Last week I threw out a crazy idea about profit. Instead of making it a requirement that you hit it out of the park on profit for every flip: you consider 10K-20K a success. I know, I know, that is completely crazy. But as I promised, there is another way to look at profit. Now as you become more advanced in flipping you may use a combination of these methods.
The second way is by looking at a percentage of the sale price. So for example, if you are looking to sell a house for 300K then you would expect a 10-15% profit, which would be 30-45K. Now, I will tell you, this is just an estimate. It’s a quick way to look at a project and make a decision. So now let’s say in this instance the house was priced at 200K. A quick analysis would look something like this:
| Purchase price | $200,000 |
| Sale Price | $300,000 |
| Profit: | $45,000 |
All expenses including buying, selling, and renovations would need to be $55,000.
| Sale Price | $300,000 |
| Purchase Price | $270,000 |
| Renovations and all buying and sales expenses | $70,000 |
| Profit: | $30,000 |
This second scenario allows for an increase in renovations and, should the project cost less, then your profit will increase.
Building Opportunities
Either way, this gives you a quick ballpark if you are looking to write an offer. This is why knowing the ARV of an area before you go look at the house is so crucial. If you see this listing come up and think it looks like a deal, but then you find out the resale for the neighborhood is 250,000 then you know this won’t work unless the seller is willing to decrease the list price.
If you are looking to build financial opportunities from house flipping and potentially a full-time business then I encourage you to look at profit and projects differently. The reality is you can’t get the experience to take on a 50 or 100K project without doing the 20K and 30K projects first.
Want to buy a property and renovate it?
Looking to buy a house to renovate? Check out the fixer upper checklist to help you find the perfect house.
For more inspiration for home renovations, follow me on Pinterest @thresholdhomesmn
