Average Profit per flip

Thorndale, PA · Member since 2017 · 68 posts · 15 votes

I'm wondering what is the average profit per flip. I attended a RE seminar and the guy teaching the class was saying he won't do a flip unless he makes $50k profit minimum. Which sounds amazing if that is true.

I'm looking to flip to build capital to invest in multi family and I'm just wondering what kind of profit you can expect on a flip?

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Will BarnardPro Member

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Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes

$50k per flip minimum is only 1/3rd of the equation. How much did he invest in total to buy, rehab, and hold, and how much time did it take from purchase date to sold date. i have made over $200k on flips and made $1M on one flip, but the money invested, time taken, along with other factors determine if it was worth it or not. Spouting off total profits is meaningless without knowing the rest of the details.

Point being, as Daniel mentioned above, focusing on the total profit is not wise, focus on all the numbers before deciding if you should move forward or if the deal done was a success or not.

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Kyle Doney
Flipper/Rehabber · Golden, CO · Member since 2013 · 590 posts · 319 votes
9y
A lot of it depends on your area, price point of the home, money invested, scope of work, etc. Theres so many factors to give a number like that. If its a lipstick carpet paint, in and out, I'm sure he'd take much less. Full gut job, better be making some dough to deal with that. I think a lot of guys look at the ROI before getting in too. Everyones different and it depends on the job is really what it comes down to.
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Justin Westmoreland
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Thorndale, PA · Member since 2017 · 68 posts · 15 votes
9y
Makes sense, thanks
@Kyle Doney
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Account Closed
Real Estate Agent · Richardson, TX · Member since 2014 · 511 posts · 161 votes
9y
@Justin Westmoreland This is a hard question to answer and it will depend on several different factors. It is much more expensive to buy in San Francisco than it is in Detroit. Generally speaking, you should aim for at least 30 % equity after making repairs. For example, let's say you find a house with an ARV of 200,000 and it needs 40,000 on repairs. This means you would need to buy the house at 100,000 to make it work. Here is the breakdown:
Repairs: 40,000
Purchase Price: 100,000
ARV (After-repair value): 200,000
After substracting purchase price and repairs, you'll end up with 60,000. However, you still need to take into account your closing and holding costs (Real estate commission, title insurance, property taxes, property insurance, utilities, mortgage payment if you're using financing, etc.). You should focus more on your ROI rather than X or Y amount. It's better to make 20K if you only invest 60K than making 40K and investing 1,000,000.
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Will BarnardPro Member
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Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
9y
$50k per flip minimum is only 1/3rd of the equation. How much did he invest in total to buy, rehab, and hold, and how much time did it take from purchase date to sold date. i have made over $200k on flips and made $1M on one flip, but the money invested, time taken, along with other factors determine if it was worth it or not. Spouting off total profits is meaningless without knowing the rest of the details.
Point being, as Daniel mentioned above, focusing on the total profit is not wise, focus on all the numbers before deciding if you should move forward or if the deal done was a success or not.
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James Syed
Real Estate Broker · Mount Olive, IL · Member since 2013 · 1k+ posts · 310 votes
9y
@Justin Westmoreland
Welcome to BP.
We have flipped 5 properties. Average profit was $10,000 for us. Keep in mind, we are in a small market.
Hope it helps.
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Justin Westmoreland
OP
Thorndale, PA · Member since 2017 · 68 posts · 15 votes
9y
@Account Closed Thanks that gives me a better idea of what to expect. 30% equity is a good number for me to keep in mind. Thanks!!
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Justin Westmoreland
OP
Thorndale, PA · Member since 2017 · 68 posts · 15 votes
9y
@Will Barnard wow! That's incredible! How did you start? I'm looking to work for someone for free just to learn the skills. What do you suggest for someone in my position?
@James Syed thanks! How long does your avg flip take and how much capital does it usually take?
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Adam Abdel-Hafez
Contractor · Atlanta, GA · Member since 2015 · 236 posts · 91 votes
9y
Justin Westmoreland I would say we shoot for a minimum of 15% of the arv but we aim for 30%.
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James Syed
Real Estate Broker · Mount Olive, IL · Member since 2013 · 1k+ posts · 310 votes
9y
@Justin Westmoreland
Welcome to BP!
Our average rehab took 3 months and 6 months to sell it so 9 months total flip time from purchase to sold.
Average purchase price was $30,000 and sold price was $70,000 and our buying, selling, holding and rehab cost was $30,0000 which gives us an average of $10,000.
Now in some markets, you would making a lot more money, but you have to invest very high as well.
Hope it helps.
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Dell Schlabach
Investor · Canton-Akron, OH · Member since 2012 · 917 posts · 477 votes
9y
Originally posted by @Justin Westmoreland:

