How much do flippers make on a SFH property in Bay Area
New to Real Estate · San Jose, CA · Member since 2017 · 91 posts · 23 votes
So I have remodeled 3 homes so far (2 are rentals and 1 primary). I feel I have a decent idea about rehabbing and what it costs so want to try my hand at flipping a house.
However, before I do that want to understand how much does a flipper make on an average Single Family Home flip in a good San Jose or Bay Area school district. Is there a common benchmark $ number that flippers are trying to hit. Referring to profit after removing rehab and real estate agents commission. What are the flippers making.
Note that I looked at some properties that were flipped and are listed at 200-500K over original buying price so there is some variance.
I think you are asking the wrong question. How much does a flipper make in any area is like asking how much does a doctor make. The answer is always, it depends on what kind of doctor and how good he or she is.
What you want to look at is rate of return on your investment vs the risk. That requires you to first decide on your risk tolerance and then decide on how much percentage return you desire for the trouble/time/risk. It is helpful to understand your options first so that you can come up with this number. As an example, lets say you have been investing in the stock market for the last 5 years and you have averaged a 12% return each year by investing in solid and established companies. With that, I personally would like to see a much greater return on my capital for the time and effort it takes to be an active real estate investor as opposed to semi passive in stocks. Or, as another example, you could lend your capital out to others for say 10% return. That would be entirely passive except for the initial due diligence and the potential time invested in event of default. Again, for an active position in flipping, I would like to see a greater return than that.
I would target an 18% minimum return and shoot for 20% or higher if your skills and market can provide it.
I think you are asking the wrong question. How much does a flipper make in any area is like asking how much does a doctor make. The answer is always, it depends on what kind of doctor and how good he or she is.
What you want to look at is rate of return on your investment vs the risk. That requires you to first decide on your risk tolerance and then decide on how much percentage return you desire for the trouble/time/risk. It is helpful to understand your options first so that you can come up with this number. As an example, lets say you have been investing in the stock market for the last 5 years and you have averaged a 12% return each year by investing in solid and established companies. With that, I personally would like to see a much greater return on my capital for the time and effort it takes to be an active real estate investor as opposed to semi passive in stocks. Or, as another example, you could lend your capital out to others for say 10% return. That would be entirely passive except for the initial due diligence and the potential time invested in event of default. Again, for an active position in flipping, I would like to see a greater return than that.
I would target an 18% minimum return and shoot for 20% or higher if your skills and market can provide it.
Hey Guarav,
Keep in mind metro cities were hit kind of hard because of covid. I.E. SF and SJ suffered more than other places around the country because people relocated to cheaper areas. Areas like El Cerrito, El Sob, CV, Oakley were extremely hot areas with people moving from places like Menlo Park --> El Cerrito and paying way over asking. So knowing which markets in the Bay Area people are moving too is your first step. There's a lot of data you can find online for this. Some areas people were paying way over asking vs other areas (I.E. in 2020 El Cerrito way over asking vs Half Moon Bay least likely to see homes over asking).
Understanding that will answer your question to specifically why some houses go 200k over vs 500k over per flip (not completely cause it comes down to the deal itself). Covid changed the way workers chose to work and adjust to life in remote settings. It's an anomaly which will take time to adjust too. Will people continue relocating or will there be a mean reversion over the coming years?
If you're looking in areas that weren't as hot for flips, make sure you're getting an extremely undervalued property & get a contractor to give you an estimate, fill in your proforma and estimate your margin assuming no price appreciation (the only way to truly know).
I haven't flipped any properties since 2018. Anyways All the flips I did from 2015-2018 ranged from between 20-35% (Pre-Cap Gains Tax, all were sold within 3-7 months). Houses done in Fremont, which was a hot area at the time (still is) grossed the most & people were willing to overpay for that area and we were able to capitalize on crazy housing appreciation between close of escrow (when work officially started) --> off market date.
Again it came down to the deal itself and how much $$$ was invested in the home for renovations. It's hard to say how much each home should net because it's really a case by case study. Apples and oranges really.
I think it comes down to the areas you go too and the deal itself. You need to be able to analyze what houses are undervalued in the respective area and if you can get it up to par with some comparables in that neighborhood and how fast they sell in those areas. That's how you'll truly know the cost of renovation plus how much you may be able to net for the property. Getting deals off market helps, or just knowing how to find a good one on MLS (I have my own system for finding MLS properties which is usually pretty effective if you have somewhat a creative mind).
The Bay Area is another animal and not like typical markets around the country, it's essentially a big city like NY (7.5 million population in Bay Area) and extremely tech driven. It is extremely diverse so understanding the demographics of areas and flows is extremely important IMO. Can't emphasize enough how important it is to understand where the inflows and outflows in different counties and cities are.
Labor and material are extremely expensive in the Bay Area rn. I don't know if you plan on doing the work yourself. And are you going to buy, renovate, rent and refinance (BRRR) or sell immediately?
Your question is unanswerable. Too many variables....... How much did the house cost? How much was the rehab? What happens to the market while you've got the property tied up and unsaleable? Every flipper wants to make the max on each deal. The reality is that on some deals you will make $100k pure profit. Other deals you will actually lose money on. And that's the truth about the flipping business.....
In Marin we have experienced 35% to 75% cash on cash annualized returns on 4 projects since July 2019. Projects went 5-10 months.