Updated almost 5 years ago on . Most recent reply
Flipping House - New Construction
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
Most Popular Reply
Just my thought, if higher end homes are selling for $300/ft the cost to build them is going to be closer to $200/ft to build. I understand that you will be the GC and all. Have you been the GC on a new home build?? Land clearing, permits, working with architects, the city, plumbers, electricians, framers, sheetrockers, etc. There is a little bit of a learning curve. I dont think that you just decide to be the GC and build a house.
Something else to consider is the finishes of a $1.5million house. Everything needs to be higher end. You are not going to go to home depot to get cabinets. The stove should not be $1000 from home depot either, it should probably be a viking or Wolf or something that is high end. Light fixtures, door locks, windows, everything needs to be a different quality.
Consider all of those things and see if you can really build a house for $100/sf. I know in San Antonio, a fairly reasonable priced market, it would be VERY tough to build a 5000sf house for $100/sf. Lower end homes could be done for that.