Ruckart Real Estate’s proven formula for buying, renovating and selling well in any environment
By Tommy Waterworth
So you’ve been binge-watching Fixer Upper and you’ve decided you want to be Richmond’s version of Chip and Joanna Gaines — buying a cheap house, renovating it, then selling it for a profit. While your favorite HGTV stars make it look easy, the truth is there are 1 million ways to mess this up and very few ways to get it right. But there’s good news: There is a formula for house flipping success that will always leave you in a good situation if you color inside the lines.
How do I know this? Not only have I done my share of successful flips in Richmond, but I’ve worked with Brad Ruckart to consult on more than 20 flips over the past two years — all of which have had extremely successful results. Here’s the formula we follow to buy real estate, renovate, and sell well in any environment.
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Start with the end in mind.
Do your market research and attach yourself to an agent who knows that market well. Look for other renovated properties akin to the one you intend to rehabilitate and how you intend for yours to turn out after the work is done. Once you know that average number, make sure you select a price lower than those — usually $5,000-$10,000 below average comparable sales. This will be your target sales price (SP).
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Pinpoint areas where there are other flips going on and plenty of data to analyze.
Minimal days on market dictate a higher demand for the product, for instance. Areas of affluence are also helpful versus underserved or economically depressed areas because you’ll have a bigger exit strategy to play with. Look for areas that have higher price per square foot sales. Sometimes you can buy a small place with a higher price per square foot figure and add on because the cost to build is less than the exit figures per square foot. The areas of town that tend to perform best in Richmond are the Near West End, Westover Hills, Church Hill, and Bellevue. We have also done more in the Northside east of Chamberlayne — the results are not typically as good due to the limited exit strategy hovering around $500k max, but acquisition opportunities are more common. Start your home search here!
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Take care of yourself.
You’re not doing this for fun, so you should always pay yourself first! After you put yourself first, take care of the agent who’s going to market the property for you and the agent who will likely bring a purchaser forward. Finally, plan to take care of your purchaser’s needs either in the form of closing costs or concessions from the home inspection. There will always be a few ancillary costs to take into consideration as well such as insurance and interest if you’re borrowing the money to do the work. You’ll want to immediately pull 30% off of your sales price. Here’s the breakdown of that:
- 20% profit margin
- 6% for Real Estate commissions
- 3% for seller subsidized closing costs or inspection repairs for your prospective buyer
- 1% for ancillary expense (PCBA)
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Factor in your renovation costs (R).
If you have a history of home renovation sales, you should be able to look back over your invoices and receipts, add them up and divide them by the square footage for the homes you have renovated. Get an average price per square foot for renovation work and multiply that number by size of the prospective property. If you don’t have the body of work upon which to reflect, find a good general contractor and get that person to quote your vision. Be sure to factor in your contractor’s 20% contractor’s management fees, (10% for overhead and 10% for profit) in addition to the actual work expense and materials. Some contractors put their fees in the estimate, so be sure to clarify for the sake of a smooth partnership. Also budget more time and material cost as well just in case!
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Try not to waver from your suggested acquisition price (SAP).
To land on that number, simply deduct everything from your projected sales price. If you waver from the suggested acquisition price, you’ll be cutting into your 20% margin right off the bat. You also have to be prepared for surprise expenses — they’re more common than not. Money is always made on your purchase — you just confirm the good investment at the time of the sale.
In short, if you want to buy, renovate, and sell a house at a profit, it’s all about mathematics. It requires a lot of hard work, money and anxiety, but the process can be very rewarding if you follow this model!
SP-PCBA-R= SAP
Are you ready to start your journey into real estate investing and flip a house in Richmond? Get in touch with Ruckart Real Estate’s experienced team to get started today.
