The most common question people ask when they get into house flipping is how much money can I make flipping houses? This is hard to answer because there are a bunch of factors that affect how much you can make. The simple answer is you can make $1,000 to over $100,000 but the average would probably be more like $25,000 to $35,000 each house you flip.
House flipping TV shows
Most people have seen the TV shows where they flip a house and poof make $50,000. This is all great for TV but this is not how things work when flipping a home. There is so much more than what is shown on TV. The flipping home shows make it look pretty straight forward and not too hard. This is just unrealistic and you need to know if you want to flip homes you need to learn how to do it. There are several things that go into the profit you can make from flipping a house.
Here are most of the things that can cause you to not make a profit.
- Bad bid for rehabbing home
- Wrong after repair value estimate of the home
- Bad work done so need to do rework
- Taxes not calculated
- Holding costs not properly estimated
- Points not calculated
- Missed repairs that add expense
- Pricing home too high and property sits
- Bad realtor that cannot sell home quickly
- City permits or city inspector shuts you down delaying rehab
- Buyers that want to buy run into issue getting loan to buy home
- A contractor quits and you have to get a new one quick
- Vandals break into the home and damage it
I am not trying to scare you from going into rehabbing homes. I just want you to know there are a bunch of things that can happen when you are flipping homes. You need to be prepared and the better your system for flipping homes, the more flips you can do. The more flips you can do the more money you can make. The items above can affect profit and are just road blocks that you must get through to make the big money.
What’s the difference between making a profit of $35,000 on a flip or just making $5,000 on a flip?
Three areas where you could lose money if you are not careful.
- Bad rehab estimates – missing items that need fixed lower profit
- ARV – the ARV for home is too high
- Buy too high – You pay too much to buy the home- check out our article What is the financial formula for flipping houses
Let’s talk about why these three will lessen the profit on your flips.
Bad rehab estimates
This should be obvious when doing repair estimates you need to know what needs fixed. You need a good inspector or contractor to review what needs repaired and give an estimate. The trick is when they start the rehab will you run into issues that were missed on the estimate. This is why most flippers have some contingency money put into the estimate. This is a craft and the more you flip homes the better you get at estimating costs.
You also can’t be too safe by adding in a ton of contingency dollars because that lowers the cost to buy the home. The homeowner will go with someone that offers more because you had too much contingency in the bid you had submitted. If the estimates for rehab are sound then you should be able to offer a competitive bid for the home you want to buy and flip.
ARV (After Repair Value)
ARV is what the home will sell for after all repairs are complete. The reason you could run into an issue here is you may think you can get $300,000 for a home after repairs but the home only sells for $290,000. This is a $10,000 swing and hits your profits. You need to understand how much you can sell the home for after repairs. This is where having a great realtor can ensure your ARV is correct.
Buy too high
You may have heard you make your money when you buy. When buying a foreclosed, distressed or bank owned property to flip you need to buy as cheap as you can. The problem you have is you are usually going against other people that may bid up the price of the home. This is why you need to know your numbers so you know when to walk away if the price to buy goes too high. You are in the real estate flipping business to make a nice profit. Rehabbing a house to make $5,000 is just not worth it.
How much money can I make flipping homes with ARV $50,000 to $250,000
The lower the ARV the less profit you will likely make. When you are below $250,000 the lower the ARV the less money there is for you to make just based on prices. If you buy a house for $50,000 and the ARV is $100,000 and you have repair costs of $20,000 your profit is lower just because of the numbers are lower.
- Here is the formula for buying homes
- Financial formula for buying homes: (ARV) x .70 = X – rehab costs = purchase price
- Let’s see a few examples to help you with the math
You find a house for sale that is distressed and you want to buy it so what should you pay? The ARV of houses in this area with similar square footage and in great condition is $100,000. You have looked at the home and you have calculated the rehab cost to be $20,000.
- ARV = $100,000
- Formula: $100,000 x .70 = $70,000 then you subtract $20,000
- $70,000 – $20,000 = $50,000
- $50,000 is the price you should offer for the home
Potential Profit: $30,000 but you will need to subtract realtor fees, holding costs and costs for borrowing money to get true profit.
You find a house for sale that is foreclosed and you want to buy it so what should you pay? The ARV of houses in this area with similar square footage and in great condition is $250,000. You have looked at the home and you have calculated the rehab cost to be $50,000.
- ARV = $250,000
- Formula: $250,000 x .70 = $175,000 then you subtract $50,000
- $175,000 – $50,000 = $125,000
- $125,000 is the price you should offer for the home.
Potential Profit: $75,000 but you will need to subtract realtor fees, holding costs and costs for borrowing money to get true profit.
The potential to make more money with higher priced home should be higher if you are using the house flipping formula that we show above which many investors use as a basic guideline.
