Flipper/Rehabber · Portland, OR · Member since 2017 · 46 posts · 10 votes
Hi everyone!
I'm a wholesaler who has gotten into flipping. I just flipped my second house and am trying to figure out how much money I made.
I have used a pro-forma profit projection spreadsheet provided to me by my hard-money lender which bases projection on purchase price, hard money origination fees, closing costs purchase and sale, rehab costs, realtor fees, and holding costs, and I have replaced the projected numbers with my actual numbers. This gives me a Profit of $61,898.55.
I then tried using the closing statements from when I bought it and when I sold it. The Due to Seller when I sold it was $148,042 and the Due From Buyer when I bought it which was $70,226, and the difference was $77,816, and then subtracted holding costs of $9,711, and get a resulting $68,105. I thought that the number should match the sale price minus purchase price and all costs method.
Wanted to see if someone can tell me why these might not match, and how I should calculate profits at the end of a flip.
The sale price is a given once you sell, so that is easy. This assumes you have no other income from the property, such as a rental. You might have a seller assist or sold some artifacts from the property you can add to your revenue.
Your expenses are what you need to tally. Include everything for which you spent money: costs of buying, rehabbing, holding and selling. Buying is usually just your closing costs, but would also include inspections, fees, etc. Rehabbing includes everything you spent to make the property beautiful. Holding is utilities, taxes, insurance, lawn/snow maintenance, etc. Taxes are also included in "Buying" and "Selling" closing costs, so don't double count. Selling is your marketing costs plus closing costs. Across all of these categories you have your mileage/toll costs.
There is no one else who can give you this number as you need to tally all of your expenses as they transpired between your buy and sell.
The sale price is a given once you sell, so that is easy. This assumes you have no other income from the property, such as a rental. You might have a seller assist or sold some artifacts from the property you can add to your revenue.
Your expenses are what you need to tally. Include everything for which you spent money: costs of buying, rehabbing, holding and selling. Buying is usually just your closing costs, but would also include inspections, fees, etc. Rehabbing includes everything you spent to make the property beautiful. Holding is utilities, taxes, insurance, lawn/snow maintenance, etc. Taxes are also included in "Buying" and "Selling" closing costs, so don't double count. Selling is your marketing costs plus closing costs. Across all of these categories you have your mileage/toll costs.
There is no one else who can give you this number as you need to tally all of your expenses as they transpired between your buy and sell.
@Scott Michael what doesn't match. Your profits is extremely unlikely to match your pro forma.
To calculate your profit use the price you sold for minus the price you paid, minus any repairs or other costs directly related to the property like insurance taxes etc.
What might be throwing you off is if you had a loan. You need to use the price you paid and the price you sold for NOT the amount you gave the title company at the purchase and the amount the title company gave you at the sale.
EX: you bought for $100K but you borrowed 90 to purchase it. You only spent 10 out of your own pocket to purchase it due to the loan. What maters as far as taxes are concerned is not the $10k you put up to buy it but the 100K purchase price. The only time the loan should factor in is the costs of the loan like closing costs and interest.
I have one more question, something that is throwing me off is that I got a hard money loan with a rehab loan for $29,736. The rehab loan shows up in the Debit column, so along with the Sale Price of Property of $296k,000 and all hard money fees and closing costs (all in the Debit column), the total Debits are $337,762.16. The total Credits of 1k earnest money and $266,536.000 are $267,536. So the difference between total debits and total credits was $70,226.16 and that was the amount Due From Buyer that I had to bring to the closing table. That is a long set up for my question, which is, it looks like the rehab loan is money that I had to come out of pocket with. If it was truly a loan, wouldn't it have been on the Credit side along with the loan to buy the property? It seems like they are loaning me money that I paid them when I bought it. I can post a picture of the settlement statement if that's helpful.
Don't get hung up on closing statements. As James Mc Ree pointed out, follow your own bookkeeping. The only thing you need the closing statements for is to pull out the costs that were attributed to you, and add them to your income statement. You are trying to compare apples to oranges. This is the same as trying to compare a bank statement to an income statement. They will never be the same, especially with real estate. For example, you have non-cash expenses like amortisation and depreciation that you will never see on a bank statement.
@Scott Michael you said you got a hard money loan "with a rehab loan for $29,736" What do you mean by that? A hard money loan would normally be considered a rehab loan. A hard money lender would usually not allow another loan on the property.
Are you getting two loans or are you saying part of the hard money loan is for the rehab? Is it possible that some of the money is being held to pay out draws as construction is completed?
There could also be an error on the HUD-1. It doesn't happen often but it can happen. I would call your lender and title company to get them to explain it to you
How did you leave the settlement table with a possible a $70k discrepancy?
Scott, first CONGRATS on the sale!!!! Walking away from the closing table from the SALE with the proceeds check in hand (or wired to your account) is an awesome feeling..........isn't it? Relish that moment, as usually a lot of time and some grief has gone into getting to this point.
As to your questions on profit, here is what I do:
As mentioned, use the HUD sheets from your purchase & sale only for the costs associated to the closing(s) (taxes, water/sewer bills, settlement agent fees, transfer fees, interest paid, etc.).
Calculate your COSTS, which could include: purchase cost, any closing fees associated with that purchase; carrying costs (utilities, taxes, insurance, mortgage interest, lender fees,); rehab costs and ANY other fees or costs associated either with that project OR in general that are split over multiple projects (cell phone, mailbox rental, legal fees, accounting fees, etc.) and fees associated with the sale of the property (transfer fees, bring-to-dates on water/sewer/taxes, realtor fees, etc.) All of these amounts combined should equal your total costs associated with the transaction.
Now, subtract that total amount from the sales price of the property. The remaining figure should equal your pre-tax profit on the project. As for depreciation and other accounting deductions that might be applicable......I have always left that up to the accountants (they know the laws on that better than I).
By the way, this method of calculating profit is similar to the method that I use to place a bid to purchase a property. I work backwards from the sale price and deduct any/all costs tied to the project, and then deduct my targeted profit to get to a figure that would be my purchase & closing costs at purchase. This way the profit is built into the calculation. If I buy at that targeted purchase price & closing costs, then I should come close to the targeted profit (unless there are expenses that arise that were not in the original plan, like rehab overruns, etc.) Hope this was helpful, and once again.....congrats! Now go do another.
@Scott Michael I would love to connect with you and learn more about what has worked out well for you in the house flipping business. I have been flipping homes in the Portland area for about 5 years now