How do you make money flipping?

34 Replies

So, I hope this doesn't come off as whining or complaining. I'm purchasing a property in a few days, an up and coming neighborhood that is rife with rehabs and perfect for flipping. I'm trying to get my costs estimates from contractors, and so far I'm getting $75 to $80/sq ft. And that's after meeting with them, talking them through my plans etc. But selling costs in the area according to arv sold comps is only 85-90/sq ft. So how do I make it costs less to rehab? it would need to be about 60/sq ft to make a good profit. How do you rehabbers make the numbers work? this is a nearly full gut, floors stay, everything else goes. moving walls, new mechanicals, etc. also I guess I know now to draw up rehab plans before engaging contractors. Its been hard for them to give me estimates without knowing for sure what the layout will be, but architect plans run 3 to 10k from what I've found. any tips? Thank you, cheers!

I think this happens in 3 major ways. 1. You buy the property at a huge discount. I’d say this is 50-60 percent ARV. 2. You do a lot of rehabs so your contractors give you better pricing.

3. You finish your home and push the arv slightly higher then originally estimated. This is sort of cheating but I have a feeling it happens a lot.

In my opinion you have to buy a run down house in a nice neighborhood. The ways your numbers are you should not even be doing the deal. My first flip went like this.
Bought for 83,500
Rehab was 12,000
All in at 97,000
Comps in the area were 125,000
Sold for 121,000.

If the contractor is quoting you $75/sqft you can do it yourself for $40 by hiring subs directly. Yes you will have to put hundreds of hours of your own time into it instead of merely signing a check, but that's where the profit is.

On my most recent flip the seller had multiple contractor bids done and was quoted a minimum of $150k for a rehab. My cost will be under $70k using better materials. If you have the written contractor bids that breaks down the project line by line you can post it here and people can tell you where you're being overcharged.

$80/sqft for rehab is insane! I hope that you are breaking it down by the sqft because I would never trust a contractor that charges by the square foot. Your contractor should be able to give you a line item estimate and then you can see where you can save cost.

#1 problem is that you're under contract and you didn't have your numbers worked out first. If a fully rehabbed house is going for 95 and they want 80 for the rehab either you're getting screwed or you picked insane surfaces and fixtures that are way out of that houses price range. Also, don't do my rehabbing that isn't necessary until you get some experience and know your numbers better. It will take you longer to find a deal, but it is either that or lose money.

Big cost items are moving plumbing, moving mech etc.  Why is this a complete gut job?  I bet there are areas that don't need to be gutted.  Plans and scope of work is key.  Having plans established quantities and eliminates the unknowns.  Maybe create a list of "needs vs wants" and see what you can cut out.  Someone is going to have to draw up plans to get permits before any new work can start.  You can demo without a permit typically.  May be its time to regroup and get plans first.  Then get multiple bids.  Chalk up the extra cost as lesson learned.

1. get deals flowing from wholesalers

2. do your own deal research

3. find houses that need a lot of TLC

4. make sure you have a true comp (more is better) within 1 mile of your subject property that justify a good ARV

5. run the rehab numbers w/ someone who really knows contracting

6. build in a robust timeperiod to rehab and sale, along with contingencies for time and rehab

7. get the best hard money deal you can get

8. take into account all of your acquisition fees, escrow, title, HML points, etc...and selling fees (agent comm, taxes, title, etc)

9. make sure you can at least make %10 NET of your sell price (so if you sell the home for $500k, your numbers should have you at $50k+ net profit in your pocket when you close and everyone else is paid.

Onward!

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Wow, thanks for all the responses. I appreciate the insights, sorry it took a couple of days to reply.

1st, I was planning on wholesaling the property, so I knew my ARV was solid at 200-210+ (depending on finishes and market trends during rehab), and I had an experienced flipper/contractor ballpark me 150k to rehab the property, 100-110 if he was to do it himself. So with that information I was comfortable putting the deal under contract, and for the purchase price I'll find a way to make money on it.

But I’m considering trying to do the flip myself instead of wholesaling (a legit wholesale where we close and then at a later date sell to a flipper, not an assignment). So with that…

@Nancy Zhao  I’m thinking yes I’ll have to GC myself if we want to make this profitable and do the flip ourselves. I have been getting GC’s to give me 10% fudge factor budgets, while also getting subs to get me bids. I’ve gotten a few solid bids that won’t change based on final layout, and a few 5-10% budget estimates that could change based on layout etc…

@Jason D. , the contractors are breaking out by generic line items at this point, by end of next week I should have floor plans and schematics that will allow me to get detailed SOW and bids.

