let this section confuse you. We’ve added a feature that allows you to close various sections of the Deal Analyzer if you don’t want to look at them. This may make it easier to navigate.

If you look to the left of the spreadsheet, you’ll see small + and - buttons that can condense and ex-pand each section, only displaying the final cost. Here’s an example section:

The fields in this

section are

expanded

Fields 8-16 are closed, displaying

just the total cost

{

{







$25,785 $19,812












131 Richards1,000

JD Esajian


21

Deal A

nalyzer For Flips


A detailed list of key terms and definitions are also built into the Deal Analyzer, as a tab displayed at the bottom of the spreadsheet. So, if you’re plugging in your numbers and you’re unsure of a specific term or field, just click on the tab labeled Definitions, and you’ll see a glossary of every single term we’ve mentioned. This will help you to quickly understand what each item is and why it’s important in your calculations.

Section 7: Purchase & Deal / Potential Return & Profit Analysis

This information is for educational purposes. We don’t believe in push-button profits—we believe in proven business systems, education,

drive and hard work. We are committed to teaching you how to reach your goals. In promoting our educational programs, we illustrate

success stories. We want you to know, students are not compensated for their testimonials. However, many of our most successful students

join our team as Coaches and Trainers. As stipulated by law, we cannot and do not guarantee results or offer legal advice. As with any

business, your results will vary and will be based on your drive, effort, follow-through and other variables beyond our control. We believe in

FortuneBuilders | 960 Grand Avenue, San Diego, CA 92109©2013 FortuneBuilders, Inc. All rights reserved.

Deal Analyzer For Flips - Amazon S3 Deal Analyzer For Flips Deal Analyzer For Flips There are a...

Documents

Transcript of Deal Analyzer For Flips - Amazon S3 Deal Analyzer For Flips Deal Analyzer For Flips There are a...