Instead of asking “How much do I have available to spend on the rehab?”, I ask “How much will it cost to bring this property to top-of-market?” I have the answer to that question BEFORE I decide my top price for a purchase offer or an auction bid. 

Some flippers will purchase project properties based on a standard ARV formula, paying perhaps 60% to 65% (or less) of the ARV. They decide how much profit they want from the deal, and whatever is left is the “rehab budget”. They fix what they can afford to fix and then take it to market.

But I don’t recommend this method because you can end up marketing a sub-standard property. You’ll have homebuyers asking for price concessions and may end up selling for less than ARV (after-repair value). Depending on what isn’t fixed you could also have appraisal issues. If you hold out for your price the property may have more time on the market and run up carrying costs. In the end, you may sell it – you may make money – but in my opinion you will be leaving a lot profit up to the whims of fate.

Budget the rehab to top-of-market first, then purchase the property based on your rehab budget and your profit, compared with the ARV. A wholesaler will add in their own profit as well.As part of the StreetWise program I’ll help you learn how to get the detail information you need up front from either a vacant or occupied property.

My initial top-of-market rehab budget is based on my own inspection before I present a purchase offer. After getting a signed purchase contract, I’ll revise the rehab budget based on a contractor inspection before closing on the purchase, in case I need to renegotiate or even walk away based on what turns up.

Top-of-market condition includes ensuring the basics of a move-in ready property won’t have a problem with the appraiser or the home inspector. Top-of-market will have some fine points that delight realtors and homebuyers, without breaking the budget. But it doesn’t include things that don’t encourage buyers to pay more, or buy it faster, if they can get what they most need and want for less.

As a real estate investor, don’t buy anything until you know (1) what it will cost to bring it to top-of-market condition, and that (2) this property will make a profit with that budget. Don’t just assume or hope it will work out because you think you got a killer price on the purchase!

The key to real estate investing success is to know your rehab budget numbers first, and only then determine the purchase price of a project property. The StreetWise program will teach you more about how to do this for real estate investing success!

How quickly can you calculate your top-of-market rehab budget after your inspection of a property?

Want to earn money with little or no investment of your own? Keep an eye out for my upcoming ebook explaining wholesaling and how to make it work for you!