@Wayne Brooks , I know they can’t give a detailed bid, I’ve walked them through the property and showed them the general idea of our plans, and asked them to come up with a 10% variable budget (i.e. 100k +/- 10%). Some haven’t been willing to do that, and I understand, which is why I’m having the plans drawn up and will get them to the contractors asap.

@Jim Adrian it's a complete guy, sans most of the flooring, because the place has been vacant for 10 years, the plaster ceiling is falling down everywhere, walls need to be reconfigured to make it fit a SFH instead of a Duplex better, Mechanicals all need replacing due to rodent/critter damage, and city code will require electrical service upgrade and new water service, etc… It'll be a fun project, has good bones, just the soft meaty stuff inside that sucks.

@Account Closed  if I GC myself, even if I don’t, I’ll probably end up doing some of the work myself. I’m good at Tiling and really like it actually, I CAN do a lot of the work, but 2300 sqft is quite a lot to tackle alone.

Here’s some of the numbers I’ve been getting:

Demo: 6500 + Dumpsters (395/40yd probably need 3 40’s)

Roof: 6910 (real bid, replace some sheathing, repair penetrations, repair gutter, spray entire roof with 100% silicone roofing sealant (the white stuff that’s UV reflective).

Tuckpointing: 4500 (back wall of property about 5’ wide and the entire 2 stories needs tuckpointing)

Plans: 5000

Permits: 2000

Framing: 27000 (this I think is insane, but hard to tell without knowing what walls need to be moved/reframed) What’s a good cost on framing in St. Louis?

Doors (interior): est 15 doors, 2700

Windows (18): 7200 (real bid not estimate)

Drywall: 13000

Painting (interior): 8100

Electrical: bids from 11k-21k includes all fixtures, outlets, etc…

Plumbing: 11k-18k (including new water service 1” pipe, and all fixtures)

HVAC: 22k (new systems, new ductwork) This also seems high to me, thoughts?

Flatwork: 3800, new front stairs and side stairs yard stairs & drainage culvert

Carport/garage hybrid: 5400-8500

Convert front doors to 1 door: 3000

Carpentry finishes and trim: 4000

Appliances: 5000

So that puts us in 150-170k range on rehab. If any of these look odd, and you're familiar with the midwest or STL in particular feel free to shout out or PM me. 

First off, I suggest you never analyze flips with $/sqft. You have to be more specific like your previous post. 

You can't use GCs on flips unless you have a massive margin. You have to sub everything out. Did you get a couple bids for each of these things? Some things definitely seem a bit high such as painting, drywall, windows, hvac. 5k for appliances??? Are you getting super high end stuff?

So if your rehab estimate is coming in around 150k and ARV is 200k, you better be buying it for like 5k!!

I don’t know your specific market and I am not a flipper, but I just bought a personal residence nearly the exact same size and did a slightly smaller scope rehab. Basically we did all of the things you are planning except roof and HVAC units. I can tell you when we got quotes from GCs it was at least 50% higher than what we ended up paying when we subbed it all out. Obviously you will spend a lot more time managing the project and coordinating each contractor, materials, deliveries, etc. But as the previous comment concludes you will need to be willing to do these things if you want to have a chance of coming out ahead on this deal.

I didn’t see budget items for kitchen and bath cabinets and countertops. Did you have that in there? A way we were able to save a lot of money in the kitchen/baths was to buy the cabinets and countertops directly and hire installers, instead of packaging it together. This way you can reduce markup. Again more work for you, but you’ll save at least a few thousand just by doing that.

I’m curious why you are deciding to go after such a large project on what sounds to be your first flip? Based on the numbers you have shared it sounds like a very high risk project without much upside.

There's only 2 ways to make money flipping houses. Either source the houses yourself to buy at a steep enough discount, or do the work yourself (with help from subs) to get the work done at a steep enough discount. 

There's only so much meat on every bone. If you're depending on wholesalers to get you deals and GC's to do the work, all the profit has been gobbled up already. The only way to make money then would be to overprice the property and keep your fingers crossed. 

Thanks everyone again. We will be moving forward with me GCing myself, and doing some of the work myself. I'm working on getting solid bids once I get floor plans drawn up for how it'll look after converting. This is my first rehab, and I am buying it for less than 10k, so I expect with a 200k arv, there should be plenty of meat left. I know it's unusual to try such a large rehab as my 1st flip, but if I get to the point that I don't feel I can handle it, I have more experienced flippers I can bring in to take over. Or if the numbers look too tight for me, I may end up just wholesaling this to a flipper. 

To be clear, I sourced this deal. It came from a DM Campaign I put out trying to be a wholesaler, I just liked the idea of trying to do this one myself. If it doesn't work out, I'm not married to the proposition, I'll sell it. If we decide to tackle it ourselves (my business partner and I, and he needs to sign off on it to start the work), then I'll make it work, even if I end up doing a ton of the work myself. 

