How To Make 30,000 in 3 months Flipping Houses & An Example It Can Be Done
Updated: Feb 26, 2019
Can you really make $30,000 dollars in 3 months flipping a house? To clear the air a little bit, YES, it can be done but all departments need to be working efficiently. Let me explain.
When I say make $30,000 I am also referring to the marketing we are investing in. We investing in Upstate NY, one of the least expensive housing markets in the country. So if you live in California, you would more or less be looking to profit around $80,000 in 3 months.
These are some of the arguments that we hear on a daily basis. Let's be honest, you are not going to make $30,000 in 3 months on every house you flip, but is it possible.. Yes it is.
One variable that is going to determine if a profit this large is possible. That variable is a deeply discounted property. When I say deeply discounted I am talking 30-40% off of the full market value or your ARV.
At this point, I usually lose a lot of people. Now you have them saying, "no one is going to sell their home to you for that type of discount, it's just not possible"
The other variable that is going to determine the speed is the repair costs associated with the property. This is how extensive the repairs are and the crew you have in place to handle these repairs. In order to get a house bought, repaired and sold it we will have to have a manageable scope of work.
discounted property While finding a like this is not extremely common (especially early on in your investing career), it does happen more than you think. There are several homeowners out there who are looking for the exact service you offer. These people find themselves in very difficult situations and these difficult situations force them to liquidate their most expensive liability, there home.
*PS - These properties can come from several different scenarios - inherited homes, divorce, distressed, deferred maintenance, job relocation, job loss, family sickness and any other issue that may put some type of financial / mental stress on an individual.
The reason these profits are possible if you find a real discounted home, rehab it on a tight efficient budget and produce a good product is the market conditions. Lets face it, the market has recovered and the demand for homes is high but the supply is low. This means their are more buyers in the market than sellers. Meaning inventory is low, so once you complete your rehab (new kitchens, baths, etc.) your house will sell & it will sell fast (if priced right).
Deeply Discounted Properties (Marketing)
So we want to make $30,000 in 3 months, let's talk about the first step of the process - marketing. Like we said before, we need to find a discounted property preferably with limited competition. So where are we going to find it? This is a question that real estate investors all over the world are looking to be answered.
Ill tell you right now, there is no special sauce but one thing I do know is that you better try something different from your competition.
This is a good time to be a real estate investor or involved in any local business - solely based on the tools we have available to us as small business owners.
In regards to real estate, investors are still using old outbound marketing techniques (95% of them). These strategies consist of pushing homeowners to sell their house to them and trying to find that golden nugget. These investors focus on:
Driving for Dollars
(*These marketing strategies to do work & they need to be a part of your marketing plan, but you will have a lot of competition within these mediums)
Consumers are becoming much better at blocking this advertising out while becoming more aware of online resources that may be able to educate them.
Now I am not going to tell you how to market your business but what I want you to do is get creative.
When I first started out, I was using these old techniques and saw very minimal success. I was getting leads but not at the clip I needed to be in order to be successful. I realized quickly that something needed to change on my end to get ahead of my competition.
I chose to focus my time and energy on inbound marketing. Inbound marketing is based around creating great content (attracting & educating your consumer on your service or product), convert (gathering their contact information with forms), close (transform these leads into customers) & delight (the customer service aspect of our business. WOW your customer with your service)
If you would like more details on inbound marketing and how it relates to real estate, check out this post.
Analyzing Deals To Ensure Profit
Being able to get a deeply discounted property is no doubt the most important aspect to creating large profits. The deal is only the starting point, to ensure our profits we have to be able to accurately project our profits. Let's assume that you are bringing in leads through your creative marketing strategies, we will have to figure out if these deals will meet our minimum profit requirements. Since we are talking about making $30,000 on a deal this is the profit number that we are going to include in our analysis.
Analyzing fix and flip properties is not tremendously difficult. If you understand basic math, you will be able to project your profits. However understanding what these formula's consist of and getting accurate estimates can be difficult at times.
Lets touch on the different pieces of the formula.
ARV (After Repair Value) - This is what the home will be worth after you make the necessary repairs. Run a comparable market analysis to get an estimate of this value.
Repair Costs - This is what it is going to cost to rehab your property the way you want it. Initially, you will not be able to do this unless you have a construction background and I don't suggest you try. We learn on the run, so we want you to find a General Contractor who has worked with investors, has experience and have him assist you the first couple projects - learn from him! Here are a couple tips to properly estimate the repair costs associated with the property.
