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?
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.
Flipper · Katy, TX · Member since 2016 · 5 posts · 1 vote
9y
@Account Closed I appreciate your advice and that is what I'm looking for, Houston is a very competitive market and I hope to get this kind of numbers doing direct marketing and negotiating directly with the sellers
@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?
I got my start n real estate buying to hold out of state. I then progressed not spec building, land d vlopneht, and then rehabbing. My first rehab was out of necessity on a buy and hold, then a few more to liquidate them. My real rehab career started a few years into my careeer locally and it took off from there.
I would say thatnoffering to work for an experienced flipper for free would be a good start to learn the ropes. By running errands, picking up materials, and performing taksks, you could save the rehabber some time and money in exchange for some quick daily lessons into the rehab format and formulas along with the systems that rehabber has put into place.
Another idea is to get your real estate license, that opens up some doors for you. Lastly, working for a contractor as a project manager job could also help but witjoutvexperience, that may be difficult.
Real Estate Investor & Consultant · Los Angeles, CA · Member since 2016 · 620 posts · 386 votes
9y
@Justin Westmoreland I totally agree with @Adam Abdel-Hafez , if you are able to NET out of each deal 15%+ of the ARV in your pocket at the end, you should be fine no matter if you are doing a $100k ARV or $2mill ARV. So if your projected ARV is $100k, then you should make at least $15k on the deal after you sell and payoff everyone else.
@Justin Westmoreland I totally agree with @Adam Abdel-Hafez , if you are able to NET out of each deal 15%+ of the ARV in your pocket at the end, you should be fine no matter if you are doing a $100k ARV or $2mill ARV. So if your projected ARV is $100k, then you should make at least $15k on the deal after you sell and payoff everyone else.
Onwards!
sjw
So I have a question regarding this comment. Let's say we have 2 houses both with an ARV of $200k, and both will have a net profit of $30k at the end of the day (15% of ARV). The first property needs a light cosmetic rehab of $20k and the second needs a heavy rehab of $60k. By your formula, you are stating that you would be happy doing more work for the same money. That makes very little sense to me which is why I disagree with profit formulas based solely on a straight percentage of ARV or any other simple formula that fails to take into account all the variables that go along with a rehab flip.
Flipper · Chandler, AZ · Member since 2015 · 7 posts · 1 vote
9y
@Account Closed I have ran into the same issue here in Phoenix and never wanted to get into wholesaling but it's extremely difficult to find deals where you can even make $10k realistically otherwise.
I've been lucky to find a local investor who had an inventory of properties built up that he has been wholesaling to me at a much more decent price than a lot of the other large wholesale companies out here. I'm working on a property in Mesa, AZ with a partner and we are looking to clear around $35k with putting in $35k of work at a list price of around $340k. The property I have under contract to close at the end of the month will profit around $25k with a list price of $255k (I put about $35k into this property as well and the entire process will have taken 105 days from start to finish).
Investor · Scottsdale, AZ · Member since 2016 · 1k+ posts · 885 votes
9y
You Can Lose a Lot of Money Flipping Houses Erik Sherman
Jun 14, 2016
House flipping is hot. Last year marked a high, since 2007, in the number of people trying to buy houses cheap, fix them up, and sell them, according to real estate information company RealtyTrac.
And who can blame the newcomers when the average gross profit in the first quarter of this year for flipping was $58,520? Keep it up and maybe you could even get your own house flipping reality TV show. There's just one problem: lots of people are losing money.
An analysis RealtyTrac ran for MONEY showed that 12% of flips sold at break-even or at a loss before all expenses. In 28% of flips, the gross profit was less than 20% of the purchase price. Twenty percent is "typically the minimum that would at least cover rehab costs, carrying costs, and other expenses incurred by the flipper," said Daren Blomquist, RealtyTrac senior vice president.
This really depends, initially the talk was about a flipper spending 9 months just to walk away with $10,000 to $15,000 pre tax profit (30%); wholesalers (if legal in your state), make that without breaking a sweat and almost risk free -- why spend 9 months, get into 14% debt with a 6 to 12 month term just to make same amount?