How much money can I make flipping homes with ARV $300,000 to $1,000,000
You find a house for sale that is distressed and you want to buy it so what should you pay? The ARV of houses in this area with similar square footage and in great condition is $400,000. You have looked at the home and you have calculated the rehab cost to be $60,000.
- ARV = $400,000
- Formula: $400,000 x .70 = $280,000 then you subtract $60,000
- $280,000 – $60,000 = $220,000
- $220,000 is the price you should offer for the home
Potential Profit: $120,000 but you will need to subtract realtor fees, holding costs and costs for borrowing money to get true profit.
You find a house for sale that is foreclosed and you want to buy it so what should you pay? The ARV of houses in this area with similar square footage and in great condition is $900,000. You have looked at the home and you have calculated the rehab cost to be $120,000.
- ARV = $900,000
- Formula: $900,000 x .70 = $630,000 then you subtract $120,000
- $630,000 – $120,000 = $510,000
- $510,000 is the price you should offer for the home
Potential Profit: $270,000 but you will need to subtract realtor fees, holding costs and costs for borrowing money to get true profit.
You need to understand the higher end homes have more potential to make more money but there are higher costs with higher end homes. If you are limited in the funding you use then a $900,000 home could take all your funding for the 6 months you rehab it. This means you can only do one rehab at a time on higher end homes. You could have done nine $100,000 homes with the same funding. Your risk is less with 9 homes to flip instead of one big home.
Flipping higher end home you need to know what you’re doing because you will be putting in higher end materials. One big warning if you do not do the rehab correctly it might sink you financially.
I would stick to homes below $250,000 if you can until you get some experience. If you live in California, New York, Chicago, Boston, Miami or any major city that is expensive then you will not be able to find homes under $250,000. The prices will be higher so you will have to buy and flip according to the price range in your area.
To really make good money at flipping homes you need to set up a system to flip 15 to 50 homes a year. This amount of flipping would not be a side job because this is a full time business. Let’s look at the numbers for flipping multiple properties.
Flip 10 to 30 homes a year
- 10 homes multiplied by $25,000 will give you $250,000. Remember you have not paid taxes on the profit and maybe you have someone helping you so you pay out a salary.
- 20 homes multiplied by $25,000 will give you $500,000. Now you are doing really well.
- 30 homes multiplied by $25,000 will give you $750,000. You can see as you expand the profit can be really good.
One issue you may have as you expand is finding good contractors to get the work done quickly. Another issue is finding deals to keep your flipping business going. The market is so tight right now that finding homes is very tough. These are all things you need to work through to grow the business and be successful. The things we talk to you about are never shown on the flipping homes TV shows.
Financing the deal
There are several ways to financing but if you want to get into flipping homes and make some really good profit you need private money. Banks will never give you the cash you need to buy homes, rehab them and then sell them. They have too many strict guidelines and regulations so your best bet is hard money lenders or private money.
To learn more on both private money and hard money lenders check out our post can you flip a house with no money.
You need to get properties into your system once you get good enough. A marketing system to get in leads for properties to buy is a must. I think having your realtor license is a key to really finding great deals. This will also help when you buy and sell homes since you can lower your realtor fees.
I get calls every week asking me if I want to sell my rentals. We also get postcards asking us if we are interested in selling a certain property. There are signs up around the city on poles that say we buy houses call 777-777-7777. All of these are real estate investors looking for someone ready to sell but has not yet listed it on the MLS. The MLS is where properties are listed by realtors so people can search and buy.
How do you find homes?
- Online foreclosure listings you can buy these lists through sites like com
- Signs you can put up saying we buy houses call this number
- Cold call people that may be in foreclosure or behind on mortgage payments
- Look to contact people in a divorce because they may need to sell quick
- Bank owned property get the list for your area
- MLS system has tons of properties to buy that need repairs and are below ARV
- Online sites like realtor.com
- FSBO – for sale by owner
- Home auctions
You should be able to do a few of these to start the buying machine going.
If you are new to flipping homes then you need to take it slow. You will need to make sure you have an investor or hard money lender lined up for when you find the right home to buy. If you do not have that all lined up and you find a good deal it will be gone by the time you go find a lender to finance the deal. Properties are moving so quickly that you need to be prepared.
Just do one house and then make sure you take note of things you could have done better. When you are done with the first home then buy the second and continue the buying, rehabbing, flipping system. Once you get good then expand how many homes you are doing at once. Make sure you have done enough flips to be comfortable before scaling the system.
Hopefully we have helped you learn about the kind of profits one can make when flipping homes. I wanted to make sure we gave you some realistic view of some of the issues you may run into. The TV shows about house flipping do not show everything and they do not show you all the expenses. Make sure you buy at the right price and have all the rehab costs calculated. This will make your first few flips go smoother.