So you've found a house that you would like to flip, or you've decided that you want to flip a house, but you are not sure how cheap you need to buy one in order to make a nice profit.

Let's talk about how to make a nice profit in a short term flip real estate investment deal. You'll need to understand the different costs that you will need to include in order to complete a real estate flip deal. If you don't have enough money or credit avaiable, then you are sure to find yourself in a bind. Financial planning is a critical part of investing in real estate. Flip real estate investment deals can be a great way to make $10,000 to $50,000 in a relatively short period of time, but here is what you have to know:

1.  Target Sales Price

2.  Closing Costs

3.  Carrying Costs

4.  Fix up / Repair Costs

5.  Purchase Costs

6.  Expected Profit

7.  Purchase Price

The question any every real estate investment deal is: "How cheap do I have to purchase the property in order to make a nice profit?" The answer is that you HAVE to know numbers 1 thru 6 in order to find number 7 PURCHASE PRICE.

Let's start with number 1 and work down the list.

1.  Target Sales Price: This is the price that you will sell the property for once it is ready condition. You should enlist the help of a knowledgable real estate agent to help you find the comparable price of the property once it is salable condition. You can check the comparable value of the home you are interested in here on: http://www.propertyhookup.com . It is important to be conservative in your value estimate and you need to know which direction the market is heading. If prices are falling, then you'd better be careful not to over pay. If homes are expected to fall another 10% in the next 12 months, then take 10% off of the comparable sale value for the home that you are looking at.

2.  Closing Costs: This amount includes realtor fees, transfer tax, title fees, consessions to the buyer and any other costs associated with selling your home. It is usually a safe bet to estimate the closing costs at 7% of the sale price.

3. Carrying Costs: These costs include monthly interest payments, insurance, HOA dues, utilities, property tax, and other costs that you will have to pay on a monthly basis in order to maintain the property while you fix it up and sell it. If you have a loan on the property, then this total cost could be around 1.5% of the sale price each month. Try to determine how long it is going to take you to carry the property to sale. It is easy to do the math: 8 months X 1.5% X Sale Price. This calculation should give you a good idea of the carrying cost of your investment.

4.  Fix up / Repair Costs. This number can be any where from $1,000 all the way up to $100,000. If you are not a contractor or a handy man, then go out and get three bids for the work that needs to be done on your property BEFORE you make an offer. Read our article on finding a contractor: http://www.propertyhookup.com/article/5/Hiring_a_Reliable_General_Contractor.html

You may also want to have an inspector look at the property if you do not have a keen eye for issues: http://www.propertyhookup.com/article/15/Finding_and_Hiring_a_Real_Estate_Inspector.html

You will generally want to make sure that everything is in good working order, clean, fresh and ready for move in. Take the worst case scenario from the informatoin you have gathered from your repairmen. This cost is a critical component of the overall project. Underestimate it and you could be doomed.

5.  Purchase Costs: Much like closing costs, these are the costs you will have to pay when you buy the property. You can usually calculate this cost at 2% of the purchase price.

6.  Expected Profit. This number will always be different for everyone and will probably be based on your financial position and what stage you are at in your investment career. 10% of the Sale Price is a good industry standard and will usually make most deals work. I like the 10% rule, but I never expect less than $20,000. You will find that flipping a $50,000 home is just as much work as doing a deal for $200,000. You have to make sure that the investment of time and money, and the risk involved, is going to be worth it. Also, every dime that you missed in your calculation comes directly out of your profit, so make sure you leave enough room for mistakes.

7.  Now that you've calculated your target sale price and all of the costs that you'll need to account for in order to get the property in a salable condition, you can determine your maximum purchase price. REMEMBER, every dollar UNDER the purchase price goes directly to the bottom line and in your pocket. Bid LOW, and shop around for the best deals. I have done over 1,000 of these flip deals in the last ten years and there are probably 200 to 300 that I could have gone without because I ended up paying too much. You'll find the best flip real estate investment properties need to be purchased 30% or more under value in order to be a great deal. If you are holding for longer periods of time, the property is in good condition, or have different investment goals, then you can afford to pay more.

Start low, be very conservative in your calculations, and leave plenty of room for error. Foreclosure and investment properties are EVERYWHERE, especially in this market. You only need to do a few of these deals a year to make more money than you are making now and have more freedom than you have ever had. INVEST WISELY.

Thanks for reading. Kallen Kildea