# Is anyone making money flipping houses without their own sweat equity?



## bob_cntrctr (Jan 30, 2008)

Gentlemen,

I'm sure this is going to sound like an innocent little lamb - but I've been running numbers thinking about doing some house flipping. A thousand issues to take into consideration, but in this thread I'm focussing on the actual, direct, reno cost.

There are those who claim to be able to clear an acceptable margin without doing any of the actual reno work themselves. It's all done by either a contractor or their own subs. The investor never gets his hands dirty.

Running numbers on a few properties, it seems to me that, short of finding properties as deeply discounted prices, this formula leaves margins pretty thin. Which leads to the conclusion that the only reliable way (highly qualified "reliable") to clear a profit is to do a lot one's self, with the help of subs with whom you have a good relationship and therefore good rates.

Has anyone out there managed to make money on flips without getting their own hands dirty?

Thanks.


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## jproffer (Feb 19, 2005)

Depends on where you are. Around here, NO WAY...it's hard to make money even with your own sweat equity. There's just no room for that profit around this area...if you price it enough to even break even, you're WAY outta the ballpark on comps, etc.


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## Sabagley (Dec 31, 2012)

Same here. 

The tract home prices here are low enough that most people would rather buy a new pig than an old one with lipstick.


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## The Coastal Craftsman (Jun 29, 2009)

The issue is everyone and their brothers are house flippers. They bid more money for the property than its worth and they make less money than getting a 9-5 job. Its like the auction shows. The units used to sell for 1/10th what they were now these shows are on TV so its destroyed the market for everyone. The same goes for these shows on TV where anyone can flip a house and make money. The problem is the materials and labor are heavily discounted and they're also get paid to do the show. 

If your lucky and can get a great deal on a house and do the work your self then you may be able to just make a ok wage from it after its all done. I make more money doing the work on these places than the guys selling them.


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## bob_cntrctr (Jan 30, 2008)

BCConstruction said:


> I make more money doing the work on these places than the guys selling them.


That's what my numbers were telling me. I'd be better off being the reno contractor than the investor. Normally I'd be both - but I'm getting old and tired.


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## KAP (Feb 19, 2011)

bob_cntrctr said:


> Gentlemen,
> 
> I'm sure this is going to sound like an innocent little lamb - but I've been running numbers thinking about doing some house flipping. A thousand issues to take into consideration, but in this thread I'm focussing on the actual, direct, reno cost.
> 
> ...


Bob, what formula are you using to determine house value before and after renovations on potential offers?...

IOW, how are you determining it is a deal to pursue or not...


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## bob_cntrctr (Jan 30, 2008)

KAP said:


> Bob, what formula are you using to determine house value before and after renovations on potential offers?...


No formula - each potential property is evaluated for its unique situation.

But if I were to generalize - it's an iterative process, with the aid of my real estate agent and contractor, of "if I do this, it should end up worth X (the agent), and cost Y to do (the contractor), so I'd need to buy it for Z to make a decent return", where I imagine several versions of "do this", from the basic to the complete. 

In most cases, Z turns out to be an unrealistic number because of the size of Y. Which is why many flippers are their own contractors.


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## oldfrt (Oct 10, 2007)

Its going to depend on the present market in your area.Once the market hits the cusp
of having fewer available units,its harder to find reasonably priced flips.

Areas with a shortage of available units have already started an upward trend in pricing.The 
trick is to have bought before this happens.
Real estate agents and educated HO's are pretty savvy about this supply and demand,so
flipping gets a little more involved.Now you need to anticipate how high the prices may
rise to gauge any profit,at the same time sellers are less likely to reduce their asking price.
The up side of this is your less likely to have to hold on to the property too long before
it sells.

I've been helping daughter and SIL find a house for a few weeks now and the market here
has started to shift.Some places are only listed a few weeks before they sell.They were fortunate
enough to find one that just hit the market.HO wouldn't budge on price.Although it was well
below appraised value,it needs work.My estimate of what has to be done would bring the cost
to just above the current value of similar properties.So if they stretch the needed repairs/updates
over a period of a few years,and the market continues to rise,they may have some gain in equity,
minus the cost of interest paid out.
That's without me doing any of the work,just subbing it out.

