Profits? It's Not That Flippin' Easy
Those holding costs also come into play. You may think you will resell the property in three months, and you might. But what if it takes six months, or nine months. You will be making mortgage payments, property tax payments, insurance, some maintenance, HOA fees, and all other kinds of costs as you hope to get the property sold quickly. And they add up: Wait until you are the one writing the checks each month.
Fuzzy Math on This Flip
An individual I knew bought a property for $100,000 and sold it for $140,000, netting $40,000 in six months -- so he told me. Then we talked about the costs involved. Purchase and finance costs, including $5,000 for rehab costs; $8,000 for holding costs; $6,000. He was up to $19,000 in costs before he even transferred title to the new owner. Sales costs added about $10,000 and he gave the buyer a $3,000 credit, too. That added another $13,000 in costs.
Here is the revised math on his flip: Sale price was $140,000, less total costs of $32,000 ($19,000 + $13,000), less his $100,000 purchase left him with $8,000 in profit for six months of work. So much for the $40,000 profit.
This result is more typical with profit-making real estate deals. Some people do score on short term, get-rich-quick attempts. Most of them are doing it full time and taking significant risks with their investing choices.Luckily, the guys flipping properties on TV are making a living producing TV shows and getting paid by advertisers. That means their house flipping is more theater than business. There's a much better chance they will make a living that way than trying to actually flip properties for a profit. By Leonard Baron, Zillow.com Zillow is a home and real estate marketplace dedicated to helping homeowners, buyers, sellers, renters, real estate agents, mortgage professionals, landlords and property managers find and share vital information about homes, real estate and mortgages. We are transforming the way consumers make home-related decisions and connect with real estate professionals.
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