When you watch the TV shows, it looks super simple to flip a house in a couple of weeks for a $100,000 profit. Don’t believe everything you see on TV. If the real estate investing mantra is location, location, location, the mantra for flipping is do the math, do the math, do the math.
When you define flipping a house as buying and selling within six months, RealtyTrac numbers show that 156,862 single-family homes were flipped in 2013. Calculating the final selling price from the original purchase price reveals that the average flip grossed a $58,081 profit. However, that doesn’t account for the cost of rehabbing the house and other standard expenses.
Assuming the rehab cost averages $25,000, the 6 month profit would be $33,081 ($58,081 – $25,000). A 6 month flip would mean an average monthly profit of $5,514. If you can reduce the flip time to 4 months, the monthly profit goes up to $ 8,270. Neither are numbers that you’re going to become insanely wealthy from but still it’s a decent living wage.
It’s very likely those numbers are skewed by losses instead of profits. More than likely some flippers are making a bundle while others are losing their savings. That’s the nature of the game. The four biggest challenges facing house flippers are:
According to the RealtyTrac data, house flipping was up in 2013 substantially over 2012 in these local communities:
· Up 141 % for Virginia Beach, Va.
· Up 92 % for Jacksonville, Fl.
· Up 88 % for Baltimore, Md.
· Up 79 % for Atlanta, Ga.
Still, location does count when it comes to flipping because it declined substantially in these once prime markets:
· Fell 43 % for Philadelphia, Pa.
· Fell 32% for Phoenix, Az.
· Fell 17% for Tampa, Fla.
· Fell 17% for Houston, Tx.
· Fell 15% for Denver, Co.
Now that you know the national flipping costs and gross profit averages, it still pays to be conservative when doing the math. There are other known and unknown costs beyond the rehab costs. Other costs that you should be able to include in your upfront calculation are: cost of financing, permits, insurance, utilities, and property taxes.
Unknown costs are typically additional rehab expenses the contractor uncovers once the remodeling begins. These can vary from dry rot of load bearing walls, to failed electrical systems, to damaged plumbing. Any one of which can turn your once profitable flip into a money burner.
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