If the market hasn't started to shift in your location,it may be a better buyers market,you just 
have to be able to predict when/if the shift will occur there to help maximize profit and minimize
holding costs.

Bob said the same thing with a few less words:


> No formula - each potential property is evaluated for its unique situation.


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## killerdecks (Apr 18, 2008)

bob_cntrctr said:


> Gentlemen,
> 
> I'm sure this is going to sound like an innocent little lamb - but I've been running numbers thinking about doing some house flipping. A thousand issues to take into consideration, but in this thread I'm focussing on the actual, direct, reno cost.
> 
> ...


You can't just pick any old piece and wonder where the problem is. There are bad places and good places, where they are in your area, you have to find. 

I like the tax auctions, am doing 2 now, use my own crews to do all the work. Subbing out of house would not be feasable.

I do em in the "off" season to keep the guys from straying, cause when we are busy I need em. Don't want to train new guys.


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## bob_cntrctr (Jan 30, 2008)

killerdecks said:


> ..use my own crews to do all the work. Subbing out of house would not be feasable.


That's the issue I'm looking at.


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## killerdecks (Apr 18, 2008)

We do sub out the mechanical and electric,plumbing, but the rest is in house, I have found that drywall guys do better and quicker for less than we could. The rest all carpentry. And trim we do. It helps to buy wholesale but that's a whole nuther subject.


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## bob_cntrctr (Jan 30, 2008)

killerdecks said:


> We do sub out the mechanical and electric,plumbing, but the rest is in house, I have found that drywall guys do better and quicker for less than we could. The rest all carpentry. And trim we do.



In other words - even those who consider they do it themselves, still sub out many tasks. I'm guessing very few have the in-house resources to actually do every last thing themselves.

So - I'm beginning to imagine a similar formula, in reverse.

I'm thinking if I personally do a combination of the expensive labour stuff like electrical and plumbing, plus the stuff I actually enjoy like ceramic tile, hardwood floors and paint....and sub out only the remaining things like tear-out, insulation, carpentry, drywall and HVAC, and to people I know who want to give me a decent rate 'cause I send them a ton of business from the property management, that might be enough to tip the balance.

This tired old body will still do wiring and plumbing.


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## MarkJames (Nov 25, 2012)

It must be possible because we see it on TV all the time! :laughing:

Anybody seen this show "Flipping Boston"? Entire house reno in 4 weeks, anyone?

"What the hey...we have some extra hardwood so let's put it on the wall."


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## greg24k (May 19, 2007)

bob_cntrctr said:


> Gentlemen,
> 
> I'm sure this is going to sound like an innocent little lamb - but I've been running numbers thinking about doing some house flipping. A thousand issues to take into consideration, but in this thread I'm focussing on the actual, direct, reno cost.
> 
> ...


Cut the 1000 reasons out or you will never flip anything.

I been flipping houses for as long as I can remember.

3 things you need to worry about and 2 things you need to learn.

1. Do your homework about the neighborhood and property surrounding the house in question, not excluding adjoining towns.
2. Get recent comps of properties sold and theirs condition and compare to market rate.
3. Purchase min 35% under the market value... Best way to buy is have money on hand... Offer quick closing without inspection and be ready to write a 5k check in good faith to a HO.
4. Know your construction hard and soft cost for that job...guess estimate 10-15k more, if anything left it will remain in your pocket.
5. Price it right... Don't make a killing but don't give it away either.

That's about what it takes.


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## bob_cntrctr (Jan 30, 2008)

Thanks for the very helpful input.



greg24k said:


> 3. Purchase min 35% under the market value...


Just to be clear - you mean 35% under the projected market value once it's done? That is - if a comparable in good condition is worth X, then buy the flip in pre-reno condition at X-35%?

*Not* - as-is it's worth X, but you gotta get it for X-35%.

And - how much of the work are you doing yourself? What do you sub out?


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## joethepainter (Dec 1, 2012)

35% under market value when you purchase it... You have to get a house cheap to make money on it...

Even doing a whole house remodel completely alone without sub'ing out anything, you might be better off keeping a contracting job.. The carrying costs of the purchase + the materials to reno a whole house + the time to do it all alone is nothing to scoff at. Assuming you can do it all alone and it is just materials... The margins are slim in most places unless you can find a real gem, but they are out there.