I'm wondering what is the average profit per flip. I attended a RE seminar and the guy teaching the class was saying he won't do a flip unless he makes $50k profit minimum. Which sounds amazing if that is true.
I'm looking to flip to build capital to invest in multi family and I'm just wondering what kind of profit you can expect on a flip?
We are probably in a similar market to yours with similar price points.
Most of our houses sell 150-250 and take an average of six weeks to rehab.
We always have a few rehabs in the loop to keep the machine running without any downtime.
For profits, we calculate all our rehab projections, taxes, insurance, utilities all holding closing and selling costs as well as interest on a six month hold period then we add in 20k for profit subtract from sell price and that's the max we will pay for a house. Or in other words we will buy our typical 6wk rehab if we can make 20k, subcontracting out all the work.
If a project to take twice as long we will increase our profit number, likewise if the we can paint and carpet in a few weeks I may drop profits number to 15k.
We do have multiple projects running concurrently.
We also wholesale houses to a number of other rehabbers. Most are looking for 15k minimum,a couple of the guys do all their own work and they want 25-40 but buy price is about the same as their costs are a lot lower then mine but they are on a project twice as long as we are. So there are aot of variable.
If you are looking to make 50k on a 150k retail deal in our area, you won't get many deals unless you do direct marketing and are a helluva negotiator. Because there are a 50 guys that will do the deal for a smaller margin.
If you buy for 750,000 put 500,000 in it and takes a year to do a deal, 50k is a pretty crappy return.
So is 50,000 profit a doable rehab number, yes. Is it worth it, depends on a lot of variables.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
9y
flips in many markets are tough right now.... anyone claiming 50k NET profit after all in on sub 250k deals ... deal after deal with a long list of projects to do.. I would find that pretty much hard to believe.
On our new construction we look at 10 to 15% net profit on GROSS so if we sell a 500k home we would expect 50 to 75k anything better is better than industry average in our market here in PDX or we got a steal on the land.... Where it gets good is . we can generally leverage into these deals with our bank ( no HML) with only 10% of cost at 6% money so our cost of capital is reduced significantly and on a 500k home then we might only need 40k or so in cash.. so COC if we make 50 to 75k on it in 9 months ( our normal cycle these days if things don't change) you can see that our return is quite high on a % basis...
Its the same thing in cheap markets were they sell say 130k new construction.. those deals usually have 10 to 15% gross margins so they are making 13 to maybe 20k if they are really lucky net profit but getting good leverage and pumping out 50 in a year.
We will build about 40 homes this year.. so while we don't hit homeruns we make it up in volume and god willing the market holding and the star's aligning and every other lucky charm we can pull .
Like @Will Barnard even though it was an outlier for us we did a 5 million dollar flip and made 1.5 on it.. but that was not something we could recreate .. and I don't have the stones to do that these days.. with my cheaper homes I know my bank will let me make them into rentals if they don't sell and with the rents the way they are they would cash flow or be a tiny bit negative as we rode out the market... Oh and plus my partners wrote a 3 million dollar check and we closed in 10 business days that's how we got that deal... it was a retired basketball star that had fallen on hard times and Wells wanted it off the books by quarters end.. so right time right place.. and I had the money to rent a jet to fly the money boys in ... LOL... best 7k I ever spent
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Mike Flora
Investor · Menifee, CA · Member since 2015 · 534 posts · 216 votes
9y
I think the better question is what's the least profit you are willing to expect once you run your numbers and submit your offer. We all want the most profit on each flip. My minimum amount is right around 20K and property needs to be vacant and cosmetic repairs, from what I at least see on my walk through. I just got a property under contract yesterday and we are looking at about 20K profit, but this is in my neighborhood and it's our 6th flip in this neighborhood alone this year so I was willing to push the issue on what I'm expecting to get on the sale. Pretty comfortable with this deal. I shoot for at least 30K or more per rehab deal, but as Jay Hinrichs has stated it's gotten tough on great profits on flips right now. I'm also in escrow on 2 rentals because of this, still good deals but I couldn't get them down enough.
