How to Flip Houses: Part One with Potential Profit of $40,000

I have bought and sold over 80 fix and flips over the last ten years. Fix and flip projects were what I first loved about real estate, and kept me in real estate until I discovered the world of REO. I love finding properties, deciding what to repair, and then selling them for a profit. There are many unexpected expenses, legal issues and sometimes selling issues with fix and flips, but overall it has been a great business. In this article, I am going to discuss how I fix and flip while talking about a recent fix and flip purchase. The property I will be discussing is the first fix and flip I have purchased since I took over the business from my father.

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My blog focuses on investing in long-term rental properties, but fix and flips are a great way to earn extra income. For more information on my long-term rental strategy please check out my guide to investing in long-term rental properties.

For more information on how to buy the best rentals which will make the most money, check out my book: Build a Rental Property Empire: The no-nonsense book on finding deals, financing the right way, and managing wisely. The book is 374 pages long, comes in paperback or as an eBook and is an Amazon best seller.

I recently sold this property; you can find the second part of this article here that discusses how I made $50,000 on this flip.

You must buy flips below market value to make a profit

The reason I am able to fix and flip so many homes is I know how to buy homes below market value. Buying properties cheap, and being able to estimate the cost of repairs are the most important aspects of fix and flipping.

The property I will discuss was for sale on the MLS and most of the properties I buy I find on the MLS. We used to buy 90 percent of our fix and flips at the foreclosure sale, but the competition has driven prices up at the foreclosure sales to more than MLS. I prefer buying properties of the MLS for multiple reasons. I save a commission on the buy side because I am an agent, I can do an inspection on most homes, and I have time to get a loan if I need one.

How did I buy this flip?

This property had been for sale for months with no offers, was a REO and needed a lot of work. The bank asked $120,000 to begin with, but slowly dropped the price down to $77,500. Once the home was priced less than $80,000, I was ready to make an offer, but I missed the price drop and someone else got it under contract!

At the time of the price drop, I was in the middle of buying out my father, and not in a great position to buy properties. However, a few weeks ago I noticed the home came back on the market. I hadn’t seen the house in months, but I made an offer right then for $65,000. While I was driving to the property, the seller sent a counter offer to me for $76,000 to my email. This was an online bidding system (not HUD), and I knew there would be other interest at this price. I quickly inspected the house, clicked “accept” on the counter offer and it was mine!

The location must be right for a fix and flip to be successful

One of the biggest reasons this house did not sell faster was its location. The home was in a rural subdivision about 5 miles outside of large town. The subdivision has 1/4 acre lots and dirt roads with no sidewalks. The houses were built in the 50’s and built very cheaply with space heaters and no central heat. The homes don’t have any basements and there is a railroad track very close to the subdivision.

The good thing about the neighborhood (depending on how you look at it) is it is outside of city limits. There are no covenants and people can pretty much store whatever they want on their property (as long as its legal). Since this home was vacant, the neighbor decided to store four cars, a trailer and some other stuff at the home. I am sure this was a huge turn off to most buyers, although we have talked to the neighbor and he said he would be happy to move everything. Whenever you buy a home in an area with some questionable characteristics, make sure you do your homework to determine value. It is imperative that you use comparable sales from the same neighborhood to determine values. The neighborhood can make a huge difference on how easily you can sell a house.

Don’t be afraid of homes that need a lot of work when fix and flipping

This house also needs a lot of work which is another reason it is so cheap. The biggest concern with the home is the ceiling has dropped two to three inches in the living room and kitchen. I had my contractor look at it, and he thinks someone took out a wall at some time and forgot to put a header in. Other problems include a kitchen that is 50 years old with ugly knotty cabinets, one space heater for a 1,200 square foot home, laminate flooring that is bowed and very worn, old doors, old bath, some broken windows and peeling exterior paint.

The house used to be a two bedroom one bath ranch with an attached one car garage. At some point the garage was turned into living space to create a larger living room and an extra bedroom. It is now a three bedroom one bath home and the best part is, it has a huge detached garage. The garage is listed as 720 square feet by the assessor, but it is much bigger. I have not measured it yet, but I would estimate the dimensions are at least 25 feet by 40 feet. Based on sold comps in the area I am figuring the house will be worth at least $160,000 after it is repaired.

Here is a great article on how to make one million dollars a year flipping houses. 

fix and flip old kitchen

Repair estimates on this fix and flip

Here are the repairs and what I estimate the repairs to cost. We will get a bid from our contractor, but I don’t have it yet. A bonus we discovered after we bought the home, is there is hardwood underneath all the laminate. Why people cover hardwood with laminate I have no idea.

