{"id":177525,"date":"2014-10-05T04:00:09","date_gmt":"2014-10-05T11:00:09","guid":{"rendered":"http:\/\/getrichslowly.org\/blog\/?p=177525"},"modified":"2019-09-03T01:54:24","modified_gmt":"2019-09-03T08:54:24","slug":"can-you-really-get-rich-quickly-from-fix-and-flipping-homes","status":"publish","type":"post","link":"https:\/\/www.getrichslowly.org\/can-you-really-get-rich-quickly-from-fix-and-flipping-homes\/","title":{"rendered":"Can you really get rich quickly from fix and flipping homes?"},"content":{"rendered":"
Some reader stories contain general advice; others are examples of how a GRS reader achieved financial success or failure. These stories feature folks with all levels of financial maturity and income.<\/em><\/p>\n Mark Ferguson has been a Realtor since 2001 after graduating from the University of Colorado with a business finance degree. He runs a real estate team of 10 that sells over 200 homes a year, fix and flips 10 to 15 homes a year and owns 11 rental properties. Mark also runs www.investfourmore.com<\/a>, a blog that discusses Mark’s fix and flips, rental properties, becoming a real estate agent and everything real estate related.<\/em><\/p>\n Many television shows portray fix and flipping as a very profitable business that can easily be done in your spare time. Sure there are usually a few contractor problems, but in the end the house sells for a lot of money and the owners make a killing. In reality, you can<\/em> make money fix and flipping homes, but it takes a lot of hard work and a lot of flipping to make a lot of money. It is also very easy to lose a lot of money if you do not account for all the costs or overestimate the value of your flip.<\/p>\n I have been a Realtor since 2001, and I have fix and flipped close to 100 homes over the last 10 years. I have 10 fix and flips going right now, and I can tell you it is not easy managing one fix and flip let alone 10! It takes a lot of money to fund fix and flips, more time than you think to sell a flip, a lot of experience to deal with repairs and contractors, and expenses are almost always more than you figure.<\/p>\n If you buy houses cheap enough with enough of a margin for error, you can make good money fix and flipping homes — but don’t expect to be a millionaire after a year or two in the business.<\/p>\n Most fix and flip television shows love to show the before and after pictures of a flip with the initial purchase price and the selling price at the end. There are a couple of shows that portray the expenses accurately, but most leave out many of the costs that flippers encounter. In the fix and flip business, many investors use the 70 percent rule to determine if they can make a good profit when they flip a home.<\/p>\n The 70 percent rule states the purchase price should be 70 percent of the after-repaired-value (ARV) minus the cost of any repairs. For example, if a house will be worth $150,000 after it is repaired and it needs $30,000 in repairs, the 70 percent rule states an investor should pay $75,000 for that house. Buying a house that will be worth $150,000 for $75,000 seems like a home run, but it is really just an average deal because there are so many costs associated with flipping.<\/p>\n The obvious costs involved in flipping are the purchase price of a home and the repair costs. In our example, there appears to be $45,000 in profit once you include the selling price and the repairs but there are many more expenses that many beginners do not consider.<\/p>\n Here is an example of what the total costs would look like on a typical fix and flip I buy and sell. I have a great lender who charges me 5.25 percent interest rate and 1.5 percent origination, but they only lend on 75 percent of the purchase price. My loan costs are much lower than most flippers’.<\/p>\n Purchase price: $75,000<\/strong><\/p>\n Loan amount: $56,250<\/strong><\/p>\n Costs:<\/strong><\/p>\n Loan costs: $2,500<\/p>\n Carrying costs: $1,600<\/p>\n Buying costs: $1,000 (I usually do not do an inspection or have an appraisal)<\/p>\n Repairs: $30,000<\/p>\n Selling costs: $7,000 (Since I am a Realtor, I only pay the buyer’s agent commission. I list the house myself and do not have to pay a listing agent.)<\/p>\n Miscellaneous: $5,000<\/p>\n Total costs: $47,100<\/span><\/strong><\/p>\n If I sold the house for $150,000, my profit would be $27,900. That is a decent profit, but I want to make at least $25,000 on each flip because of the risk involved and the money I put into them. On this flip, I would need at least $50,000 of my own cash for the down payment, carrying costs and repairs. Beginning flippers could easily spend three times as much<\/a> for financing costs and another $4,500 to pay a listing agent. That cuts the profit to under $20,000 for a house that sells for twice as much as it was purchased for. The next time you watch a fix and flip show, see how many of these costs they actually tell you about!<\/p>\n It is true that the profit potential goes up when you flip more expensive homes. However, there are many more risks involved when flipping expensive houses.