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Joel OwensBusiness Member
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Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
9y
I don't focus on the residential market but have friends that do.
Used to when the markets where just recovering the first time home buyer houses they could make 30k on resale.
Now with all these shows on TV like the last cycle you have heard's jumping in and overpaying for properties with big dollar signs in their eyes. Saw it last time before the last downturn in 2007 the same kind of crap was happening.
My friends have either moved to other investment avenues or they now rehab and sell move up homes. So instead of 150k range now they buy 250k to 300k rehab house and resale in 400's to 500's after rehab. In this way it cuts out a lot of newbies with 25k to do something with and they can beat up the seller more on price as less buyers. The margins are more 40k to 50k profit.
If someone is rehabbing a house for 9 months to make 10,000 that is not a very productive use of time. If the margin is that small then just buy properties for cash and flip the contract for a 10k to 20k spread per deal and do nothing.
David Krulac makes better spread in his book just buying tax foreclosure sales.
The point being I have no interest in 10k or even 20k spreads for rehabbing a house. Too much time and brain damage for velocity of the return.
If I can take down a house with cash quick and make 10k to 20k in under a month doing nothing then it can sound appealing. All the rehab stuff I have done that before and no thanks unless I didn't lift a finger.
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Account Closed
Professional · Brooklyn, NY · Member since 2017 · 624 posts · 147 votes
9y
@James Syed A 9 months rehab to sale cycle is quite a long time for $10,000; especially if the $10,000 is before both capital gains (15% or more) and SE tax (15%) which may average another 30% of the $10,000 profit. So your after tax net, if you accounted for all other cost may be like $7,000 or about $777 per month. But then is a 10% net profit margin a bad thing?
1 Reply
Michelle Chowan
Macomb, MI · Member since 2016 · 30 posts · 6 votes
9y
I am interested in finding a partner and doing our first flip. I can never seem to get a straight answer for what exactly the holding costs are made of, a list with what kind of fees. Insurance Mortgage payments of any Property taxes Commissions Title insurance Utilities How do you calculate all of this? What am I missing? Trying to get a partner for funding and am willing to split the profits in half- but I'd like to be 150% prepared before I pitch the deal to a potential partner
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Jennifer Slaughter
Real Estate Agent · Fort Collins, CO · Member since 2016 · 246 posts · 142 votes
9y
I agree with @Kyle Doney and @Will Barnard, it totally depends on all the other factors. I know some investors use a percentage as a general rule of thumb but there is no way the same dollar amount would make sense for an 80k house versus an 800k house, it just depends on what your niche is.
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Christopher B.
Rental Property Investor · Knoxville, TN · Member since 2011 · 701 posts · 531 votes
9y
Originally posted by @Michelle Chowan:
I am interested in finding a partner and doing our first flip. I can never seem to get a straight answer for what exactly the holding costs are made of, a list with what kind of fees.
Insurance
Mortgage payments of any
Property taxes
Commissions
Title insurance
Utilities
How do you calculate all of this? What am I missing? Trying to get a partner for funding and am willing to split the profits in half- but I'd like to be 150% prepared before I pitch the deal to a potential partner
Insurance: $100/month. Get a quote for a builders risk policy from your current insurer
Loan payments: will depend on the size and structure. There are loan calculators you can do a search for to help you with your specific calculations.
Property taxes: get online and look at the rates of your property taxes. It's public information. Once you know the rate then you can do a quick calculation or just spend the 5mins and look up the exact property taxes for each property you purchase.
Commissions: wholesale fee will be wrapped into the purchase. You don't pay agent commission when buying. 5-6% agent commission is standard when selling. 3% if you're doing a FSBO but working with a buyers agent.