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## killerdecks (Apr 18, 2008)

greg24k said:


> Cut the 1000 reasons out or you will never flip anything.
> 
> I been flipping houses for as long as I can remember.
> 
> ...


So true. good locations matter the most


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## Gary H (Dec 10, 2008)

I just bought two love shacks for $500 a piece:thumbup:. Thats not a misprint.:no: They do need some work but only paint and cleaning. Back taxes were about 4 grand and this deal needed to close before Feb 28th. I got lucky on this deal.:thumbsup: The couple are splitting and both live out of state and are both want them gone.

Today I already sold one with no work being done.:clap: Could of sold it for more cleaned up, but screw it. Money talks. I still have the the other one.


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## fjn (Aug 17, 2011)

You do not make your money when you sell a house,you make it when you buy a house. Learn that and everything will fall in place.


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## killerdecks (Apr 18, 2008)

I always put the money in my pocket after I sold.


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## Gary H (Dec 10, 2008)

In the 90's when I did them I made about 10 t0 20 g's per house clear. It helped that the market was in the up swing. The best house to find ios one that needs min. work. But you need cash for them because they do not wait people to get a loan.


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## KAP (Feb 19, 2011)

bob_cntrctr said:


> No formula - each potential property is evaluated for its unique situation.
> 
> But if I were to generalize - it's an iterative process, with the aid of my real estate agent and contractor, of "if I do this, it should end up worth X (the agent), and cost Y to do (the contractor), so I'd need to buy it for Z to make a decent return", where I imagine several versions of "do this", from the basic to the complete.
> 
> In most cases, Z turns out to be an unrealistic number because of the size of Y. Which is why many flippers are their own contractors.


By formula, I mean how were you coming to your offer price... 

Before the crash the formula was you took the existing ARV (after repair value based on comps) of the property and then deduct 35% from that total. 

You THEN deduct the repair costs and associated costs (realtor, insurance, lawyer, holding costs, etc.) that you estimate it will cost from that number to come up with your offer price. 

Don't forget that unless you plan on doing a 1033 exchange, and rolling the profit over into your next flip, you need to put aside capital gains tax out of the gross profit. This can come back to bit you in the but at tax time if you don't...

Now, AFTER the market crash the formula is 45-55% ARV... but it depends on your market... and that's where a good INVESTING realtor comes in... you can find out who that is by attending your local real estate investing club... just do a search and you will find one locally that meets either monthly or quarterly and you find very helpful people there...


There many ways to get access to houses... there's probate, tax-sales, tax-deed sales. fire-sales, abandoned homes, homes that are condemned, etc...


*Tax-sale - *you pay the current owners back taxes, and they have to pay you this money back PLUS a percentage which is usually double-digits. This is done at auction. There is usually a "right of redemption" period from anywhere from 6-months to 5 years. If they don't pay, you foreclose and the house it yours. 

*Tax-Deed - *you pay the country the back taxes at a tax-deed saled and you OWN the property free and clear if noone else bids. You can expect other investors to do just that during the "upset bid period" (usually 10-14 days), and you need to know when to walk away or negotiate some cash to walk away so the other investor doesn't lose all their money (his happens a small percentage of the time)...

In both cases the mortgage company is SOL, and all liens, including mortgage, are wiped away... the country wants THEIR money, they don't give a crap about anyone else... 

Unless it is a pristine house and the numbers are strong, the banks let this stuff go because they are trying to get it off their books as it affects their credit rating...

*Probate - *sometimes people inherit houses that are in disrepair and have back taxes that they are now responsible for and just want to get out with some money in their pocket and not owing anything...

As far as doing the work yourself... If you are working on your flip, you are not working on your business... if you account for repairs as laid out above, you can have others do the repairs while you are still making money...

If you are not working, put your crew in there... If not, I am sure you have contacts that you can forward work to, and if you give them consistent business and a consistent check (weekly based on production), you will be their focus and it will get done quicker...

For flips, turn-around is key...

Some of this information I generalized because I don't know what state you live in... 

Best of luck... 8^)


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## bob_cntrctr (Jan 30, 2008)

KAP said:


> Before the crash the formula was you took the existing ARV (after repair value based on comps) of the property and then deduct 35% from that total.
> 
> You THEN deduct the repair costs and associated costs (realtor, insurance, lawyer, holding costs, etc.) that you estimate it will cost from that number to come up with your offer price.


