Wondering what profit are you guys making on your flips before overhead

37 Replies

This was a very slow year for us on flips. We did only 16. From 16 we only sold 14 and 2 were sold to rent to own tenants.

Margins ranged from minus 3k on one :) to 23k on most profitable one.

What are you guys making?

@Pavel Sakurets  

That is why I quit doing flips. I couldn't seem to find real deals for high dollar flips and so I did a bunch of cheaper house flips. It seemed that for all the trouble, I was only making an average of 4-7,000 per flip and I decided that I could make almost as much each and every year by renting the property. And still have the property to sell if we ever decide to change. We are now up to 48 single family rentals, 6 added this year.

Thanks for sharing, Arlan. Lets see how many more honest people can respond to my question.

My first flip - bought a house in '13 for 84k and sold it this year for 235k. Due to my inexperience with contractors and trusting them too much, it took me almost a year to flip it due to endless delays. In the end, the delays worked in my favor because the market in Chicago shot up during that time. When accounting for rehab costs and holding costs (used a HELOC on my house to buy it), I cleared about 75k in profit.

I joined BP to pick up tips from the pros, but it looks like I got very lucky on my first one and probably shouldn't expect to do another deal like that anytime soon. 

Originally posted by @Lee Badragan :

My first flip - bought a house in '13 for 84k and sold it this year for 235k. Due to my inexperience with contractors and trusting them too much, it took me almost a year to flip it due to endless delays. In the end, the delays worked in my favor because the market in Chicago shot up during that time. When accounting for rehab costs and holding costs (used a HELOC on my house to buy it), I cleared about 75k in profit.

I joined BP to pick up tips from the pros, but it looks like I got very lucky on my first one and probably shouldn't expect to do another deal like that anytime soon. 

 Congrats, Lee. How did you find the property? Did you track your hours it took you to find, fix and sell? 

Originally posted by @Pavel Sakurets :

 Congrats, Lee. How did you find the property? Did you track your hours it took you to find, fix and sell? 

Thank you. My good friend is an agent so I asked him to set up a daily search for all new listings within half-mile from my house. I figured I'd start with in my neighborhood since I thought I'd be able to estimate value better than in neighborhoods that I wasn't as familiar with. I then went to Redfin and marked each one that was within my reach (based on my budget) as a favorite so that I can watch how quickly they sell and for how much, and to estimate how much was invested on the ones that looked like flips. I studied my neighborhood like this for 9-12 months before I decided to buy the house I did. So I was pretty confident that it was a fantastic deal. It was bank-owned, and I took out a HELOC so I can pay cash. Luck was on my side as well. It had a huge hole in the basement and needed a new sewer (10k), which I'm sure kept many investors away. The builder tied the sewer into the house next door instead of running it out to connect to the city sewer, so that was a violation that needed to be fixed. First thing I did was have a new overhead sewer installed. And as I mentioned above, I got lucky that the local market really rose as my contractor dragged his feet completing the work.

I did not track my hours, but I spent A LOT of hours before I bought and also while I held it. I didn't do any of the real work of rehabbing (very busy with my day job), other than frequent visits to the house and clean-up, but it was hard work getting educated about all construction stuff and design to do a good job on making it an attractive house for buyers. For me, the enormous amount of time I spent on it wasn't really a burden... I look at it as getting educated while being paid at the same time. I know that everything I learned will help me in the future on other deals. It helped that the house is literally on the same house as the house I live in, so even though I was very busy with my regular job, it was easy walking over to the flip house whenever necessary. I still drive by it almost every day. :)

And I should probably clarify that I was referencing the original builder above... the house was built in the 1950's but the sewer issue was discovered before I bought it, when the neighbor had plumbing issues and discovered that the sewer line from the house I bought was connected to his sewer instead of running out to the street sewer. 

Congrats again, I just have never seen a first time flipper making that much on the first deal :-)

What did you pay for the house when you bought it and how much did you sell it for?

How many hours approximately you think you spent finding, fixing and flipping?

When we do flips we look at $/hr.

