There are many opportunities to invest in real estate, and flipping houses has become very popular thanks to lovely reality TV. However, let me tell you that there’s nothing real about house flipping reality TV shows.
In reality, 12% of all flips actually lose money and 30% make less than 20% profit—which is just a fancy way of saying they break even. That’s six months of headaches just to break even!
Every investor has their own secret sauce, but here’s my cost formula: Your purchase price plus 30% plus remodeling costs plus expenses. Expenses is a keyword as it will cost you money to sell the house, and you’ll also have carrying costs. You’ll have financing costs, too.
For example, say you buy a $120,000 house and have $25,000 in repairs plus $25,000 in expenses. You’ll need to sell that house for $200,000 in order to make $30,000 profit.
Before you get there though, there are few things you need to figure out first. It starts with financing; how will you pay for it all? There are all sorts of options from hard money loans to private investors and many more. Secondly, you’ll have to find the deal itself. Since everybody is a flipper these days, it’s hard to find a deal.
Then, you need to know the true cost of the repairs and expenses. Finally, you need to know and stick to a time frame. If you think you’re a handyman and can pull it off yourself, you’ll lose because it will take too long and your carrying costs will be too high. It’s important to know your exit strategy.
In my next video, we’ll focus on my passion: real estate investment. In the meantime, give me a call or send me an email if you have any questions. I’m here to help!