Flipping profitability in SoCal

[Alex Ng]

Im looking to flip around socal. I was wondering what are peoples average profit margins here? How much are you making per flip? Does the 70% rule apply to here? How competitive is it finding distressed properties ? How should I find the properties? On average, how long does it take to do light, medium, and extensive rehab? I recently read how house flippers get taxed 25% after each flip now. How much did this eat into your profit margins? What are some prices of the houses you have flipped?

[Becca F.]

@Alex Ng

I agree with the other commenters, do house hack and do a live in flip and if you're, handy do maybe do some of the work yourself. I'm not a flipper in SoCal but I know people who are flipping in the Bay Area. A lot of people are adding ADUs. This is my first renovation so probably overpaid on some things. I'm renting out the house. It was a down to the studs with kitchen and 3 bathrooms. Contractor total was $257,684 (labor, rough materials including shower enclosures, new bathtub and toilets). I purchased the kitchen cabinets, bathroom vanities, quartz countertops, sinks, tiles $7651. New wood 2 garage doors $8700. It was a lot but in the context of a $1+ million house in California, it felt it was worth it. It shows nicely. I thought about doing the interior paint myself but it would've looked terrible and I wouldn't have smoothed out the textured walls. 

I'm planning to do a flip or BRRRR in Indianapolis (flew out there and have a team in place), so I'll see how that goes. I put in an offer for a potential flip but seller wouldn't move on their list price so I walked away. It was a major renovation. If I over pay at the beginning, that will diminish my profit. I was going to do a Hard Money Loan (10 to 13% interest) but now I'm re-thinking that. I haven't found any private lenders yet.

I didn't include permits and prepping the job site. Here are some of my numbers. This is in San Francisco so not sure how SoCal estimates would be: 

Hauling away 3 truck loads of debris:  $4000 

Demolition: $6240

Plumbing: $22,029

Electrical $47,558 (all throughout the house including new panel, it had old knob and tube wiring)

Sheetrock: $16,700

Tiling: $22,600 (including kitchen backsplash and tile floors in kitchen and 3 bathrooms)

Interior Paint $19,200 (smoothed out textured walls and paint all rooms) 

Insulation: $4890 (exterior walls, 1st and 2nd floors on exposed ceilings and walls and bathrooms for noise barrier)

New baseboards and trim casing $1360

Flooring $11,000 (new flooring in hallway and kitchen, refinish existing hardwood floors in other rooms)

I hope this gives you some ballpark numbers to give you some ideas. My understanding with taxes, is that it's considered ordinary income for a flip, so it depends on your income tax bracket. If I hold the house for a year then sell, then it's capital gains tax (would ask a CPA to confirm this). Good luck!