<\/p>\n The biggest problem with flipping more expensive homes is that the difference between the buy price and sell price is massive. Using the 70 percent rule, a house with a $500,000 ARV would have to be bought for $300,000, if it needed $50,000 in work ($500,000*.7-$50,000=$300,000). It is very hard to find a deal that has such a large difference between the ARV and the purchase price because an owner-occupant buyer would be willing to pay much more for the house. The owner-occupant can pay $400,000, put $50,000 into the house and still have a great deal. In the more expensive market, it is much more likely owner-occupants will have the cash to put into homes.<\/p>\n From start to finish, my goal is to have a flip for four months from the time I buy it to the time I sell it. I almost never hit that number because there are so many unknowns. The biggest delay I have is finding good contractors, especially when I have 10 properties at once. It takes me a couple of weeks to get a contractor started on the work, about a month for the work to be done, about three weeks for the home to be on the market before a contract is accepted and yet another month for the escrow\/closing process — if everything goes perfectly.<\/p>\n Unfortunately, it often takes longer for the contractor to make repairs. We inevitably see a few things the contractor missed and they have to go back to the home to take care of those items. Then we have to line up cleaners and get the home listed. Sometimes it takes three weeks to get a good offer; sometimes it’s just one week, but it could just as easily be two months. In addition, the escrow process can vary from one month to sometimes two months. Now that I have so many houses and not enough contractors, I am looking at almost nine-month turn times on some of my properties.<\/p>\n After looking at all the costs and everything that has to be accounted for, it may seem a bit intimidating to flip a home. Especially when you consider we have not even talked about how to find a fix and flip that can be bought cheap enough to make money. Just like anything in life, it takes time to learn what you are doing and feel comfortable. I still am learning new techniques to find properties and finding better ways to fix and flip homes.<\/p>\n After you learn the business<\/a>, it can be a lot of fun. I still get excited whenever I get a new deal under contract, almost as excited as when I sell one for a nice profit. Over the last two years, I have averaged about a $35,000 profit on each of my fix and flips. I completed 10 flips last year and should complete (buy, fix, sell) over 10 this year. On most flips, I make around $30,000 in profit; but once in a while, I will make more, like this property that I made over $50,000<\/a>. In the last 13 years of fix and flipping homes, I have made over $100,000 twice on a single flip. My success has not come from making a huge profit on one or two flips a year, but on consistently making modest profits on multiple homes. There is much less risk flipping many lower priced homes than flipping one expensive home.<\/p>\n The best part about this business is that I do not flip full time. I run a real estate team of 10 and my primary job is running that team and selling houses. Once you set yourself up correctly with the right contractors, the right financing, enough of your own money and experience, the business does most of the work itself. It is not easy to get to that point and it takes a lot of time and reinvesting money back into the business.<\/p>\n Finding a great deal is the key to making money in the fix and flip business. I used to buy 90 percent of my fix and flips at the public trustee foreclosure sale. These houses were sold in as-is condition for cash, and many times the inside of the house could not be viewed or homes were occupied. When I bought a home at the trustee sale, I had no inspection period and no way to back out once the property was purchased. In the last two years, the competition at the trustee sale has increased and I have not purchased any homes from that sale in over a year. In fact, I do not even go to the sale anymore because people are paying close to the amount you could buy a house for on the MLS. When I buy on the MLS, I get to have an inspection done, I can use a loan to buy the property, and I don’t have to deal with any occupants.<\/p>\n Almost all of my deals are bought on the MLS now. There are a few tricks to getting a great deal, but it is not easy with rising prices and competition.<\/p>\n There are other ways to get great deals such as direct marketing to sellers who do not have their properties for sale or finding wholesalers who sell cheap properties to investors.<\/p>\n If you have decided you want to give flipping a try, here are some tips to keep you from losing too much money on your first try.<\/p>\n There is a lot of information in this article and I didn’t even come close to covering every topic involving flipping houses. I hope it gives you an overview of what it is like and what it takes to flip houses. It is not about hitting a homerun on every flip, but hitting a lot of singles over and over again. I have lost money on flips before, sometimes because of things I have no control over. Since I had many flips going at once, losing money on one flip did not destroy my business \u2014 but this was the worst experience.