Flip Math: Pricing a Colorado Fix-and-Flip Offer

Flip math course glossary: 65 terms

Every trade word from the course in plain English, A to Z. Each links to the lesson that teaches it.

7 A B C D E G H I L M N O P R S T W

7

70% rule: A quick screen: 70 percent of ARV minus repairs. Rough only; it ignores a house's real costs. The maximum offer: building it from the house's numbers

A

Adjusted value: A comp's sale price after all adjustments are made. After-repair value from comparable sales
Adjustment: A dollar amount added to or subtracted from a comp's price to account for one difference from your house. After-repair value from comparable sales
After-repair value (ARV): What the house should sell for once the repairs are finished, judged from similar finished houses nearby. The maximum offer: building it from the house's numbers
After-repair value (ARV): What the house should sell for once the repairs are finished. Risk and what-ifs: lower sale price, repair overruns, a slower sale and tax
ARV (after-repair value): What the house should sell for once the planned repairs are finished. After-repair value from comparable sales
Assignment: Handing your side of a purchase contract to someone else. Wholesale math: fitting an assignment fee inside the cash buyer's maximum
Assignment fee: The money the wholesaler is paid for passing the contract on. Wholesale math: fitting an assignment fee inside the cash buyer's maximum

B

Bid: A contractor's written price for a defined piece of work. Repair estimates and surprises

C

Carry: Another word for holding; the cost of owning a house for a period. Holding costs, month by month
Cash buyer: A buyer who pays without a mortgage. Wholesale math: fitting an assignment fee inside the cash buyer's maximum
Ceiling: The most the end buyer can pay, taken from the maximum-offer math for that house. Wholesale math: fitting an assignment fee inside the cash buyer's maximum
Closed sale: A sale that has finished and been recorded, as opposed to a listing or a pending contract. After-repair value from comparable sales
Closing (settlement) fee: The charge from the title or closing company for handling the closing. Buying and selling costs in Colorado
Code: The building rules a city or county requires work to meet. Repair estimates and surprises
Combined case: Several bad outcomes tested together, such as lower ARV, higher repairs and a longer sale. Risk and what-ifs: lower sale price, repair overruns, a slower sale and tax
Commission: The fee paid to the agents on a sale, usually a percentage of the price and negotiable. Buying and selling costs in Colorado
Comp: A recently closed sale of a house similar to the one you are pricing. After-repair value from comparable sales
Condition: How worn or updated a house is; a fixed-up comp is the right match for an ARV. After-repair value from comparable sales
Consideration: The value paid or given in exchange for the property, including liens and required charges. Buying and selling costs in Colorado
Contingency: A percentage added to the repair total to cover problems you cannot see yet. Repair estimates and surprises
Contingency: Extra money set aside inside the repair budget for surprises found once work begins. The maximum offer: building it from the house's numbers
Contingency: Extra money inside the repair budget for surprises. Risk and what-ifs: lower sale price, repair overruns, a slower sale and tax
Cushion: Room built into the offer so the deal still works if the news is bad; also called a margin of safety. Risk and what-ifs: lower sale price, repair overruns, a slower sale and tax

D

Documentary fee: A Colorado fee measured by the consideration paid for a deed that is recorded; one cent for each $100 or major fraction of it (C.R.S. 39-13-102). Buying and selling costs in Colorado
Documentary fee: A Colorado fee on recorded deeds: one cent per $100 of consideration, or major fraction of it, over $500 (C.R.S. 39-13-102). The maximum offer: building it from the house's numbers
Documentary fee: A Colorado fee on recorded deeds: one cent per $100 of consideration, or major fraction (C.R.S. 39-13-102). Risk and what-ifs: lower sale price, repair overruns, a slower sale and tax

E

End buyer: The person who finally buys the house, often the one who fixes and sells it. Wholesale math: fitting an assignment fee inside the cash buyer's maximum

G

Gut job: A renovation that strips most of the house back to its frame. Repair estimates and surprises

