Quick guide with cost estimates for flipping properties

[Paul Williams]

An aspiring investor asked me for some advice on how to buy, repair and sell properties for profit. Here's the advice I shared. Don't crucify me if my median numbers don't match yours or aren't realistic in your area.  Find what the numbers are in your area and use those and tweak your numbers as you get more experience, or better yet, get with someone with experience to guide you through the process.  Note, I typically buy 800-1200sf, 30-70 year old houses for $25-40k in B and B- areas and sell them for $85-120k.  So I'm usually all in around $60k and sell for $100k. Obviously if you're in a higher priced market, the margins need to be adjusted to make sense. I hope what I shared helps you.

We are looking for properties that we can make $20-30k after all expenses. Always shoot for $30k, but if you find a really easy one (very light rehab) and you'll make as low as $20k, take it.  If you plan to make any less profit than that, it is too risky. If you have to drop the price by $5k or $10k or if something goes wrong (use your imagination), then you’ve lost money on the deal or worked for several months for free, neither of which if fun.

Deals that will make you $30k are not easy to find, but they aren’t hard either. You just have to work for it. Houses that you will break even on or lose money on are easy to find. You don't have to wait until properties come available that meet that criteria; you can and should place lower offers on properties so that you can make the profit you want. Sometimes they will accept your offer, but usually they will reject the offer. That’s okay. You don’t have to buy every house, just the ones that make sense. For example, if a house is worth $100k when it is move-in ready and the rehab cost is $20k, then you need to buy it for $40k. Even though they're asking $70k, you can offer $40k and see what they say. I will often offer at least 10% less than what I'm willing to pay because we often get a countered offer. If you place enough offers, you'll get some deals.  You can also use wholesalers, mail campaigns, etc to bring you deals.

Here are some general estimates for repairs. These prices are an average of what I pay and you might not need to do all of these in order to make a house ready to sell. If you're in a nicer area or want to do an upgraded rehab, then plan accordingly.  When I'm doing a nicer rehab, I'll spend about 50% more on kitchen, bath and flooring.

Roof, gutters, downspouts: $6k

Redo bath: $3k (each)

Redo kitchen: $2500 (laminate countertop, replace cabinet pulls, paint cabinets, new faucet/sink

Flooring: $3/sf

Siding: $3k

Interior Paint: $2k

Exterior paint: $2k

Fans, electrical outlets, switches and lights: $950

Windows: $400 each

Appliances: $2k

HVAC: $3k

water heater: $800

Mini blinds: $300

Misc: 15% of budgeted rehab

Soft costs: (cost of utilities, taxes, insurance, finance fees if any of the money is borrowed) plan on 3 months more than you expect to hold the property

Don't forget the cost of selling, which will cost you around 10% of the sale price.

People don’t want to do any repairs, and they want the house to be nice, clean, move-in ready and not old looking on the inside. They also want to buy in a neighborhood that is kept up; not in a neighborhood with cars on blocks, bars on the windows/boarded up houses, mobile homes, etc. You only want to buy houses in neighborhoods that people want to move to. If you buy in a rental area, you'll have a hard time selling it for the price you think it should get.

Again, this isn't comprehensive, just a quick guide that might be able to save you time on a property you are considering. For a more comprehensive approach, get @J Scott's Book on Flipping Houses and his Book on Estimating Rehab Costs.