The Basics – How Much Do House Flippers Make?
How much do house flippers make? That is a fairly common question, with a variety of answers. Seriously, there are many ways to answer that, and you will find that often the asnswer has much more to do with the motives of the person or organization providing the answer than anything else. What is the saying? “lies, damn lies and statistics” (that has been most often attributed to Mark Twain, but he attributed it to Benjamin Disraeli. So much for quotes you see on the internet…))
Let’s quickly review some the factors that might affect how that question is answered. How do you define “house flipper”? How do you define profit? Understanding how those questions are being answered will help you keep any information in perspective and evaluate it objectively.
According to recent data compiled by Attom Data Solutions the averasge gross flipping ROI was loweswt it has been since the third quarter of 2014. Homes flipped in the second quarter of 2019 of 2018 sold for an average of approximately $65,000 more than what the investor purchased them for, and that is down from over roughly $69,000 for the two previous quarters.
You will notice that those figures are gross profit, not net profit. It is just a simple calculation of sale price minus purchase price. But as we all know, investors incur costs in flipping a house. There are business costs, rehab costs, loan costs, holding costs, selling costs and more. All of those things impact an investors bottom line.
How Are Profits Calculated?
Costs that have an impact on how much house flippers make usually fall into these categories
These are not costs incurred for one specific deal, but those related to keeping the REI business going, finding prospective deals, advertising, networking, banking and the like.
These costs are the ones most people,whether they are house flippers or not, recognize as having an affect on the profits that flippers realize. These are things like the building materials and contractors labor fees that the flipper needs to plan on paying in order to get the home ready for the actual flip.
When house flipping profit figures are discussed these costs may or may not be disclosed, so it is important to look closely at the source data referenced. Certainly when people think about flipping houses they realize that any money borrowered carries a cost. Those unfamiliar with the process might become confused about the expense incurred and how it ultimately determines profit. It is much more complicated than just what the interest rate and points are. For one thing, the length of the loan can make an inital lower interest rate mores costly, particularly if the loan has penalties for early payment. It is always important to evaluate how long the money is needed when calculating costs. There are also other fees that need to be considered, and these may vary depending on the lender.
Those unfamiliar with house flipping may not realize that at the base of the transaction is, in fact, the purchase of a home. So there are costs associated with that. Inspections, taxes, utilities and municipal fees. And because there is a real estate transaction taking place there are agent commisions for buying and selling as well as title fees and legal costs. Again, this is where review of the source data for the profit figures can help. In the case of situations like profit claims on a television show or an individual deal you may have to dig for the information a bit.
What About Do Hard Money’s Borrowers?
Do Hard Money house flipping profit statstics For 2018 are as follows:
The average profit realized by our borrowers completing house flips was $33,578! That sounds like less than the figures Attom Data reported, right?
But wait, we told you to consider what the figures and expenses the source data included to get to those figures. Here is DHM’s earnings disclaimer.
Average profit per property for paid off loans during 2018 was $33,573. This excludes loans for properties previously owned by borrower & refinanced with DHM loan, and DHM loan payoffs by refinancing with another lender. This also excludes REO properties. Where available, profit was calculated using proceeds to seller acquired from borrower resale HUDs. Where borrower resale HUDs were not available, profit was calculated using sale price from public records and estimated closing costs of 7% of resale price. All calculations include estimated valuation and inspection costs of $800 and estimated holding costs of 0.08% of the resale price per month the property was held. Profit calculations are AFTER paying borrower back their cash-to-close and earnest money deposit.
We disclose as much as we can without violating our individual borrowers privacy. You will notice that when we post a funded deal on our site that we include the HUD statement wehn we have it. Some of the deals we post will just be recently funded deals, where the rehab has yet to be completed. Others are on properties that the borrower has rehabbed and sold and we have a more complete figure for them. As a hard money lender it is valuable for us to to provide evidence that we do fund house flipping loans, so we post both types of deals. Many times individual borrowers do not ahre all of their information with us when they sell, as you can see from above. And as far as testimonial videos go, these are expensive to produce and not all of our borrowers are comfortable being on camera, so there is no way we can have one of those for every single deal!
Do Hard Money’s house flipping borrowers also had great numbers when it comes to cash to close. Remember, one of the things you want to consider when reviewing a loan option for a house flip is how much money you need to bring to the closing table. And consideration should also be given to whether or not you would be tying up your own capital or obtaining a loan for that cash to close.
So what were the cash to close figures for DHM’s loans?
Median cash to close was less than $12,000
26.42% (about 1 in 4) borrowers needed to bring $2,000 or less to the closing table
18.87% (about 1 in 5) were required to bring less than $500 cash at closing.
What Can you Expect On Your House Flip?
If you have never flipped a house before it can be easy to get stars in your eyes and focus only on the profit. Here are a few tips to help you keep your focus and have realistic expectations.
1- When looking for prospective deals you should look for all of the ways/reasons that it might NOT be profitable. This way you will have a good idea of the risks to your deal and whether or not to even pursue it. Of course, you cannot expect to remove all the risk, because the risk is what make the profit possible. But looking at it without rose colored glasses is something many novice investors fall prey to.
2- Markets vary. Some areas have far more of the deeply discounted properties required to make house flipping work than others. You may need to expand your search area or expect lower margins than in other parts of the country.
3- Consider wholesaling before actually completing a house flip. That way you can get comfortable with the first part of the transaction, finding and evaluating the property, before you take on the whole fix and flip project.
Just Getting Started?
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