H

HOA: Homeowners association, which charges dues for shared services. Holding costs, month by month
Holding costs: Bills that continue from the day you buy until the day you sell. Holding costs, month by month
Holding costs: What it costs to own the house while you work on it and sell it: interest, points, taxes, insurance, utilities. The maximum offer: building it from the house's numbers
Holding costs: What it costs to own the house while you work on it and sell it, counted per month plus any points. Risk and what-ifs: lower sale price, repair overruns, a slower sale and tax

I

Interest-only loan: A loan whose payments cover only interest; the balance stays the same until the end. Holding costs, month by month

L

Long-lead item: Material that takes weeks to arrive, such as custom windows. Holding costs, month by month

M

Major fraction: More than half; a leftover over half of a hundred dollars counts as another full hundred. Buying and selling costs in Colorado
Margin: Profit as a share of the sale price. The maximum offer: building it from the house's numbers
Margin: Profit as a share of the sale price. Wholesale math: fitting an assignment fee inside the cash buyer's maximum
Margin of safety: Another name for a cushion. Risk and what-ifs: lower sale price, repair overruns, a slower sale and tax
Maximum offer: The most a buyer can pay and still reach their target profit, found by working backward from the ARV. The maximum offer: building it from the house's numbers
Maximum offer: The most a buyer can pay and still reach their target profit. Wholesale math: fitting an assignment fee inside the cash buyer's maximum

N

Net proceeds: What the seller receives after all costs are subtracted from the price. Buying and selling costs in Colorado

O

Ordinary income: Income taxed in the same general way as pay for work, rather than as a long-term investment gain. Risk and what-ifs: lower sale price, repair overruns, a slower sale and tax

P

Per-square-foot estimate: Repair total divided by living area; a quick sanity check, not a substitute for a room-by-room list. Repair estimates and surprises
Permit: Official permission from the city or county to do certain work, often followed by an inspection. Repair estimates and surprises
Point: A lender fee equal to one percent of the loan amount. Holding costs, month by month
Points: Plural of point; two points on a loan is two percent of the loan. Holding costs, month by month
Price per square foot: Sale price divided by living area; useful for valuing a size gap, not for pricing a whole house. After-repair value from comparable sales
Property tax: A yearly county charge based on the house's assessed value. Holding costs, month by month
Proration: A closing adjustment so each side pays its share of tax or dues for the days they owned the house. Buying and selling costs in Colorado

R

Recording fee: A separate county fee to record the deed. Buying and selling costs in Colorado
Rehab: The repair and renovation stretch of a flip. Holding costs, month by month

S

Scope of work: The written list of what will be repaired or replaced. Repair estimates and surprises
Seller concession: A credit the seller gives the buyer, often toward the buyer's closing costs. Buying and selling costs in Colorado
Sewer scope: A camera inspection of the buried pipe from the house to the street. Repair estimates and surprises
Spread: The gap between the price in the owner's contract and the price the end buyer pays. Wholesale math: fitting an assignment fee inside the cash buyer's maximum
Structural engineer: A licensed professional who evaluates a foundation and the frame of a house. Repair estimates and surprises
Subject house: The house you are trying to price. After-repair value from comparable sales

T

Target profit: The dollar profit a buyer needs to make the deal worth the risk and work; chosen per house and per buyer. The maximum offer: building it from the house's numbers
Target profit: The profit a buyer needs for the deal to be worth it. Wholesale math: fitting an assignment fee inside the cash buyer's maximum
Target profit: The profit a buyer needs for the deal to be worth it. Risk and what-ifs: lower sale price, repair overruns, a slower sale and tax
Title insurance: A policy that protects against defects in ownership of the property. Buying and selling costs in Colorado

W

What-if test: Changing one guess in the deal, such as ARV or repairs, to see how much profit is left. Risk and what-ifs: lower sale price, repair overruns, a slower sale and tax
Wholesale: Putting a house under contract and passing the deal to another buyer for a fee, without owning or fixing the house. Wholesale math: fitting an assignment fee inside the cash buyer's maximum
Working backward: Starting from ARV and subtracting costs and profit to reach the price you can pay. The maximum offer: building it from the house's numbers