This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Profits? It's Not That Flippin' Easy

NEW YORK ( Zillow ) -- It's tough to resist the entertainment factor in those reality TV shows like "Flip That House." But here's a little secret you may not know: Not everything on TV is as it seems.

In fact, I would guess that based on my experience of watching people try and flip properties for profit, 90% who try it once never attempt it again.

I'm not saying it isn't possible for this to be profitable, and I know people who do it full time and do make money at it. But the odds are highly against the average person succeeding. However, if all those reality TV shows have piqued your interest, here are a few items to consider if you want to attempt this strategy.

Buy Low, Sell High
First, you will have to buy a property at significantly below market value or sell it above market value to make money. If you buy it and sell it at market, you will lose money due to commissions, time, and renovation costs. So your best bet is buying a property below market value. That's not simply below what it sold for four years ago, it's below what is the current market value after taking into account all the distressed property sales in the area. And if it's a decent property, you're probably going to be fighting many other individuals trying to buy the same house. And when lots of people are vying for one piece of real estate, the price gets bid up and you probably are going to pay market value.

Recouping Value
What about adding value with a renovation? While there is no question you can add value by renovating a property, you probably will not add more value than the cost of that value. (Check out the Hanley Wood estimator, especially "cost recouped" column. You might put in a $20,000 kitchen that only adds $15,000 in value. More than likely you will go way over budget on the rehab and spend way more than the value you add.

Transaction Costs
Another tough challenge is the costs on both sides of your flip. There are significant transaction costs on the buy and sell. Probably 3-to-5 percent in costs when you purchase property, and up to 10% when you sell property. So you really need to sell the property -- and this is without regard to any rehab costs or holding costs -- for about 20% greater than you paid. That's just to break even.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AAPL $118.03 -0.71%
FB $105.41 -0.31%
GOOG $748.15 -0.02%
TSLA $229.64 5.22%
YHOO $33.16 0.61%


Chart of I:DJI
DOW 17,813.39 +1.20 0.01%
S&P 500 2,088.87 -0.27 -0.01%
NASDAQ 5,116.1430 +13.3350 0.26%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs