In this instructional video, seasoned broker and mentor Joe Holmes outlines the six critical financial calculations every house flipper must perform to ensure profitability. He stresses the necessity of on‑site property assessment and local market comps, then walks through: (1) determining the current purchase cost by physically inspecting the home and neighborhood; (2) calculating the after‑repair value (ARV) using nearby comparable sales within a half‑mile; (3) estimating repair costs with a rule‑of‑thumb of 10% of ARV, while adjusting for actual condition found on‑site; (4) projecting closing costs as 5% of ARV, detailing typical escrow (1%) and agent commissions (4%) and noting negotiable aspects; (5) accounting for hard‑money financing costs, emphasizing higher interest rates and points because lenders focus on the property rather than borrower credit; and (6) including all other recurring expenses such as utilities, HOA fees, insurance, and property taxes. Holmes advises consulting other investors and offers further resources for beginners. The video’s purpose is to equip both new and experienced flippers with a concrete, step‑by‑step cost‑analysis framework to avoid profit‑eating oversights.
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In today's video, I'm going to give you the 6 most important calculations when analyzing your next flip. Coming up next. No investor should flip a house without looking closely at the associated costs. The estimated total will always seem a little bit lower if you fail to factor in other expenses, the ones that slowly eat away at your profit. Don't leave any cost up to chance. I'm Joe Holmes. Before we dive in, make sure you hit that little subscribe button below so you never miss a thing. I've been a broker, investor, and mentor for over 40 years. I made this channel for the new and experienced investor. Let's dive on in. Let's go over the 6 most important calculations. Number 1, the current cost of the home. That one you have to decide by literally going there. The condition of the home, what the surrounding homes in the area are worth. Do you need a minor rehab? Do you need a major rehab? You can't tell any of that stuff by looking on the internet. You have to get off your you-know-what, drive out there, take a look at it, and go from there. Number 2, after repair value. After repair value can be done sitting by your desk. And looking at the properties surrounding your property. Try to stay within a half a mile of the property that you're trying to evaluate. But I can also tell you this from experience, you always need to go out to the property to take a look. And the reason that you do that is your property may be on one block and that is a fantastic block, beautiful homes on both sides. You drive 2 blocks over and it's like you're in a different world. So if you're trying to use comps from the bad neighborhood to justify comps in a good neighborhood or actually vice versa, you're going to run into trouble. So make sure that you go and drive the neighborhood. Number 3, projected repair costs. So I use a simple formula. I use 10% of the after repair value. And I use that to make sure that when I do all my calculations that I'm going to make some money at the end of the day. But I don't just leave it there because again, you need to go out to the property. You need to see, okay, this 10% of the after repair value includes minor stuff that needs to be ripped out of the house, maybe put a new kitchen in there. But if I get there and it needs a new roof, it needs new wiring, it needs new plumbing, your costs are going up after that. So Again, rule of thumb, just for me, just to get me out there to look at the property, that I know that this is a possibility. But once I'm out there, you actually have to start putting your costs down on paper and how much more or even less it will be. Number 4, closing costs. So the closing cost figure that I use is 5% of the after repair value. In that 5% figure, 1% usually goes to escrow and title. The other 4% goes goes to the commissions of the agent. So 2% on the listing side, 2% on the buying side. Remember that everything is negotiable in a real estate transaction. So if you have a real estate agent that's willing to list a property for you for 1% on his side and then offer 2% or 2.5% to the buyer's agent, great, you're saving some money there. Same thing with escrow. If you start to build a relationship with an escrow company and give them a lot of business, they will also give you a discount at the end of the day. And number 5, financing costs. And I am talking about hard money costs because if you're doing flipping, you're not just going to get a regular loan from Chase Bank or Bank of America. You may get away with that one time, but once they find out that you're flipping, they don't want your business. They're in the business of making money from long-term loans, okay? You're in a short-term process, so you're going to be dealing with hard money lenders. Higher interest rates, more points. They don't care too much about you other than your experience. So they're not going to qualify you as a person. They're going to qualify the property. But you have to make sure that you add all those costs into your deal Because if not, you're going to end up losing money at the end of the day. Number 6, other monthly expenses. And don't forget about these. You've got water bill, electricity bill. You may be flipping in an HOA, so you've got HOA insurance. Taxes, you're going to end up paying taxes on the property either way. Most of the time we don't pay them until the property closes. But if the taxes are due before that time, then yes, you have to pay those taxes. If not, you incur a penalty at the end of the day. So any of those other costs involved with the property itself, make sure that you take all of that into account. The difference between a good or bad flip can be just one simple oversight. Consult with other real estate investors about anything you'd like to clarify or double-check. Reach out to me and I'd be happy to help you with anything. If you're new to house flipping, click on this video right here. I walk through a house that I received from a wholesaler. Find out if it was a good deal. See you on the next one.
