Flipping House - New Construction

[Bob Warderner]

Hello, I have been in the real estate business for a long time, but it has always been in the long term buy and hold arena. I am looking to venture out into the major flip business where I would be purchasing a run-down home, tearing it down, and building a new high end home on new foundation. This is actually a huge business in an area nearby me. Homes are being bought from 450K - 550K, being knocked down, and brand new high end homes are being built in their place. Sale price is between $1.4M - $1.5M; typically. I am just trying to wrap my head around the numbers in this model and want to see if my assumptions are off. The new home should be high end, roughly 5500 sqft, with 4-5 bedrooms.

Purchase Price of lot/old home = -$550,000

Buying Closing costs = -$16,500

Architect Cost= -$30,000

Construction cost= -$500,000

Interest on loan for old home purchase= - $36,000

Interest on Construction loan= -$30,000

Holding Costs (property taxes, etc) = -$10,000

Selling Commission on $1.5M @ 6%= -$90,000

State Fee for Sale >$1M= -$15,000

Total Expenses = $1,277,500

Sale Price = $1,500,000

Net Profit = $1,500,000 - $1,277,500 = $222,500

Capital Gains and Local taxes (~25%): -$55,625

After Tax Profit: $166,875

The above is assuming a construction cost of $~500,000, but I can see the cost be as much as $600,000. 

Are these numbers off? Has anyone on here had experience with this? 

Thank you