<\/p>\n A couple of years ago, I bought a flip at the trustee sale. I saw the interior of the home through the windows but never got inside the house before I bought it. It was a good deal on a newer house, with little work needed and I thought I would make some easy money. After I bought the house and got the locks changed, we found a brand new BMW in the garage. I knew something very odd was going on, so we tracked down the previous owners in California (I am in Northern Colorado). They claimed the bank had foreclosed wrongly and they were going to get the house for free. They ended up filing a lawsuit against the bank a week later and we had a house we could not sell because it was involved in litigation.<\/p>\n The previous owners had been convinced they would get the house for free by a legal aid. We offered them $5,000 to drop the case and they would not even think of it, because they knew they would get the house for free. Long story short, the lawsuit was frivolous and thrown out by a judge as soon as he saw the case. The problem was that it took the court almost a year to look at the case even after we had hired lawyers and paid them almost $10,000 to speed up the process. After carrying costs and lawyers fees, I lost about $15,000 on that house. There was no way to know that would happen, but sometimes that’s how it works when buying houses at the foreclosure sale. That is why I prefer to have multiple low-value houses at the same time, instead of one expensive house. I was still making money and turning other properties while that house was tied up. If all my money was tied up in one house that I could not sell for a year, I could have been in serious trouble.<\/p>\n I have been in the fix and flipping business for a long time and it has been very good to me. It is not easy to get started, to find great deals, find great contractors or to get all the money needed to flip. It is not impossible either, but it does take a lot of planning and education to get started. If you want to ask any questions in the comments, I’ll try to respond as quickly as possible.<\/p>\n","protected":false},"excerpt":{"rendered":" Some reader stories contain general advice; others are examples of how a GRS reader achieved financial success or failure. These stories feature folks with all levels of financial maturity and income.<\/em><\/p>\n Mark Ferguson has been a Realtor since 2001 after graduating from the University of Colorado with a business finance degree. He runs a real estate team of 10 that sells over 200 homes a year, fix and flips 10 to 15 homes a year and owns 11 rental properties. Mark also runs www.investfourmore.com<\/a>, a blog that discusses Mark’s fix and flips, rental properties, becoming a real estate agent and everything real estate related.<\/em><\/p>\n Many television shows portray fix and flipping as a very profitable business that can easily be done in your spare time. Sure there are usually a few contractor problems, but in the end the house sells for a lot of money and the owners make a killing. In reality, you can<\/em> make money fix and flipping homes, but it takes a lot of hard work and a lot of flipping to make a lot of money. It is also very easy to lose a lot of money if you do not account for all the costs or overestimate the value of your flip.<\/p>\n","protected":false},"author":3213,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[492],"acf":[],"_links":{"self":[{"href":"https:\/\/www.getrichslowly.org\/wp-json\/wp\/v2\/posts\/177525"}],"collection":[{"href":"https:\/\/www.getrichslowly.org\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.getrichslowly.org\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.getrichslowly.org\/wp-json\/wp\/v2\/users\/3213"}],"replies":[{"embeddable":true,"href":"https:\/\/www.getrichslowly.org\/wp-json\/wp\/v2\/comments?post=177525"}],"version-history":[{"count":0,"href":"https:\/\/www.getrichslowly.org\/wp-json\/wp\/v2\/posts\/177525\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.getrichslowly.org\/wp-json\/wp\/v2\/media?parent=177525"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.getrichslowly.org\/wp-json\/wp\/v2\/categories?post=177525"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}<\/span>Are the Television Shows Accurate in Their Portrayal of the Flipping Business?<\/span><\/h2>\n
<\/span>What Costs are Involved in Fix and Flipping Homes?<\/span><\/h2>\n
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<\/span>Will You Make More Money Fix and Flipping More Expensive Homes?<\/span><\/h2>\n
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<\/span>How Long Does it Take to Fix and Flip a House?<\/span><\/h2>\n
<\/span>Is All the Hassle Worth it When Fix and Flipping Homes?<\/span><\/h2>\n
<\/span>How Do You Find a Great Deal to Fix and Flip?<\/span><\/h2>\n
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<\/span>What Should You Avoid if You Decide to Start Flipping Homes?<\/span><\/h2>\n
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<\/span>My Worst Flipping Experience<\/span><\/h2>\n
<\/span>Conclusion<\/span><\/h2>\n