Fix and flipping houses can be a fantastic way to make a living or earn extra money. However, it is not easy to flip houses and it is very difficult to make $100,000 on a single flip. I have flipped over 100 houses in my career and only twice have I made close to $100,000 on a single flip. Both those flips involved country properties with acreage and were higher priced homes. I have another flip I am selling in March that will make close to $100,000, but it will fall short even with a $75,000 purchase price and close to a $250,000 selling price. Most of my flips make around $30,000; if it were easy to make $100,000 on a flip there would be a lot more people doing it. If you think you are going to make a ton of money flipping houses right away, don’t be surprised if the process costs a lot more than you think and is a lot more work than you anticipated.
The basics of fix and flipping
Before I get into particular flips, here are a few tips on flipping homes. If you want more information in flipping be sure to check out the ultimate guide to house flipping in any market.
- Costs of flipping: there are many more costs when flipping houses than just the repairs made. There are carrying costs, selling costs and buying cost. On a typical flip that I buy for $100,000, I will spend at least $15,000 on additional costs besides repairs. This article goes into more details on the costs involved in flipping houses.
- Finding flips: finding flips is one of the hardest parts of flipping houses. I buy most of my flips from the MLS, but you can also buy from auctions or with direct marketing. Getting a great deal on a home is the first and most important step to flipping.
- Financing flips: most banks do not finance flips; they finance long-term purchases. Hard money lenders, private lenders and local banks may finance flips. If you do not have the cash to buy a flip, you must have some type of financing lined up. Most financing for flips will be much more expensive than typical financing for long-term loans.
- Repairing flips: finding good contractors is tough and it takes work to make sure your contractors are doing a good job. Before you buy a flip make sure you have contractors lined up to work on the home. Try to make a house look as nice as possible without making it too nice for the neighborhood. I would not suggest doing the work yourself.
- Selling flips: I would always use a real estate agent to sell a house. Pricing a home is one of the most important parts of selling a house and agents are experts. If you try to sell a house yourself to save money you will most likely end up losing money in the end by not pricing the home correctly.
What are the profit margins on a $100,000 flip?
When I flip houses the 70 percent rule is generally a good guide for how much to pay for a flip. If I buy a house for $100,000 I will have to sell it for at least $160,000 if it needs typical repairs. This large of a margin may seem like a slam dunk to many inexperienced investors, but the costs of a flip are significant. If you want to make $100,000 on a flip the profit margin is going to have to be huge! To make $100,000 on a flip you normally have to buy high-priced homes, but we will look at a lower priced home first.
Purchase price $100,000
Selling costs $10,000 ($17,000 if you aren’t a Realtor)
Buying costs $2,500
Carrying costs $4,000
Financing costs $4,000 (up to $12,000 with hard money)
Miscellaneous costs $5,000 (something always pops up)
Total Costs $45,500 to $60,500
As you can see it costs a lot to flip a home and that is why the margin between the buy price and the sell price has to be so high. In this situation to make $100,000 on a flip, you would have to buy a home for $100,000 and sell it for around $250,000 and that assumes minimal repairs of $20,000. It is not exactly easy to find a house that you can buy for $100,000 sell for $250,000. The higher priced home you buy the better chance you have of making a larger profit, but more risk comes with higher priced flips.
Why are higher priced flips riskier?
I tend to shy away from expensive flips for many reasons. When you buy a more expensive house to flip, your profit margin has to be even higher.
- The repairs cost more on an expensive flip, because you must use higher quality materials and the houses are usually larger.
- The selling costs, buying costs, financing costs, and carrying costs are more on an expensive house. The commissions to sell are higher, the loan amounts are higher, the utilities are higher, there may be HOAs and many more costs than on a cheaper home.
- Usually if you buy a more expensive flip, you have to buy less flips because the expensive home takes more resources. I only have so much money I can borrow or put into flipping. If I could buy five cheap flips or one expensive flip, I would want the expensive flip to make as much as the five cheaper flips combined.
- More expensive homes have a smaller market to sell to, take longer to sell and have pickier buyers.
- Finally if you buy one expensive flip your risk is much greater if something goes wrong than if you buy five cheap flips. If I lose money on a cheap flip the other flips will make up for it.
In my area it is really hard to find higher priced homes with a high enough profit margin to justify the extra risk involved. I know many investors who are successful in higher priced flipping, but they tend to be in very expensive areas like California. If the average price of a home is $750,000 then there will be many more buyers if you try to flip a $750,000 property. If your average price is $200,000 it is going to be much tougher to sell a flip that is $750,000. If the market changes the higher priced homes are the first to start going down in value.
How did I make close to $100,000 on a single fix and flip?
