Flipping houses, how much profit to expect after remodeling?

[Tien]

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You have to buy the house at a steep discount to make decent money. Your purchase price cannot be more than 80% FMV minus repair costs, or you will struggle to make any profit whatsoever.

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This is true.

Except I don't even buy a property if it is at 80% of market value. 70-75% is the norm for me.

The only way you can profit by flipping a house is buying properties at steep discounts.

You can't arbitrarily raise prices of houses above what the market is willing to pay for it.

[Tien]

Say you use an agent to sell your fixed up property.

100% market value you market it at.

You lose 3% to buyer's discount on average.
You lose 6% to Agent commission.
You lose 2-3% in holding costs.
You lose 2-3% in other costs.
You lose 5-10% to repairs

So you see after all is said and done, your fixed cost is like 12-14% of market value PLUS REPAIRS depending on how much repairs are needed.

Now let's calculate your profit. You want to make atleast 20 000$ for any project you undertake for a medium priced range house, and more and more the higher the price range home you take on.

100 000$ house.
-13% in fixed costs.
-7% in repairs.
-20 000 profit.

You need to buy it at 60 cents on the dollar.


My general rule of thumb to buying properties cash is:

Maximum allowable offer = After repaired Value x 70% - repairs.

[john voight]

I can only tell you about a family friend, who constantly discusses his business w/ my dad:

He has been flipping for 10 years maybe.
He flips in the bay area (Redwood City mainly).
Even though there is a housing recession, he is still flipping profitably this year.

He makes an absurd amount per house. I don't know if he is flipping nice houses (1mill+) or just regular houses (600k). He is at the point where he flips 5 houses a year, and pockets at least half a million.

He does very little work himself. While he is (very) proficient at understanding houses, he mostly hires ppl for labor.

After the house is flipped, he finances the house himself. although I dont know exactly how it works, I'm guessing he makes extra coin doing this. In fact, he repossessed two houses b/c the ppl could not afford to pay for a few months.

Pppl always say flipping is tricky/dangerous. Flipping almost gets a bad rep. However, I strongly believe if you know what you are doing, you will become a millionaire, simply b/c I see my Dad's friend doing it w/ such ease, regardless of what the housing market is.

[prohornblower]

I think it is like in any industry...a small % of those doing well can do really really well, while the rest chase dreams and end up hurting. What happens is people hear stories of "Oh my neighbors doctor's cousin makes 500 grand a year." and they go off and try something they know almost nothing about other than what they see on HG TV.

This is probably not what you want to hear, though.

[jbrent33]

While it is not the sexiest of endeavors, I consistently make the most on houses I flip in low income areas. I have a buddy in the subprime mortgage business. I buy a ghetto place from a bank auction and do cosmetic (think paint,cheap tile, scratch and dent appliances etc.) rehab. We set up an open house, put a no money down sign in the yard, and my buddy sets up a card table and takes mortgage apps on the spot.

I can usually turn a house over very quickly (2-4 weeks) with a minimum of effort. My construction background comes from high end houses and I have flipped in 300-500K range (upper middle class in my part of the country), but in the long run I would much rather make 15-20K in a month with a few headaches than 60K in 3-4 months working my ass off.

The bigger the project the bigger the problems.

Also I get a warm and fuzzy feeling inside when I do my part for urban renewal.

[elus2]

John T Reed mentions somewhere on his website that you basically get most of the value remodeling it up to a certain point. It doesn't need to be great/perfect but you get most of your profit by buying total disaster homes that can be resold to regular retail home buyers that want a 'fixer-upper'.

[FastPlaySlow]

I was actually planning on getting my own real estate agent license to keep the 6% that I would otherwise have to pay someone else. It would increase my profit margin by that much more.

Thanks for the replies so far, guys.

[jt082005]

If you get your own license would be good...but really as said it is about finding a discount place, or market about to move.

I know some people who did well buying into an area, and literally buying blocks and blocks of housing, then a city decided to fix it up and add a few things to there. While they didn't even fix it up in a short time they made a ton.

Flipping is ok to an extent but I kind of like the idea of holding and renting to throw in the mix

[Nicholasp27]

there is ALWAYS money to be made in flipping just like there are ALWAYS real estate markets that are booming...the national real estate market doesn't matter...what matters is the submarket that you are working in

submarkets go beyond just city/state...the north-east side of the city will be a different submarket than the north-west side

and even then, there is residential in the asset market, and then retail, office and warehousing in the space market



flipping a house is simply a math equation...u just have to understand all the variables that go into it (unlike what they show u on the shows) and then learn how to minimize/maximize various variables to make the most profit


i'd think getting an appraiser's license (or at least training) would be more valuable in the long run than a real estate license...


an appraiser's training and skillset would allow u to not only accurately gauge the value of homes, but also gauge what the selling price will be after repairs x,y, and z...

u wanna minimize the repair cost/value added ratio

to do that, u can lower repair costs by

a) do some work yourself
b) good network of low-priced labor
c) knowing which ones to do and which ones to NOT do

and u can maximize ur selling price by knowing which repairs will add the most value to the home

u balance repair costs, value added and TIME (since there are holding costs) to maximize ur profit


there are some more generic projects that add in lots of value and some that are lesser known that add lots of value

for instance, in many markets, closing in a loft/etc to make it go from 1 or 2 bedrooms to 2 or 3 bedrooms will add 20k+ to the value, yet cost <1k to do

it really depends on your submarket, so know it very well...thus why knowing how to accurately gauge those things is helpful, so an appraiser's license/training is of great value


u also have to look at your projected internal rate of return on each project to see how much more you are making than putting that money into other investment vehicles

also, if u are doing the repairs yourself or managing over the projects daily as your job, then you need to look at how much you could have made had you worked a job instead during the timeframe


if u know what u are doing, u can make a ton of money at it, and even make it seem easy...but that's because KNOWLEDGE is money...but if u don't know what u are doing, and u make gross overgeneralizations about the variables without seeing the underlying reasoning behind cause-and-effect, then you can lose a lot as well

[punkass]

2-5 years ago, ROBUSTO almost anywhere
1 year ago - ???? - huge ass risk that is not worth, unless you can find a really good deal in a nice location