Have a good idea of exactly what you want to do with the property
Create a scope of work
Create a material list
Create a budget
Lean on your team for construction knowledge
Holding Costs - The costs that you accrue from the time you purchase the home to the time you sell. These costs consist of:
Utilities, (mortgage loan, fees)
HOA fees (if applicable)
Interest to lender
Be conscious of these numbers because they can eat into your profits quickly!
Extra Costs - When running your numbers, there are extra costs that we need to account for. These are not necessarily out of pocket costs (all the time) but they are costs that will affect your gross profit. These costs are:
Buying closing costs
Selling closing costs
Real estate commissions
Profit - When you get in this business, you should create certain minimum profit requirement thresholds. These thresholds will be based on a couple different factors, such as:
Whatever your thresholds may be, we have to decide on our minimum profit requirement for our formula so we can accurately produce a Maximum Purchase Price or MPP.
Here is a quick example of what these calculations may look like.
ARV - $150,000
Purchase Price - $50,000
Repair Costs - $40,000
Holding Costs - 12,750 (8.5% of ARV)
Profit - $40,000
MPP Formula (Maximum Purchase Price)
150,000 (ARV) - 40,000 (Repair Costs) - 12,750 ( Holding Costs) - 30,000 (Profit)
MPP = 67,250
If we want to make at least 30,000 on this property, the maximum amount we can offer the seller is 57,250.
Create An Elite Construction "Team"
We put the deal under contract, we analyzed the deal to ensure our profits. The next will be executing your scope and managing the rehab.
One of the most difficult aspects of this business is finding quality contractors to work for reasonable prices while also completing projects on schedule.
If you know construction and have experience in the industry, then you may not need to hire a GC. If you are like me and do not have a construction background, (take the time and learn it or) hire a GC who has worked with investors.
The better understanding we have of the scope of work and the costs associated with these tasks, the more accurate our profit projections will be. For example, if we know what the house is going to sell for, we know the repair costs for the job, we
know the holding costs and we know what we can offer the seller. Then we know exactly what we are going to make on each project.
At this point we have essentially reduced the risk associated with the project.
*Investor tip: Always include contingencies within your estimates to account for potential change orders on a project*
Use all of your resources during this due diligence phase of the project. Lean on your team members who may have experience in design (real estate agents) and who have experience with construction and pricing (contractors). This is a team business, so be sure to utilize everyone who is involved.
Selling By Yourself (FSBO)
What is one way that you can increase margins on your house flips?
Before we move any further with this topic, let me just say, if you are doing any type of volume we do not suggest this strategy for long term growth and scalability.
With that being said, one way that we can increase our margins is to sell these properties by ourselves. If you understand what a real estate agent does, you are ok with handling the process and feel comfortable that you can get the property the necessary exposure it needs, then you may not need to cough up the 7% commissions.
Now let me say this, if you do not know what you're doing, do not have a marketing plan, are not comfortable with negotiations or don't have the time.. then pay the real estate agent his commissions (just make sure you have a great one on your team) . If you want to increase your profit per job then sell FSBO and become efficient at it.
Let's go over some numbers. Using our last example:
Sold Price - $150,000
Commissions - 6%
= $9,000 (total commissions)
Sold Price - 150,000
Commissions - 3% (selling to buyers agent)
= $4,500 (half commissions)
Savings = $4,500
Sold Price - $150,000
Commission - 0% (no agents involved)
= 0 (no commissions)
Savings = $10,500
As you can you see if you have the ability to sell your properties by yourself in an efficient and cost effective manner, you have the ability to increase your margins along with your profit.
It Is Possible To Make $30,000 - We Hope You Learned How
Flipping Houses can be very lucrative, if done right. These conditions are primed to produce profits but will not last forever and at some point it will be harder to sell properties and easier to get deals. However, currently if you are able to obtain deeply discounted properties, you will have no problem finding buyers on the backend. Make sure you come up with a creative marketing plan, understand how to analyze a flip, hire good contractors and surround yourself with a team that improve your business.. This will allow you to maximize your profits on every single project you have.
If you have any questions or concerns be sure to let us know below. Also let us know if you have any other strategies that you utilize or marketing ideas that are currently working for you!
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