Flip Deal Analysis in Phases

When somebody brings a flip deal to me, most times I have to make a call very quickly, in a few hours. I have come up with some rules of thumb numbers to decide whether I want to spend additional time doing due diligence or under writing a deal. My due-diligence is 3 phased.

Phase 1: High level ROI calculation. I use rule of thumb numbers for this calculation. If the annualized ROI is >24% I go to Phase 2. Time spent: 2 minutes

Phase 2: Deeper ROI calculation. Replace rule of thumb numbers with actual numbers. If the annualized ROI is >24% I go to Phase 3. Time spent: 20-minutes

Phase 3: Full due-diligence with my buy-check-list. At this phase I am talking to my hard money lender to finalize numbers, looking up excise tax, rightsizing my rehab buffers, checking the county websites for property details, enviromental analysis, taxes etc., verifying comps. This is my deal-disqualification round. If the annualized ROI is >20%, its time to do a property walkthrough. Time spent: 4 to 6 hours

Phase 4: Property walkthrough with contractor, rehab budget adjustment