How do people flip house to make money with all these costs?

Question

I don't quite understand how people can many money of flipping houses fast. There is the
Real estate agent commissions 6% + Seller concessions 1.5 % + closing cost 1%. There is at least 7.5 % cost to sell a house. Please educate me how people can do that and make money.

John Teachout · Answer

For a flip there has to be a lot of spread between the purchase price and the expected selling price. It's challenging to find a property for sale that has these margins. The more expensive the property, the more likely you can get the spread.

You have to work the numbers backwards from the ARV. If that's $100k and the rehab is going to be $30k then you're down to $70k. I suppose you want to make money so you subtract $20k as your profit. Now you're down to $50k. There's going to be sales costs, interest on your money if you're not working with all your own cash. So in reality, for a $100k property you probably need to buy it for $40k. That's not too realistic.

If you take a property with an Arv of $500,000, subtract $50k for rehab, $30k profit, sales costs and money costs and so forth, you could probably pay $400k and still make some money. Paying $400k for a fixer property that has an ARV of $500,000 is probably not that difficult of a deal to locate.

Flipping can be lucrative but it can be a money pit too. Many lose money on their first one or two but then get it figured out.

The common problems are overestimating the ARV, underestimating the rehab, and underestimating the completion time frame. In many cases it's all three and that can hurt.

Account Closed · Answer

I agree, You got that right. And, on top of all that there are carrying costs and IRS taxes. When you calculate "profit" by "hours worked" sometimes it can be below minimum wage. Got to be careful how you buy.

Kenneth Garrett · Answer

@Charles D.

Just like using the BRRRR method you buy at a discount and force appreciation.  I have bought both BRRRR and flips directly from the bank.  No competition and discounted properties.  Ignore HGTV with 100K profits.  You decide what your profit margin needs to be.  I’ve profited up to $40,000 on a flip to $20,000.   it’s not easy, but like everything you need to buy at the right price.  Rehabs need to be efficient; quick time table, stay on budget and high quality workmanship.

Teri Feeney Styers · Answer

@Charles D. lots of good advice here. I have done dozens of flips - a few hints: First of all - I want to say that I don't do any actual physical work on a flip. I pick colors / finishes. I write the offer. I handle the bookkeeping. I list it when done. But I no longer paint, swing a hammer, etc. I invest a few hours a week -so I am not greedy - if I can do minimal work and make $10K-$20K I'm good. Secondly, in addition to general upgrades, I do true value adds: a second bath, a lot split, a second unit, etc. This forces appreciation in bigger chunks than just a new furnace and nice paint.

Matthew Paul · Answer

To make money on a flip you need realistic numbers .

It wont sell for the ARV , lower your expectations

The repairs will cost more than you planned

It will take longer than you expected

Now depending on the area , you wont be able to compete with end buyers fixing for themselves . If you are not a cash in hand buyer you wont get the property .

Pat L. · Answer

We have a local guy that figures if he can make $10-$15k per flip he's doing well & he's tries to push 3-4  year using credit cards to pay for materials. I'd balk at all the hours & aggravation for that return. A couple have lingered in rehab limbo for over 12 months before hitting the mkt as he moves onto another while trying to get his motley 'off the books' crew to finish up. One of his last deals was a financial bust because of foundation issues. He rarely gets permits & has often been shut down & some of the work needs to be completely re-done. I often wonder if he's filed a tax return yet???

Kenneth Garrett · Answer

@Charles D.

Here are some flip numbers from last year

• Purchase 110K
• Rehab 12K
• Closing cost 500
• Total Buy and Rehab Side 122,500
• 
• 165,000 Sale 
• 122,500 Buy Side
• 6,000 Private Lender Interest16,000 Closing Cost includes closing credit to buyer
• Profit 20,500
• @John Teachout is correct, the numbers are difficult.  Not a great flip, but I’ll take it.  It’s definitely not HGTV numbers.  But I included all cost.

•

Spencer I. · Answer

You have to find/negotiate a deal. Know the numbers beforehand while having accurate comps. Make lots solid offers based on your numbers, and when a seller says yes, you've got a deal. Lots of offers means anywhere from 15-50 offers to get a deal. Requires patience, persistence, and ability to take action. Hope this helps.

How do people flip house to make money with all these costs?

Most Popular Reply