Twice I have made close $100,000 on a single flip, actually my dad and I made over $100,000, because I was partnering with him at the time. The first time we did it was about five years ago and we bought a country property at the Public Trustee Foreclose Sale. At the time we bought 90 percent of our flips at the sale since was a lot less competition than there is now. To be honest both my father and I were surprised that we were the only people who bid on the house.
The home was a large ranch style house with an unfinished basement, it had an attached 3 car garage and an over sized detached 2 car garage on over 7 acres. We bought the home for about $220,000 and ended up selling it for $370,000. The best part about the home was it needed almost no repairs, I think we painted it and put in appliances and that was it. Since it was a foreclosure sale purchase, we could not see the interior before we bought it, so it was a guessing game what kind of shape it was in and we got very lucky!
Even with minimal repairs we had a lot of costs on that house:
Selling costs $15,000
Financing and carrying costs $13,000
Buying costs $4,000
Miscellaneous costs $5,000
We almost made $100,000 on that house, but didn’t quite make it. There are many more costs with a foreclosure sale purchase, because we were responsible for back owed water and taxes.
The second time I almost made $100,000 on a flip
The second home we almost made $100,000 on was bought on an online auction site. The site had the home under priced, but it was an auction so the bidders would surely bid up the home well past the listing price. However, this auction site at the time had a buy it now feature and I knew that buy it now price would be much lower than the highest bid if the auction were to finish on its own. I checked that site every hour for a few days until I saw the buy it now price pop up. Once I saw the buy it now I clicked accept and got the home under contract at $218,000. The best part was the auction company charged a buyer’s premium on top of the buy it now price. I figured my ending bid would be about $228,000. It turns out they subtracted the buyer’s premium from my bid amount and I ended buying the home for around $208,000. This home was on 1 acre, a large ranch, with a 3 car attached garage and finished basement. We sold it for $349,000 and it again needed minimal work.
Carrying costs $12,000
Selling costs $14,000
We came close to $100,000 again, but ended up with a $95,000 profit.
The flip I have under contract will come close to making $100,000
I have a flip that I repaired last year and have set to sell in early March that has a huge profit margin, but will not make $100,000. On the previous houses that we made $100,000 on we lucky that they needed minimal work and we could sell them very quickly. That reduced our costs a lot and made us more money.
On the current flip I have held it over one year and dumped a ton of money into it. In fact many people in my office and on my team thought I was nuts for buying this house. The house was an old farm-house that was for sale for $75,000. It had 1 bedroom, 1 bath, 4 acres, some outbuildings that were in rough shape and a 60 x 40 Quonset Hut that had broken doors and windows. I made a cash offer with no inspection and I got the house last January. It took me a while to start working on it, because I had so many flips going and I was not sure if I wanted to try and sell it as is for a small profit or rehab the property. I had one person who wanted to buy it from me, but they would not pay more than $100,000 for it and I knew I could make a lot more if I rehabbed it.
I decided to rehab the house and did the following repairs.
New electrical $5,000
New plumbing $4,000
New well $12,000
New kitchen $4,000
New drywall $3,800
New paint $1,800
New stucco $9,000
Tree removal $4,500
New floors $2,500
Septic work $7,000
New insulation $1,500
New furnace/ac $7,000
Other repairs $10,000
Some of the other repairs that were done were making it a two bedroom by adding a closet and door, working on the Quonset hut, trim, lights and other finish work. I have never come close to spending so much on a renovation, but it will be worth it in the end. Thanks to an increasing market, and the repairs transforming the house it is listed for $264,900 and under contract for a little less than that. After you consider the lengthy holding costs because I held the home for so long I will make close to $80,000 on this flip.
Costs can easily get out of hand on a flip and it is very important you anticipate added expenses. When I first bought this house I thought I would have about $50,000 in repairs needed, but with the stucco, well, septic and other repairs things got a little out of control. Luckily the market for country properties increased over the last year and I am able to sell it for more than I originally anticipated as well. The more work a home needs, the more money you should budget for unexpected costs that come up.
Below is a before and after video of the flip.
It is possible to make over $100,000 on a flip, but don’t count on it! Most if my flips make around $30,000 and my costs are lower than many investors, because I am a real estate agent and I have great financing in place. If you buy more expensive homes hoping to make more money, be very careful. A more expensive home may have more profit potential, but it also is much riskier, especially if you are flipping a home well above the median price range in your area.
If you have any comments or stories to share on flipping please stop by the Invest Four More discussion forum. We have had many great discussions going on and I posted some videos of my trip to Seattle to drive a Lamborghini Countach. Remember the contest ends tomorrow for the most influential posters!