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I have flipped over 180 homes in the last 17 years and although it is not easy to flip houses, it is a lot of fun. You can make a lot of money flipping once you have developed a system and learned the business. I average about $30,000 in profit on each flip I do and I flipped 26 houses last year. I love to flip houses, but fix and flipping is only part of my real estate business. I also have 20 long-term rentals, I own my own brokerage, and I created this blog. While you can make a lot of money flipping homes, it takes hard work, and help. The television shows can make flipping look easy, but they leave out many of the most important parts of the business.
How much can you make on one flip?
How much money you make on a fix and flip varies with each deal and how much the house is worth. I have lost $10,000 on a flip and have made up to $180,000 on a flip. My goal on each fix and flip is to make at least $25,000 in profit. I have hit some home runs and had some huge mishaps when flipping. There are many risks involved when you fix and flip a home. If I do not have at least $25,000 in profit potential, I usually will not make the deal. The more expensive a house is, the more money I hope to make because of the increased risk and cost.
I also base how much profit I need in regards to the work that is needed. On houses that need massive remodels I want to make more than $30,000 in profit because there is so much that can go wrong. On houses that only need paint and carpet, I am willing to accept a smaller margin because the work is simple and fast.
I had 19 flips going as of the writing of this article.
Do you need to make more on expensive houses?
The more the houses cost, the more you should make on each fix and flip because all of the costs increase. The more expensive a house, the more interest you must pay, the more repairs you must make, the more holding costs you have, and the more commissions you pay. Because of the increased risk of a more expensive house, you need to be rewarded with a larger profit. It can also take longer to sell a more expensive house because there are fewer buyers. If prices are to decrease in the future, the more expensive homes are also more volatile with their prices.
It also takes more capital to buy and repair a more expensive house. I want to make at least $25,000 if I am flipping a $100,000 house. If I am flipping a $200,000 house, I will want to make at least $35,000 because I have more money tied up. Since I am buying a more expensive house at $200,000 and I am using more cash for down payments and repairs and I will not be able to buy as many properties. Since I am buying fewer properties, I want to make sure that the houses I am buying will make more money.
Here is a review I did on the Rehab Valuator, a great tool for figuring the costs and profits on flips.
How much have I made?
In 2017 I made over $600,000 flipping houses. I sold 26 flips in 2017, 18 in 2016, 8 flips in 2015, 12 in 2014, and 10 in 2013. I will have a few flips that will profit from $20,000 to $30,000, and I will have a few that will profit around $50,000. Twice in the ten years, I have made close to $100,000 on a single flip. For me, the big money in fix and flipping is volume, not in one extremely profitable property.
How do you calculate the profits?
When I am talking about profit I mean the money I make after paying for repairs, carrying costs, financing, and selling costs. The shows on HGTV do not include many of these costs, which can make the business look much more glamorous than it really is. Here are what the costs could look like on a flip I hold for 6 months:
- Purchase price $100,000 with a private money loan
- $5,000 in financing costs
- $2,000 in closing costs
- $2,000 for utilities and maintenance while owning the property
- $2,000 for taxes and insurance while owning the property
- $7,000 for selling costs (agent commissions, etc)
The costs to own and sell this flip are over $18,000 and we did not even consider the repairs yet. I also have a project manager who helps with my flips and other team members that help with my business. I do not count the money I pay them against the profits because they are also real estate agents, and help the business in other ways. I also do not take income taxes out as some suggest I should since everyone pays taxes and that is part of life!
The 70 percent rule is one way to calculate how much you should buy a flip for.
Can you average $30,000 on each flip?
Like much of the country our market is hot, which makes it difficult to find deals. However, I am still finding deals and I have 20 flips being repaired or for sale right now (middle of 2018). You can flip in any market if you know the numbers, and if you know how to find a great deal. I am a real estate agent, which gives me a huge advantage when it comes to finding deals. I also buy primarily off MLS, which means I save commissions and I am able to write offers quickly. Making $30,000 on a flip all comes down to the numbers. While it is not easy to find deals that make that much money, it is possible. I also buy flips through auctions, wholesalers, and direct marketing.
Is there money in just doing one?
I would love to make $100,000 on each flip, but that is not possible for me. I do not always know which homes will work out great as flips and which will not. I have had unforeseen circumstances that caused me to hold a property for a year before I could sell it. That killed my profits and was one of the homes I lost money on. I have accepted that some flips will be great and others will not. If I continue to purchase great deals, the averages will be in my favor. My strategy is to buy as many flips as I can that meet my criteria and continue to average about $30,000 in profit on each property. If you are looking for that one house that will make $100,000, you may be looking for a long time.
How to get financing
One of the most difficult aspects of flipping homes is being able to find the money to buy the properties. Most lenders do not like to lend on flips because the loan is short-term and the lender will not make much money on it. In most cases, in order to get a short-term loan, you must use hard money, a portfolio lender, or private money. Hard money is very expensive with rates from eight to sixteen percent and origination fees from two to five percent. Portfolio lenders will have much less expensive money, but you will have to have an established relationship with them (I use portfolio lenders for most of my flips). Private money is a great option if you have family, friends, or other people with extra money to invest.
How to avoid losing money
Here are a few tips on how to avoid losing money on flips:
- Be very careful at foreclosure auctions. I used to buy 90 percent of my properties at the foreclosure auction. You have to pay cash without a title policy and sometimes you cannot see the interior of the home. If you buy at the foreclosure sale, make sure you have a lot of money for repairs, title issues, and possible evictions.
- Always estimate more for repairs then you think. Repairs always cost more and more repairs always show up when fixing a house. I always assume there will be 20 percent more in costs than I calculate on each deal.
- Account for financing and selling costs. When you sell a fix and flip, you have to pay a real estate commission, title insurance, financing interest, insurance, taxes, utilities, and more.
- Be conservative when you estimate value; price the home right! Some of the biggest losses for fix and flippers are due to overpricing homes and then not lowering the price quickly to get them sold.
Fix and flipping is not easy. It takes patience to find properties, money to fix them up, and market knowledge to sell them. If you can master fix and flipping, it can create an awesome income and be a lot of fun as well. Becoming a successful fix and flipper does not happen overnight.