@Lee Badragan  

  It reminds me of a friend of mine that went on his first Steelhead fishing trip and hooked 9 fish in 2 days and was just ecstatic 3 more trips never touched a fish.. So yes you can get very fortunate out of the gate.. and that kind of profit on that kind of deal is almost un heard of unless some inside track... Also if it took you so long to find it and then to finish it you need that kind of profit otherwise your time being worth something there is not much real profit.

when I did volume flips here in PDX and given our really big competition. and NOT including staff overhead and mortgage on office or any salary for me... WE made about 15k on the low side to 30k on the high side.. and the deals were 150 to 325k... but we did 5 a month or more.. But at the end of the day when I was really rocking we had 10 million out in this, in the forms of cash and LOC's and we made best year net after all expense's just at 1 million... My accountant said too much risk for the reward have you thought of lending instead.. Light bulb went off we repositioned and took the 10 million and started a hard money company that ran up to 30 million and was FAR easier to run than rehabs. we just loaned to the rehabbers and let them do the tough stuff.. But then 08 hit and you know all of us lenders got crushed... but here we are today back at it.

So if I look at all the guys I fund throughout the country... 15 k is pretty average for TK flips and 25 to 50K is definitely possible on retail.  And the model is much more conservative on my end than it was pre 08.... Only do business with established well known to me players.

@Pavel Sakurets  

  PS we lost money on deals for SURE... its not all wine and Roses... most of my bigger loss's though have come on development deals were I might have spent 10 to 75k in due diligence then walked... Has happened many times to me.. Its the cost of doing business that is why when I do land a development deal there needs to be some serious money in it. to make up for the hundreds of thousands I blew on DD on deals I never bought ... :)

Well I consider myself very lucky and blessed then. I would not even try to do a flip for a potential profit of only 15-30k. The risk for me would be too high due to my relative lack of knowledge and skill in this area. I can understand why it may make sense to pros who can flip in high volume and make up for the what I consider low margins, but it wouldn't make sense for me given that I'm inexperienced and have a job that keeps me very busy. I'll always be on the lookout for home run deals and if/when another one come along, I'll swing again. :) 

@Lee Badragan  

  ANd your smart as well.. and probably won't have the flip that flopped... !!!

I see it all the time when I was buying at course house steps I would see a newbie show up.  And it is very very hard to break into court house steps buying. you need a boat load of cash I mean millions if your really going to play.

So you get newbie showing up they have 100 to 200k in cash ready to swing.. they get out bid for months on end.. As they are trying for the larger profits and the volume guys like me well if I want a house your not getting it period end of discussion. and thee will be 5 to 10 of me's at the sale... So any way after spending 4 to 6 months chasing all these down. and not being able to buy a home they then just go for and come hell or high water they are going to win a bid.. and when they do most of the time its a horrible deal they are lucky to break even and or they will lose money and will never be seen again.

Go to any auction in a major city there will be 20 to 100 people milling about with about 10 actually buying things.. same all over the country.

Originally posted by @Jay Hinrichs:

  It reminds me of a friend of mine that went on his first Steelhead fishing trip and hooked 9 fish in 2 days and was just ecstatic 3 more trips never touched a fish.. So yes you can get very fortunate out of the gate.. and that kind of profit on that kind of deal is almost un heard of unless some inside track... Also if it took you so long to find it and then to finish it you need that kind of profit otherwise your time being worth something there is not much real profit.

when I did volume flips here in PDX and given our really big competition. and NOT including staff overhead and mortgage on office or any salary for me... WE made about 15k on the low side to 30k on the high side.. and the deals were 150 to 325k... but we did 5 a month or more..

I didn't have any inside track... the house actually sat on the market for weeks. :) I tried to get a mortgage on it first and the financing fell through due to the condition as shown in the appraisal. Then as I was dragging my feet working on getting a HELOC on my house, it went under contract (was kicking myself), then it came back on the market and I made a cash offer and got it.

And you're right that I spent a ton of time on it but like I said, that's part of my education. That's why I'm spending time here on BP as well. I look at the time I spent (and spend now) as an investment that will pay dividends on future deals.

Originally posted by @Jay Hinrichs :

@Pavel Sakurets 

  PS we lost money on deals for SURE... its not all wine and Roses... most of my bigger loss's though have come on development deals were I might have spent 10 to 75k in due diligence then walked... Has happened many times to me.. Its the cost of doing business that is why when I do land a development deal there needs to be some serious money in it. to make up for the hundreds of thousands I blew on DD on deals I never bought ... :)

 Only this year I realized, the more work we do to a property, the less money we make.

Sounds strange, you would think if you buy a house for 45k and spend 50k on rehab, you would profit at least 25k. No, we profited less than 10k on such dumpy houses.  The competition was very tough this year because a lot of people started doing rehabs and we bought houses that nobody else would touch, because there was so much work needed to be done to them.

