How to make the numbers work for an addition when flipping?

Question

I see other investors building on to existing houses to create more spread on their flips, but I just don't understand how to make this work. I have done several flips, but never incorporated an addition. Most neighbohoods that my flips fall into were built in the 70's-80's, and there is no new construction. Can someone share an example with numbers of what a deal might look like that incorporates an addition? My typical flip looks something like this:

Purchase price: $50,000

Rehab: $25,000

Holding: $3,500

Selling costs: $$10,750

Sale price: $125,000

Price per square foot: $95

Since values in these areas aren't sky high, building on an addition looks like a break even at best for me. Any help is greatly appreciated!

Purchase price: $50,000

Rehab: $25,000

Holding: $3,500

Selling costs: $$10,750

Sale price: $125,000

Price per square foot: $95

Since values in these areas aren't sky high, building on an addition looks like a break even at best for me. Any help is greatly appreciated!

Austin Works · Answer

@Greg Dickerson, not all are this lucrative, but this is a good average. I typically range betweek 25-35k, with 30k being a more realistic average. These are definitely becoming harder to find, so I am looking to incorporate new strategies to make more deals work.

Greg Dickerson · Answer

@Austin Works you need to be in a much higher price point to make additions work. Usually ARV of $200k or more is where that is going to work. Not much room when the houses sell for $125k.

Looks like you are making $35k per deal on $125k which is pretty good. A $25k rehab doesn't take very long either so you have a seriously great business model. I would stay focused on that and do as many of those as you can. Not many people can make $35k on a $125k house.