Although there are a wide of variety of methods that fix-and-flip professionals use when estimating the value of a potential investment property, below are three of the most common and proven approaches.
Before we get started, it is important to note that there is no right or wrong answer here. Each approach is a viable option. The key is simply to identify the one that best matches your preference based on a combination of factors that include thoroughness, accuracy, speed, and cost.
Here they are in a nutshell:
* The first option is to hire a professional. Although this is your highest cost approach (because fees will be incurred), professionals combine excellent thoroughness with a nice balance of accuracy and speed.
* The second option is doing it yourself. When you take on the role yourself, the fees associated with hiring a professional are obviously eliminated and the levels of thoroughness and accuracy can still be comparable. Unfortunately, when using this method you need to realize that professionals can accomplish the same evaluation tasks much more quickly and efficiently - so speed greatly suffers.
* In response to weaknesses presented by the second approach, a third option is available to you. By applying what is called the “rules of thumb” method, you can substitute a more detailed and programmatic evaluation model with high-level data that "approximates" the results you seek to analyze. As such, rules of thumb can combine excellent speed with decent levels of accuracy. However, there is a price to be paid, as thoroughness suffers - which means you could be exposed to risks associated from overlooking key potential issues.
Regardless of which approach best fits your temperament and investment style when estimating potential properties, be mindful to bucket your anticipated improvements into basic, standard, and designer categories, as well “make-hab”, re-hab, or full remodel projects. Each choice will play a big part in determining your overall cost-per-square foot outcome and your overall profitability.
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