Have you been thinking about flipping a house? Those Saturday morning home improvement shows make it look easy. Before you get started here are a few things you might want to consider.
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Interesting cartoon, but it’s still a good business case. Where else are you going to make 20% on a 420k investment over a 3 to 6 month period.
This might be more insightful if it gave some indication of a reasonable expected rate of return, or if it explained that one should determine in advance if the planned business model was realistic for the market region of planned execution. Further, most people perform these types of upgrades with the intention of getting a specific Rate of Return for each type of upgrade. Maybe you could include that data and show how the investment weighted avg ROR of those individual upgrades relates to the overall Return on Investment.
Realtor takes 6% of the purchase price as well.
Great point. 6% is a huge chunk. And it’s hard to get homes sold by owner in this market.
Not yet complete; cost to sell (Sf) is going to be a minimum of 4%, and more likely closer to 10%, and then there are carrying costs for the loan during renovation and the sale process; no less then 2, and more likely 4-6 months.
Non owner occupied financing will require at least 20% down payment – $70,000; leavening a loan amount of $280,000; and probable purchase price fees (pf) of 2% – 3.5%; or about $7,500 – $9,000 cash in acquisition fees. An estimated monthly carrying (Cc) will be about $2,000 plus insurance (which I will not estimate). Pf+Cc+Rehab+Sf = total $ of project
Costa on the above will look more like this: $7,500 + $4,000 + $70,000 + $20,000 = $101,500 on the low end; OR $9,000 + $12,000 +$70,000 + $50,000 = $141,000 on the “high” end plus an initial $70,000 “anti” to procure the financing.
All the successful “flippers” I know budget “3% in, 10% out” for “sales and acquisition” costs.
haha, It can be very expensive, but it is also rewarding. I just flipped a house in Denver, CO and made just over $50K. I bought the house for $62K Spent $40K of my own money and sold it just 2 months ago for $155K.
This list ignored: carrying costs (interest on your down payment lost + interest payments on the home loan + interest payments on the repair costs if separate) consider also the rate will be higher for a fixer since it’s not your primary residence, closing costs on the front AND back end (points, inspections, deed/recording fees, title insurance, lender fees, appraisal fee, transfer tax, application fee, escrow fee, termite inspection fee, attorney’s fees in some areas, lenders attorney’s fees in some areas, documentation fees, FedEx fees…), property taxes, insurance to cover the home and the construction effort, mileage and fuel for your car, taxes on the gain at standard income rates, and finally… wait for it… wait for it… your time.
There are some others things people ought to consider when thinking about flipping a home. It probably will not be $80,000.00 profit because you also have to take out $30,000.00 for real estate commission (assuming 6% commission on $500,000.00 sales price), so now your profit is only $50,000.00. Then you likely have real estate excise tax (depending upon your state.) Washington State taxes a real estate transaction at 1.78% of the sales price, so subtract another $8,900.00, so now your profit is down to $41,000.00. Then, you have to consider the capital gains tax incurred. You don’t have to pay this right away, but you do have to pay it. On this transaction, it will probably be around $8,400.00, so now you are down to about $32,700.00 in profit and likely less. There are also a few other costs to consider, such as seller’s share of closing costs, and of course your own overhead and possible debt service costs (did you pay $350,000.00 cash for the home or take a loan?). When its all said an done, your profit is not going to be where you might think it is. There are ways to improve this, but I’m not so sure this is the best ROI you could be getting for your money. I think holding the property and maximizing the cash flow out of it would be a much better investment.
It is what everybody did from 2000 to 2005 when the banks and loan guys gave you money because you had a heart beat . This is why where in this mess
Once you factor in your own labor, you could have made as much money without the investment.
I AM PLANNING TO DO BUY HOUSE AND THEN FLIPPING HOUSE. WHAT ARE ALL THE THINGS TO NEED TO KNOW ABOUT TAXES AND COMMISSION. I AM LIVING IN CALIFORNIA. THANKS