Real Estate Investor & Consultant · Los Angeles, CA · Member since 2016 · 620 posts · 386 votes
9y
@Account Closed I am not arguing for 9 months of a flip. I am just talking about the pure question of what return there should be. I've never had a flip go over 5 months purchase to sell. Many peoples first or second flip can take a long time or even just break even. You have to implement efficiencies as you grow. As I like to say, "The business doesn't get easier, you just get better."
Also, I have no interest in wholesaling. I can see why others like it, but it is nowhere on my radar of interest. Wholesalers pitch to me. I add value to homes and communities with my product. That is what I like to do.
Again, to be clear, To get 15%+ of the ARV on any flip in a 5-6 month period, and if you buy well (which I assumed using some analysis) and stay on budget, is a win every time in MY OPINION (especially in LA, where I invest).
Real Estate Broker · Mount Olive, IL · Member since 2013 · 1k+ posts · 310 votes
9y
@Account Closed
Welcome to BP!
Excellent figures there!
Here's my take on it.
9 months rehab time is due to 6 month market selling time and 3 months is for rehab time (for me as I am not handy at all and have to rely on others to finish the job for me).
Regarding capital gain taxes, I have to spoken to my CPA and she had explained to me that since this is my job (that's I do for living), I am subject to different rules of capital gain tax vs someone who purchase a property low and sell highs and that is not their "primary trade". I am sorry, but I am unable to explain tax part property. I don't have a clue about SE tax.
And last part regarding the profit, I am in a very small market. for example, the median sales price in my county is $80,000, that is usually a 3 bed 2 bath. There were some houses where my net profit was $7000.
CEO · Englewood, CO · Member since 2017 · 35 posts · 16 votes
9y
Hi Justin-
I can give you some hard numbers on our current portfolio of 16 properties half of which are complete and the rest are either under contract for sale or in renovation:
Average Purchase Price - $325,289
Average Fix - $44,509
Average NET Profit (after all exit costs) - $48,053
@Will Barnard Good find. However, your argument is not valid here, as I typically use the 75% rule before I get into any deal.
Thus, for a $200k ARV, I am only spending a total of $150k on acquisition + rehab.
So, the only way I am getting into the two scenarios you mention is:
- For $20k rehab property, I am buying it at maximum price of $130k
- For $60k rehab property, I am buying it at max price of $90k
Either way, when I sell it at the ARV of $200k, I am happy with the $30k profit. I do not care if I am spending most of it on acquisition or rehab.
Understand?
Onwards,
sjw
I am fully aware of the 75% rule (an adjustment from the 70% rule) and am also investing in Los Angeles, so any deal I can find right now that hits that is typically (not always) something I am going forward with. That said, you basically answered my question by stating that you don't care how long or how much the rehab is so long as you hit the 75% rule. I can't ageee with that either and while everybody has their opinions and methods, I want to be sure that any newbie or even some experienced investors don't get the wrong idea that if you hit some rule or one equation that the deal is a good one. For me, the amount of rehab determines my extended holding costs and risk, as such, I want to be paid better on that deal as opposed to a quick rehab job.
Also, the $200k example is a bad one for our area as that probably does not even buy you the dirt let alone a structure, however, in sticking with that, the $60k rehab is going to take 2-3 times longer there by increasing your holding costs, increasing potential market risk, and lower the net profit. So again, using some 15% of ARV as the profit target or a straight 75% rule does not work every time, in every area, in every market condition. i have a deal right now that I expect about a 15% of ARV profit on with a sales price of $1M, I will be happy with that for that specific deal (which was funded 100% by private lenders) so I have very little out of pocket costs upfront.
Regarding capital gain taxes, I have to spoken to my CPA and she had explained to me that since this is my job (that's I do for living), I am subject to different rules of capital gain tax vs someone who purchase a property low and sell highs and that is not their "primary trade". I am sorry, but I am unable to explain tax part property. I don't have a clue about SE tax.
