How Much Money Can You Actually Make Flipping Houses?

Flipping houses has become very popular over the last few years, and this can be largely attributed to the TV shows advertising it as a great way to make a quick buck with real estate. What these shows often omit, though, is the risk that is involved. There are cases where buyers end up overbuilding for their market for instance, or others when houses simply take longer to sell. Another thing that has to be considered is the trade-off between the time and effort required, and the return on investment.

Flipping houses still remains profitable, however, but it largely depends on how savvy you are about the whole process. It’s also important that you have realistic expectations. In this article, we’re going to tell you what you can expect to make flipping houses, and a few tips for people getting started.

How Much You Could Make on a Single Transaction

According to one industry study, it was found that house flippers earned an average 40% ROI in 2019. The gross profit was roughly $65,000 per flip on homes with a median value of $160,000 (initial purchase price). However, that gross profit does not include the cost of repairs and renovations which can run anywhere from 20% to 33% of the property’s value.

Let’s look at a hypothetical case so you can get a better idea of what you can expect to take home. Let’s assume that you bought a median-priced home at $160K. If you sell the house for $225,000, which is around the national average, your gross profits would be $65,000. If we take the previous estimate for repairs, that means that you can expect to pay anywhere from $44,000 to $74,000 to make the necessary upgrades.

In this case, if expenses are at the low end, you will get a net profit of $20,000, which is around 12%. If you misjudged the total amount of work that needed to be done, however, and spent $74,000 on renovations, you’ll actually end up with a loss of $9,000, which is around 6%.

This is why the amount of money that you can make is so unpredictable. But there are things that you can do to increase your success rate. One way to maximize your profits is to choose neighborhoods that are in demand but have a decent stock of homes in need of repairs or renovations. However, you have to make sure that you have a thorough inspection performed. Also, you should privilege homes with repairs you’d feel comfortable performing yourself. This means staying away from homes with major plumbing or electrical issues if possible.

What is the Actual Success Rate for Home Flippers?

Well, it’s pretty difficult to know what the exact success rate is for house flippers as there is little data on it. There’s also the fact that unsuccessful flippers are not as likely to disclose their failures. But, if we had to estimate, we’d say that it’s pretty low. However, this isn’t because flipping houses is not a viable investment strategy, but mainly due to lack of experience and misconceptions.

For one, success rates have probably been negatively affected by the popularity of house flipping TV shows. These had the effect of increasing demand for the best properties for fix-and-flips, which drove up prices. It has also led to an influx of hobby flippers who don’t know what they’re doing, which are those most likely to fail on their first try and quit. Successful flippers tend to treat flipping as a full-time job, not a money-making hobby they try on the weekends.

Average Earnings per House Flipper

It is estimated that the average house flipper handles anywhere from 2 to 7 houses a year. If you earn the average $20,000 per flip, this yields a $40,000 annual income at the lower end of the spectrum assuming everything goes right. If you do 7 houses a year, you could earn up to $140,000 a year. If 1 or 2 of the renovations go over-budget or houses take too long to sell, you could still clear $100,000 a year.

You should also know, however, that you can go well beyond the 7 house per year mark. Full-time house flippers with a good team behind them can handle up to 20 houses a year, which often improves their profit margin. Selling higher volumes means that they can afford to buy materials in bulk, and they may be able to negotiate volume discounts with contractors and vendors. Realtors will also give them inside tips on ideal rehab properties about to hit the market, while everyone else is touring fixer-uppers.

Is Flipping Houses a Good Investment?

Many of you might be asking yourselves by now – ‘is flipping worth it?’ Well, the answer depends on whether or not you can earn a profit and if you feel like the time and effort required is worth it. You also have to find ways to minimize risks and increase your chances of getting a substantial ROI.

As this article highlights, there are various factors you have to address. For one, Robert Jenny Design suggests that you calculate the After Repair Value, or ARV of the home before you decide to make any renovation and show the exact steps for calculating it. Another thing they advise against is going overboard with the renovations. You should always take the neighborhood into account, and make sure that the house actually fits with it. If you don’t, the additional repairs you make will be superfluous and won’t add to the home’s value.

You should also focus on necessary repairs before moving on to modest upgrades like new paint and cabinets. Also, make sure that you budget at least 20% of the property’s value to cover for unexpected renovations.

House flipping can be a high risk, but high reward real estate investment strategy. Fortunately, there are ways to mitigate risks and maximize your returns. So, make sure that you come thoroughly prepared, and don’t base your opinions on hearsay and reality television.

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