@Bill De Jong the "kitchen and bath cabinets and countertops" was lumped into framing. I know I should break it out, but there were the general categories that the couple of GC's gave me and I combined them to compare. Cabinets and countertops alone I'd put in the 5k range since we plan on a long row, an island, and peninsula, but I know a granite guy that will do all of that for 1400, so that leaves up 3600 for cabinets. I don't know the cost of cabinets honestly so I figured if I GC'd I wouldn't need to sped 3600 on just cabinets/vanities.

I wouldn't take on that deal with those margins, with that much work involved. But with what you are going to learn, which the chance of making a profit might make it worthwhile. Can't always put a price on experience. What part of St. Louis is this that you are buying for $10k, with a $200k+ ARV? You could always PM me and i could further help you with valuation.

Another option i would consider is partnering with an experience GC/Flipper.  This is a big first job, and it could potentially scare you from the business.  If you could partner up, you share the responsibility and stress of the project, and also could learn from someone that is more experienced than you.

@Chad McIver This is a block off of Cherokee in South city. I'll PM you. Nothing much scares me. I have been talking with a more experienced flipper and we might partner up on the property, He thinks he can do it for cheaper than I've been getting quotes on. I'll be sure to keep this thread updated as things develop. If my business partner and I decide to flip it ourselves, I'll start a new thread to chronicle the journey. 

@Michael Plante here everyone I've talked to says 150-225/sqft for new construction is the going rate. 

@Kenton Coffman I'll PM you. 

I hope you knock this out of the park. The additional numbers and info you provided look good if it all goes to plan. With you gutting the entire place there aren't many surprises you can run into though 

Originally posted by @Donald S. :

@Chad McIver This is a block off of Cherokee in South city. I'll PM you. Nothing much scares me. I have been talking with a more experienced flipper and we might partner up on the property, He thinks he can do it for cheaper than I've been getting quotes on. I'll be sure to keep this thread updated as things develop. If my business partner and I decide to flip it ourselves, I'll start a new thread to chronicle the journey. 

@Michael Plante here everyone I've talked to says 150-225/sqft for new construction is the going rate. 

@Kenton Coffman I'll PM you. 

Very hard to believe MO prices would be almost double that of FL as well as NC and NY outside of NYC 

That GC was happy to see you coming! We flip in NJ, a HCOL area where the contractors live better than anyone else and we have never paid that much for this sort of work. $2000 for permits? Ours run $100-200 and we flip very distressed properties that need everything done. Get THREE quotes and break down the job into pieces, not square foot. Read J Scott's Book on Flipping Houses before you go any further. How large is this house? We just had almost all plumbing and electric replaced in our latest flip for under 10K. It is possible they don't actually want the work and are quoting you high just to see if you'll bite.

Originally posted by @Jennifer Petrillo :

That GC was happy to see you coming! We flip in NJ, a HCOL area where the contractors live better than anyone else and we have never paid that much for this sort of work. $2000 for permits? Ours run $100-200 and we flip very distressed properties that need everything done. Get THREE quotes and break down the job into pieces, not square foot. Read J Scott's Book on Flipping Houses before you go any further. How large is this house? We just had almost all plumbing and electric replaced in our latest flip for under 10K. It is possible they don't actually want the work and are quoting you high just to see if you'll bite.

 So the $/sqft thing was just a breakdown after getting bids. I am currently reading J Scott's book, and finished his book on estimating rehab costs, but so far most of what he's said for estimating is far off for St. Louis. I can say the $/sqft for construction costs is what I've heard from multiple people who have no interest in lying to me (My cousin who is an architect for a large firm in StL, a developer I know, etc). 


As for permits, I did put the wrong amount, after checking with the city, based on our estimated repairs it'll be $865 for permits + $250 for the various inspection visits (middle and ending visits as well as various other inspections for certain trades like roof). $200 for a permit would be great. 

I did just have a guy refer an electrician to me who should be able to do the work for closer to 10k, instead of 15-16k, so that'll help. 

Does anyone have good estimates for how much HVAC with ductwork should cost? 2 Story home, 2300 sqft (2000sqft internal space). And the cost difference for installing the AC unit on the roof? My first HVAC estimator said there's no where to put the AC unit in the back so it'd have to go on the roof (we're looking into alternatives). 

We got three bids for adding central air to a ranch and they were all over the map--we took the middle bid of 15K (it was a pretty straightforward install since all the new ductwork was run through the attic). We added central air to an already ducted split level for less than 5K. You could price mini splits as well, since it is a two story home, it might be nice to have different zones.

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