Instead of doing a rehab within 2 months (as we usually do), it took 4 months, instead of spending 50k on rehab, we spent 70k, etc. Thus I learned very important lesson : the more rehab work we do to a property the less $ we make. Even though I have in-house carpenters and own a warehouse that sells building materials to contractors :-)

Originally posted by @Jay Hinrichs :

@Lee Badragan 

  ANd your smart as well.. and probably won't have the flip that flopped... !!!

I see it all the time when I was buying at course house steps I would see a newbie show up.  And it is very very hard to break into court house steps buying. you need a boat load of cash I mean millions if your really going to play.

So you get newbie showing up they have 100 to 200k in cash ready to swing.. they get out bid for months on end.. As they are trying for the larger profits and the volume guys like me well if I want a house your not getting it period end of discussion. and thee will be 5 to 10 of me's at the sale... So any way after spending 4 to 6 months chasing all these down. and not being able to buy a home they then just go for and come hell or high water they are going to win a bid.. and when they do most of the time its a horrible deal they are lucky to break even and or they will lose money and will never be seen again.

Go to any auction in a major city there will be 20 to 100 people milling about with about 10 actually buying things.. same all over the country.

 That's very interesting insight... I was always dying to go to an auction to see what kind of deals are out there, but am also intimidated at the idea of going head to head with the pros who have experienced teams backing them. I'm content playing it safe as I continue to learn and build savings for future deals. Thanks for that information! I consider it very valuable. 

@Pavel Sakurets  

  I have a warehouse full of materials for rehabbers I am liquidating it..

Lets talk about shipping it up to your warehouse you could pay me as you sell it off.

I have about 20,000 items.

@Lee Badragan  

  your already batting 75,000  no need to do anything else pick your deals be ready to strike and do it again...

Originally posted by @Jay Hinrichs :

@Pavel Sakurets 

  I have a warehouse full of materials for rehabbers I am liquidating it..

Lets talk about shipping it up to your warehouse you could pay me as you sell it off.

I have about 20,000 items.

 We sell cabinets, tile, hardwood, laminate, vinyl, granite and carpet only to rehabbers and builders. If you have that, I would take a look at what you got. We buy everything directly from manufactures.

Please send me the list with prices to [email protected]

@Pavel Sakurets  

  my stuff is all hardware...  locks fans lights towel bars. pulls hinges etc etc.

all new in box and retails from 5 to 100 depending on items.. will sell all for 1 dollar a piece I just need to move it out of the warehouse.. and get it to a spot were the public can buy it .. you would have 200 to 1000% mark ups.

Originally posted by @Pavel Sakurets :

Instead of doing a rehab within 2 months (as we usually do), it took 4 months, instead of spending 50k on rehab, we spent 70k, etc. Thus I learned very important lesson : the more rehab work we do to a property the less $ we make. Even though I have in-house carpenters and own a warehouse that sells building materials to contractors :-)

 So true...all newbies need to re-read that comment.  It's about doing the right improvements, not the most improvements.

A friend of a friend of a friend led me to this blog, it has some figures that may be interesting to you.  Looks like maybe same or similar market.

http://midwestinvestor.wordpress.com/

Been toiling over the flip market as I typically buy and hold.  In Chicago on the southside, you can easily run the price up from 40k to 140k BEFORE OVERHEAD like you said.  But with overhead, the margin is only like 20k, assuming hard money.  

On the other hand, you can clear 10k a year renting out that same property, so I keep circling back to renting.  Once prices normalize, you should get the same 140k with a much higher margin and the years of cash flow.

The margins have definitely gotten thinner overall in the last couple of years. 

With that said we had 3 phenomenal ones this year with highest net @ $415k on one of them, with 5 additional smaller deals at $40k - $50k.

On flips, I invest with the any day of the week and twice on Sunday metality. If I can't see the end result being a reasonable profit, I don't pull the trigger. No sense doing all the work for minimal pay, when it only serves as a distraction and gets in the way of other deals.

Only lost money one time :knockonwood: but it was $32,000 on a house that I never, ever thought that would happen. 

Our average for flipping this past year was $25K per flip.

Originally posted by @Crystal Smith :

Our average for flipping this past year was $25K per flip.

Crystal, how many flips did you do in 2014 and what was your purchase price and sell price?

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