Repair ceiling:                 $2,500
Replace kitchen:             $5,000
Re-finish hardwood:      $1,200
New interior paint:        $2,000
New exterior paint:       $2,000
Replace windows:          $1,500
Install central heating:  $3,000
New fixtures:                  $1,000
Refurbish bath:              $1,600
New doors:                     $1,000
Miscellaneous:               $2,500

Total:                               $23,800

I always add money for miscellaneous items I may not think of or that come up unexpectedly. There is always going to be a repair that pops up, which I didn’t see or my contractor couldn’t see until the work was started. The total costs on this flip aren’t too high because this is a basic house and we aren’t doing anything fancy. Whenever we try to fix up a fancy house we tend to make less money because it is so much more expensive to repair a home with upgraded materials. Here is a great article with more information on how to find a great contractor and how much is costs to repair a house.

How to determine the value on a fix and flip

I am a real estate agent and REO broker; part of my job is figuring values and I do it all the time. I have a very good idea of what most houses within 45 miles of me are worth. I still pull comps and have my assistant do a quick valuation, to make sure I am accurate with my values. The best way to figure values or ARV (after repaired value), is to use the most recent sales comps you can find in the subject’s neighborhood. If you are not a real estate agent, it may be very difficult finding sold comparable property information. You may have to enlist the help of a real estate agent to help you determine value. If you are buying and selling properties you are going to need a real estate agent anyway. Here is a great article on how to find a real estate agent.

This property did not have a lot of comparable sales available. I did find a couple from last year and there are some active homes for sale in the neighborhood. It is possible to use active comps, but be very careful because there is no guarantee they are priced right. I found a modular home very close to subject under contract with a list price of $154,900. Since my home is a stick built home and has a larger garage then this modular, I am confident I can get at least $160,000 for my property once it is repaired. I am putting  a lot of faith in this active comp because it is under contract.

How to value a home.

What costs need to be considered on a fix and flip?

Repair costs and purchase costs are not the only thing to figure when running the numbers on a fix and flip. There are carrying costs (interest, utilities, insurance, maintenance) and selling costs (commissions, closing costs, recording fees, and more). We make our offers with cash on the fix and flip homes, but I also have a commitment set up with a local bank. I am able to get short-term loans at 75 percent of the purchase price at 2 percent over the prime interest rate. I think that equals about 5.25 percent right now, which is an awesome deal, even with paying a 1.5 percent origination fee. The bank can close these deals in less than two weeks, and I only need an appraisal if the loan is more than $100,000. This setup allows me to buy multiple properties at the same time, and lets me use my cash reserve for repairs and down payments instead of the entire purchase price. This setup is also cheaper than hard money.

Estimated costs on this fix and flip:

Origination fee:      $861

Interest:                   $2,000

Utilities:                   $1,200

Insurance:               $1,000

Maintenance:          $500

Commissions:         $4,800

Title insurance:      $1,000

Closing costs:          $750

Miscellaneous:        $5,000

Total:                        $17,111

You may have noticed I added another $5,000 in for miscellaneous costs. These costs could be closing costs the new buyer asks for to help pay for their loan, or repair or inspection items the buyer asks for or an appraisal issue. You can get insurance for fix and flips, but it is usually much more expensive than regular home owners insurance or insurance on a rental property. Maintenance covers mowing the grass or snow removal on the house while it is being repaired and listed. The costs add up very quickly on these homes, and that is why you have to get a great deal to make money. I am able to save money, because I am an agent and I actually received a commission check for $2,800 on the purchase of this home, which can be added into the profits. If you are not an agent, you will have to figure much more than the 3 percent commission I figured into the selling costs because you have to hire an agent to sell the home for you as well.

For more information on flipping houses, including how I average over $30,000 profit on each flip, check out my bestselling book Fix and Flip Your Way to Financial Freedom on Amazon. It is available as a paperback or eBook. 


Our total repairs are $23,800 and total selling and carrying costs are $17,111. We bought the home for $76,500 and our total investment will be $117,411 after the home is fixed up. That will leave us with a profit of $42,589 if we sell it for $160,000. When I think about fix and flip deals, I want there to be at least $20,000 in profit after I total all the costs and extra costs for miscellaneous items. Fixing and flipping is not easy, but once you learn how to do it and do it well, it can offer a great source of income. I hope to fix and flip at least 12 homes this year and hopefully many more (they won’t all make $40,000). I hope this article helps you understand how to fix and flip houses! Here is part two that shows how much I sold this house for and how much money I made.


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