With so many HGTV shows featuring the latest and greatest house flippers, it’s easy to see why house flipping is such a big trend nowadays. In fact, house flipping is at a 6 year high in the United States. While it’s true flipping houses can be a great investment, that doesn’t mean it comes as easily as it looks on the big screen.
The bigger the remodel, the bigger the investment. Today, real estate investors need to be savvy shoppers to make the most of their time and money. How much money do real estate investors actually make when they flip a home? Hint: there’s more to this process than they show on TV.
What Goes Into a Flip?
First, let’s break down what exactly goes into a home “flip” or remodel. The term itself refers to the process of buying a home, usually an older or damaged home, and then remodeling it so it appeals to modern buyers. Though real estate investors spend money purchasing the home and fixing it up, they hope to earn this money back by selling the home for a profit.
This is no easy process. Though they gloss over many of the finer details on those popular home remodel shows, home flipping can take anywhere from a few months to an entire year. In addition, real estate investors need to know a few things about construction, the housing market, and what makes buyers interested in a house.
Once a home is purchased by an investor, the home flipper will factor in both the cost of the home and the cost of labor and materials. Not all home flips will be profitable. Unfortunately, some problems might pop up in the construction process that weren’t anticipated, and this can drive home renovation costs way up.
How Much Do Home Flippers Make?
Now that you understand all of the work and planning that goes into a successful flip, let’s break down the average earnings. In the United States, the gross profit margin for flipped homes is around $29,000 on average. This is a big chunk of change for what is usually just a few months of labor.
Even more impressive is the return on investment for homes that sell within the $100,000 to $200,000 range. These homes earn up to a 54% return on investment, so this is the best price range for home flipping. Depending on the state, this number can rise. For instance, states like Massachusettes and California are the best places to renovate homes for resale.
However, it’s important to note that not all home flips are raging successes. Up to 40% of all home flips are not successful. Some of those are sold at breakeven prices while others might even be sold at a loss.
While it’s true flipping homes has big income potential, it’s the same as any other business. You need the proper skills, planning, and resources to make the most of your efforts. For real estate investors willing to put in the work, it’s a great way to turn a profit in just a few short months.
If you’re considering purchasing a property to flip, don’t make the mistake of thinking it’s picture-perfect like they show on TV. Instead, be diligent while researching your local market, and prepare as much as possible. If you do all of that, you might just end up with a winning property.