Very interesting, thanks. We're talking pretty similar.

My "formula" is 

ARV - (target profit) - (project costs) = offer price

Yours is

ARV - (35% of ARV) - (project costs) = offer price.

So, essentially you're saying that you require (35% of ARV) as target profit. On a $300k ARV house, that's over $100k! Really - do you expect to clear $100k on a $300k flip? 

Imagine it needs $40k in work. I have to be able to buy it at $160k? Other than foreclosures and tax sales, I see this as unrealistic. 

But do I need to make $100k on a three month project for it to be wortt my while? I might have lesser needs than some. At $50k I'd be a happy guy.


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## KAP (Feb 19, 2011)

bob_cntrctr said:


> Very interesting, thanks. We're talking pretty similar.
> 
> My "formula" is
> 
> ...


Actually, as I said, after the market crash it's more like 45-55%... they are out there... This is even MORE the case in a tax-deed state...

If your formula is ARV - 35% that is why you are having problems... that 35% has to cover repairs, lawyer, closing cost, realtor fee, holding costs, insurance, etc... and THEN they repairs? Not much profit left...

Remember, tax-deeds you only pay the back taxes... the mortgage doesn't matter as it is wiped out...

My last purchase was from another investor (newbie)... she wanted $25K, ARV was $80K, needed about $25K in repairs... she didn't have it, and didn't want to keep paying the taxes... got it for $8K... kept it as a buy and hold...

The cash cows are the starter homes... because you are in and out... 3bd 2ba, 1/4 acre or more near schools, shopping... sell just under ARV...

Remember, you are not living there...


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## bob_cntrctr (Jan 30, 2008)

KAP said:


> My last purchase was from another investor (newbie)... she wanted $25K, ARV was $80K, needed about $25K in repairs... she didn't have it, and didn't want to keep paying the taxes... got it for $8K... kept it as a buy and hold...


Ah - there's the thing. Ya, on a $80k house, I can see why you need 35% to 50% margin on top of project costs.

Essentially we're talking the same thing, except I'm figuring a variable discount % depending on ARV. On a $300k ARV (the places I'm looking at), I can settle for $50k margin, or ~17% margin.

Still hard to find - but, ok, I see that I'm on the same track as those who do this regularly.

Thanks.


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## fitful2u (Jan 22, 2013)

Well here's my 2 cents. by the way, I was a flipper investor with a builder's license from 1990 to about 2002. When I realized that my new aquisition costs as much to purchase in it's destressed condition as the fixed up property sold for, I shifted from flipping to retail remodeler. I am still waiting for market forces to indicate it is worth while to get back into flipping.

The problem then was property values were way over valued, even back in 2002 & 2003. Now the true problem is there aren't enough qualified buyers to sell to. So, even if you get a deal on a property & remodel it within budget, you have to wait for a buyer (or listen to a real estate agent tell you to lower your price). So now, the market is great for buy & hold. But you need deep pockets. If you lease it out you can get a return on you investment or even get a mortage & pull out your money for another purchase, but that is risk, too.

As for my fomula, there is only 1 true method. deterime the value of the property in it's finish state. deduct your costs & your target profit. Then you'll have your current value for said property. If the seller doesn't like it, move on.

As for me, I will stick with remodeling homes for my clients. It's has it's stesser, but it's nothing like have all you money sitting in a vacent house that been on market for 3 or 4 months.


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## killerdecks (Apr 18, 2008)

fitful2u said:


> Well here's my 2 cents. by the way, I was a flipper investor with a builder's license from 1990 to about 2002. When I realized that my new aquisition costs as much to purchase in it's destressed condition as the fixed up property sold for, I shifted from flipping to retail remodeler. I am still waiting for market forces to indicate it is worth while to get back into flipping.
> 
> The problem then was property values were way over valued, even back in 2002 & 2003. Now the true problem is there aren't enough qualified buyers to sell to. So, even if you get a deal on a property & remodel it within budget, you have to wait for a buyer (or listen to a real estate agent tell you to lower your price). So now, the market is great for buy & hold. But you need deep pockets. If you lease it out you can get a return on you investment or even get a mortage & pull out your money for another purchase, but that is risk, too.
> 
> ...


Do it as a sideline and bury your money in them


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