Flipping houses is one of the fastest ways to build up cash to buy bigger properties like apartment blocks to build long term wealth.
But how much money can you make flipping houses?
Generally, flipping houses as the professionals do it, follows this formula:
Your ARV (after repair value) is 100 cents on the dollar.
You need to buy at 40 to 60 cents on the dollar
Fix to 70 cents on the dollar
Sell at 100 cents on the dollar
Cost to sell is 10 cents on the dollar
Net profit 20 cents on the dollar
After financing you may net anywhere from 10-15 cents on the dollar if everything is done right.
So lets say you have a house that you can flip for $200,000 that’s 100% of ARV
You buy for $100,000
Fix for $40,000 (kitchen, bath, flooring, paint)
Sell at $200,000
Cost to sell is $20,000 (realtors, discounts, staging, utilities, taxes, closing costs, lawyers etc.)
Profit $40,000
Then pay your financing $10,000 to $20,000 depending on your cost of borrowing (typically 8%-18% with hard money lenders)
Your net profit should be $20,000 to $30,000 on that house.
In % of ARV you can expect to make 8% to 15% net on a house if you are using financing of 8-12% per year and the property is bought and sold in a six month timeframe.
If you use your own cash, all cash, or cheap bank financing at 3% you can certainly make more, but then you have to ask yourself, are you limiting the scale of your business by only using your cash?
To apply this formula to your city, look up the median home price ( my city of Winnipeg is $320,000) and then take a 10% net from the price, so in Winnipeg, you can expect $32,000 per median home.
Respect The Grind,
Stefan Aarnio
