Are you really profitable ?

Question

So I’m in the process of doing my first flip this year and I’ve been analyzing deal after the deal & ive been thinking is it really profitable?

If I pay $8,000 down for the loan and $17,000 in holding cost & fees and my desired profit is $25,000. Technically am I only making profit  because I’m paying $25,000 out of pocket ? Is this simply fixed by looking for a higher profit ?

I’m confused. If any flipper and just someone who understands can explain to me how they actually profits after such expensive holding costs from hard money that’d be very helpful.

Ian Stack · Answer

In my opinion you are not making enough to make it worth your while. I did 2 flips with a partner in 2019 and these were roughly our numbers; 80k purchase, 25k in repairs/expenses and 10k interest to hard money lender and one sold for 142k and the other one 159k for each one. 13.5k each profit on one and 22k each on the other. I needed the money to purchase rentals and am glad I did it but would not recommend it (too much risk and hassle in hindsight) and this was in a way better 2019 market. I think it would be very hard to make the numbers work today unfortunately

Kevin Ivey · Answer

Yes you can make money.  I have done 6 flips in the last year and half, North of seattle so very competitive market.  I make anywhere from 25k to 100+k (felt like hitting the lottery) I target to profit 30k per property.  I spend about a month or two actively engaged in the rehab so I feel pretty good about the return on time invested.

I have mostly gotten auction properties so you have to be able to handle risk and the unknown.  I couldn't make any money on MLS or wholesalers deals.

I agree with everyone about the exit costs I have found a realtor that wants my listings so she writes the deals at 2% for her and 2.5% for buyers agents saving 1.5% of the sale price.  She also pays and has a great stager & photographer.  She also brought me my current project as a pocket listing.

now that I have experience and track record  the HML are seeking me out and I should save about 9k on this current deal <better rates & points but more hoops & insurance cost> because I used a new lender & now my original lender is willing to deal more.

Good luck and DM with anything I can do to help.

Eric James · Answer

You have to get a really good deal on the purchase.

Evan Polaski · Answer

@Haven Ousley, yes you can make money on flips.  They are harder to find than they were, and at least for me, require a much larger renovation scope (surface level rehabs are going to retail buyers with no margin).

You are also looking at it wrong.  Your profit is based on total cost in the project, so your down payment is irrelevant.  Total purchase price + renovation + holding costs (interest, insurance, taxes, utilities).  Once you have those numbers, subtract your ARV, less selling costs (6% realtor commissions, closing costs, buyer assistance, etc) and you should arrive at your profit.

Per your last comment, using hard money will make it harder to find good deals, since it tends to be very expensive money and you are likely competing with cash buyers who will not have to price in the lender fees and interest.  Still possible, but harder.

Kevin Ivey · Answer

@sisee adams I always hear that argument and it is important to remember that no one is withholding for you and if doing multiple a year might make you pay the self employed side of taxes.

but when someone says I make 60k a year that's usually their gross pay not after taxes........why don't they remember to take out their taxes.

It is also why I target to make 30% more than my W2 job to be successful.  The self employment taxes, loss of 401k match, employer paid insurance.... etc

Sisee Adams · Answer

Don't forget tax when you consider true profit

Nicholas L. · Answer

@Haven Ousley I actually think this is a really good question.  This is relevant not just for flips but also, for example, for the BRRRR method.  Everyone loves to omit closing, financing and holding costs that can add up to thousands and thousands of dollars.  For example, if your profit on a flip (after all purchase, rehab and closing costs) is $25K, but you have to pay a realtor a $20K commission... your profit is actually $5K.  That realtor cost has to be in there.

Ian Stack · Answer

We just borrowed 100k and each had like10k each reserved in case we went over budget…..which we did by about 5k each time. Hope this helps

Haven Ousley · Answer

@Ian Stack and so did you and your partner had to have some cash reserved for holding costs ?

Haven Ousley · Answer

@Evan Polaski okay. Thank you.

Are you really profitable ?

Most Popular Reply