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The house flipping trend has turned into a craze. You can’t turn on the TV or go to a local real estate meeting without people talking about how house flipping is a great way to make serious money.
You’ve probably wondered if flippers simply talk a big game or if they really bring home the big bucks. On top of that, what are your chances of success or failure?
Getting the answers to these questions is the first step in determining if flipping is a good career choice for you.
Average Earnings for House Flippers
If you look at the average earnings per flip, you will see that house flippers aren’t just talking a big game. They are making quite a bit of money.
The gross profit margin for flipped homes in the United States is $29,342. While that is a tidy profit, you can make even more if you flip houses that retail in the $100,000 to $200,000 range. These houses have a 54% return on investment, making this the most profitable price range for flipping.
How much flippers make also depends on the state. Massachusetts flippers earned an average gross profit of $103,384 per home in 2013, while California flippers earned $99,999 per home that same year. Maryland, New Jersey, New York, and Washington have also been kind to house flippers. If you can flip homes in one of those states, get ready to make some serious money.
While these are the average earnings, flippers can make much less or much more, depending on their talents. It’s important to understand the success and failure rate before taking on this venture.
How Successful are Flippers?
In a perfect world, everyone would make money with house flipping. It would be an easy investment, and all flippers would be wealthy.
Of course, the world isn’t perfect, and flipping houses is hard work. Because of that, failure is relatively common.
Forty percent of home flips are not successful. Out of that 40%, 12% sell for the breakeven price or a loss before all the expenses are added up. Once the expenses are added, these investors could reasonably go out of business. The remaining 28% have a gross profit that is less than 20%. At the best, these flippers barely break even, but in most cases they lose money on the deal. Most flippers spend 20-30% of the purchase price on repairs, so your gross profit should be a minimum of 30% of the purchase price. If it is less than that, you run the risk of losing money.
Those numbers might be frightening, but if 40% fail, 60% succeed. The 60% have some qualities in common.
First, they have enough money to take on a project of this size. Real estate investment is expensive. Even if you get a great deal on a foreclosed home, you still have to pay for workers and repairs, and that can add up. You need tens of thousands of dollars at your disposal after you pay for the home. You also need to have extra money on hand just in case you flip the home and it doesn’t sell immediately.
They also have the time to handle the project. You need to have months to dedicate to looking for a home to buy. Then, you need weeks to fix it up, schedule inspections, list it, and sell it. If you don’t have that kind of time, you will not be successful with house flipping.
The most successful investors also know how to get the repairs done quickly. Some know how to make repairs themselves, while others have the professional contacts necessary to find people who do.
These investors are also knowledgeable about real estate. You have to know when the market is hot and when it isn’t. You also need to be able to look at a property and see its potential. If you don’t understand the market, you might buy a lemon that you won’t be able to move. You also might buy a property at the wrong time.
They also have patience. Putting a house up for sale and waiting can be stressful. You want to unload it quickly, and if you don’t have patience, you might bite at a bad offer. You have to know when to hold onto the property and when to sell it.
At the same time, the best flippers don’t overprice the property. They put it up for a fair price, ensuring that they are able to net a nice return. Overpricing the property can be an expensive mistake. The property might languish on the market if you overprice it.
House flipping might be a risky venture, but it is well worth it if you make money. Take your time to learn the best practices and then dive into the game. If you’re prepared, you can cash in on one house after the next.
Author: Jeff Gitlen