Either you misunderstood or you are not explaining this correctly. It makes no difference if flipping is your regular job or not, anybody who buys a home with the intent to fix and resale it is subject to income tax at their ordinary rate, it is never taxed as capital gains. Capital gains is investment income where your intent was to buy and hold the property. There is no set rule r time to hold, however, 12 months is typically the minimum but again, the intent is the key for the IRS.
I am not a CPA and this information is not to be construed as tax or legal advice, it is simply an expression of my personal understanding of capital gains tax.
Developer · Austin, TX · Member since 2010 · 371 posts · 284 votes
9y
A litmus test I use is how much I could make compared to just being the agent for a comparable deal. If I can generate enough leads to manage a buyer or seller client, then 3% of the sales price is a great return on time with no money risked. Now this assumes you have a realtor license.
Otherwise if I am going to put a lot of capital and time at risk, I will want to aim for at least a 20% un-leveraged return that makes more than I could make just listing or buyer a property as an agent.
Those rules apply regardless of the price, so fill in your own numbers.
Contractor · Los Angeles, CA · Member since 2015 · 4k+ posts · 1k+ votes
9y
@John Blackman It all boils down to what you are satisfied with in terms of time spent. The money risk is just pure business strategy. If you are just an agent, you cant handle 1000 closes a day, what you do is hire someone to be your assistant, and that is the "money risk" of being a large agent, same concept as any business.
Central, MN · Member since 2015 · 148 posts · 184 votes
9y
I think the key point to take from all of this, is everyone's idea of a "good deal" or the "right deal" is different. I think the biggest take aways.... #1- You have to either figure out what is acceptable for you and your market OR find a new market and #2- If you really want all variables accounted for in some formula, you have to find a quotient for time and risk. A wholesaler getting a property under contract from the seller and then 3 days later finding the buyer for $10,000 more is a much different scenario than a rehabber buying a home, investing the rehab costs, all the carrying costs and then having realtor fees and closing costs... The key is to find the system/formula/method, whatever you want to call it, that works for you in your market and repeat it.
Surveyor · Hemet, CA · Member since 2015 · 797 posts · 112 votes
9y
Great thread once again! I am also looking for my first set of flips. Thts right set of flips. How many houses can I flip at once with 400 or 500k cash?
Great thread once again! I am also looking for my first set of flips. Thts right set of flips. How many houses can I flip at once with 400 or 500k cash?
How can you expect a legit answer to that without more details provided? $400k cash in your bank? Are you borrowing hard money, do you have private money investors, what are the purchase prices and rehab numbers? Lots of variables before anyone can give you an answer to that.
Regarding capital gain taxes, I have to spoken to my CPA and she had explained to me that since this is my job (that's I do for living), I am subject to different rules of capital gain tax vs someone who purchase a property low and sell highs and that is not their "primary trade". I am sorry, but I am unable to explain tax part property. I don't have a clue about SE tax.
oh boy! your CPA just managed to get this one in total reverse. But this isn't new. I hear it all the time. My CPA told me this or my lawyer told me that. Perhaps she just wasn't familiar with taxation of flips?
If you bought the property to fix and flip, you are considered a dealer. So in your case, the pre tax $10,000 profit would be subject to SE (self employment) tax at 15.3%. There is also a short term gain (held property for < year), so the gain is also taxed at a rate that can range from 10 to 39% based on your tax bracket.
Also, sometimes you will have a CPA tell you, if you were to stall the rehab or sale of the property and sell it just after the 12 month mark, that would exempt you from the SE tax, that is also wrong advise. Your intent was to buy and flip, regardless if it takes you more than a year to sell and certainly if it can be established it wasn't your primary residence.
No need to apologize, we are all here to learn and network. Making all cash offers is your best bet, but you don't need to use just your money to be all cash. All cash can come in several formats. The key is little to no contingencies with your offer.