Title insurance: will be based on cost of house, etc. $300-$1000k
Utilitites: look at your own utility bill
There isn't a magic formula that tells any of us exactly what these items will cost. Some people determine the exact cost for each project by getting quotes for and looking up costs of each item. Some people, like me, just put an educated guess on items based on their experience and let things average out. Everyone has different costs.
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Michelle Chowan
Macomb, MI · Member since 2016 · 30 posts · 6 votes
9y
THANK YOU! That makes it crystal clear.
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Account Closed
Flipper · Katy, TX · Member since 2016 · 5 posts · 1 vote
9y
I'm trying to buy my first property to rehab and I haven't been able to find one for 70% ARV minus repairs that I had been told should be looking for. I want to buy a property that I can sell for around 250k. What kind of margins should I be looking for? I'm in Houston TX.
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Will Stafford
Attorney, Investor and Real Estate Agent · Houston, TX · Member since 2010 · 30 posts · 24 votes
9y
@Account Closed where have you been looking? You're never going to find a deal like that on the MLS, and unlikely from a wholesaler. If you want a deal with perfect margins, you have to get out and work for it. Direct marketing, etc.
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Will BarnardPro Member
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Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
9y
As others mentioned, I'm not rolling out of the bed for a $10k profit even on sub $100k exit values, too much work and risk for such a small return, especially if it took 9 months!!! That formula showed 3 months to rehab (not sure why at that price point it would ever take longer than 6 weeks) and 6 months to sell tells me you are in a market that is not conducive to flipping or you over priced your home ( or did a poor rehab / or any comboination of those).
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Rich S.
Central, MN · Member since 2015 · 148 posts · 184 votes
9y
I think the answers speak volumes to the question... different for everyone and every market. For folks starting out... a $10K profit over 9 months might be a good deal and the only option, but experienced guys/gals who can afford to move up a tier or two, expect much more return. In my opinion, the key to finding your place in real estate investing is deciding "What is your time worth?" If you value an hour of your time at $100/hour vs. $1,000/hour, what deals work for you will be very different. The experienced folks, have done the heavy lifting, squeezing, sweat equity for a few bucks and hour and have gotten to a place where they just don't want/have to do that anymore. Don't let that discourage you.... everyone's path is different.... the key is to FIND a PATH that works, repeat it and work to improve/change it as markets change.
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Account Closed
Flipper · Katy, TX · Member since 2016 · 5 posts · 1 vote
9y
@Will Stafford I had been looking at what the wholesalers offer and you're right, I realized that I'll have to do my own marketing campaign. I was hoping to buy the properties from the wholesalers but their prices are too high.
Once you start doing your own marketing, you have to be consistent in order to get results and if you do it properly, you will get more properties that you can use and end up having to wholesale some.
Being a wholesaler has never been my interest, but I see this is the only way to get properties with numbers that can work for me.
I need to get at least 10% of the estimated sale price plus 1% for every 10k of rehab costs.
1 Reply
Account Closed
Professional · Brooklyn, NY · Member since 2017 · 624 posts · 147 votes
9y
@Elizabeth Galarza For a property with a $250,000 ARV, you want to shoot for both purchase and rehab cost to = 5% lower than lenders max LTV. The hard money lender may in some cases only lend 65% to 70% LTV. If you start exceeding the lender's LTV, it means you are likely to have excessive out of pocket cost and thiner margins.
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Account Closed
Professional · Brooklyn, NY · Member since 2017 · 624 posts · 147 votes
9y
@Will Barnard That is precisely the point... the risk for $10,000 (apparently pre tax profit) is significant. The rehabber would have very little or no room for error. Just an error can easily cost you $5000 and 9 months of paying hard money lender 14% is just bad math.
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