What is the average net profit for flipping a house in 2024 This article provides a detailed answer to this question, including statistics.
People can make up to $100,000 buying, fixing, and flipping houses.
The concept started around the early 80s and has since made its way into the hearts of several investors through shows like Flip This House.
While house flipping is still a profitable business model, investors face several challenges that can potentially reduce returns.
This article reviews the average net profit for flipping a house in 2024. It also discusses the challenges that affect ROI and how investors can bypass them.
House flippers often make between $30,000 and $100,000 (for experts) in a single house flip. If this was 2017, you could even raise the bar to $200,000.
But in 2023, people might not make as much income from flipping houses.
While average gross profit on a house flip stays within 24.6% to 26.9%, ROI continues to decline.
The data on Statista places the gross profit for home flipping at $65,000 in 2022. But gross profit isn't a bottom line.
You still have to pay for repairs, financing, property taxes, utilities, etc. After these expenses, you might be left with an average net profit of $25,000 to $30,000.
While this range is a reasonable income, the same house flip could have made you up to $60,000 net profit in 2017 or even $45,000 in 2020.
Based on 2022 data by ATTOM Data, only three states in the US had over 60% returns on house flipping.
These states, including Delaware, Pennsylvania, and Maryland, saw a significant boost in ROI of 60% to 96.1%.
Other states, like Idaho, had the worst year, returning merely over 6% to investors.
As with every other investment venture, some cities do deliver more returns compared to others.
While the reasons for this are beyond the scope of this article, here are the top five best and worst cities to flip houses, plus their 2022 ROI rate.
Best Cities 2022 Gross ROIWorst Cities2022 ROISalisbury, MD-DE122.9%Boise City, ID2.7%Lake Charles, LA115.2%Ogden-Clearfield, UT 7.2%Pittsburgh, PA114.2%Urban Honolulu, HI7.4%Scranton–Wilkes-Barre–Hazleton, PA106.3%Austin-Round Rock, TX8.2%Reading, PA 94.4%Santa Cruz-Watsonville, CA8.5%Best and Worst Cities to Flip Houses by ATTOM Data
Why are returns on house flipping reduced? These are some challenges affecting earnings:
Often, the biggest challenge investors face flipping houses starts with the economy.
In a booming economy, for example, people have higher purchasing power.
This means they can easily afford whatever they need, including purchasing a home.
But in a reverse situation, buyers experience limited cash flow, which limits their willingness to purchase.
This entire supply and demand imbalance can prolong the time it takes to sell a flipped property.
Economic factors are just the starting point. Year after year, the economy hardly improves, leading to other issues like higher holding costs.
Think of holding costs as expenses between purchasing and selling a property. For reference, here are some examples:
All these costs can sum up to $5,000 yearly; an investor will lose this amount each year.
Renovations are inevitable when flipping homes, but what no one properly prepares for is their costs.
The cost of building materials is constantly skyrocketing and can cut a huge chunk of your profit.
Another issue comes with unexpected repairs or oversights during the renovation process.
Investors have to cover this using parts of the profit.
The house-flipping industry is gradually becoming saturated.
There's more competition now than before because of the influx of new investors.
While competition is vital for growth, finding a desirable deal becomes more expensive.
Depending on the property's area, several regulatory laws can cost you more than a few bucks when flipping a house.
For instance, you'll need to get the necessary permits and meet zoning requirements and building codes.
All of these processes don't only take time but can reduce your earnings.
The real estate industry requires expertise when dealing with it.
For instance, good negotiation skills are necessary to get a good deal when flipping houses.
There's also the need to understand housing market trends. Without these skill sets people are bound to make poor financial decisions.
Losing money is inevitable in real estate transactions.
But thankfully, people can still take some steps that can help them avoid or reduce their losses.
Below are a few of them:
1. Thoroughly Research the Market:
2. Make a Proper Budget:
3. Get Your Marketing Right:
4. Closely Monitor the Project and Sales Process:
5. Create a Plan to Manage Risks:
There are several expenses in flipping houses, from holding to selling costs.
Learning to calculate these is one vital step to getting the best out of every deal.
Here are some basic house flipping costs and practical examples of calculating them:
Holding costs include several expenses related to owning and maintaining a property.
Some notable ones include
Mortgage Payment
Monthly mortgage payment covers the principal amount borrowed and the interest the lender charges.
For a $200,000 mortgage with a 4% interest rate on a 30-year term, this payment would be approximately $955.
Property Taxes
Local government levy property taxes based on a property's assessed value.
If a property is assessed at $300,000 and the property tax rate is 1.2% yearly, one can expect to pay around $300 monthly in property taxes.
Homeowners' Insurance
Homeowners' insurance provides coverage for potential damages or losses to property.
With an annual premium of $800, this coverage would be about $67 monthly.
Private Mortgage Insurance (PMI) or Homeowners Association (HOA) Fees
If the down payment is less than 20%, people might need to pay Private Mortgage Insurance (PMI), which could be around $100 per month.
Also, if they reside in a community with a Homeowners Association (HOA), they could pay approximately $150 monthly for shared amenities and maintenance.
Utilities
Utilities include electricity, water, and gas. It costs around $200 per month to cover these necessary costs.
Maintenance
Maintenance fees can go as high as $150 per month.
Home Improvements
This includes the cost of enhancing a property's value. A $15,000 kitchen remodel, for example, will cost about $1,250 per month.
Home Security
Installing security systems and monitoring services can cost approximately $30 monthly.
The sum of these expenses gives an estimated holding cost:
Total holding Cost = Mortgage Payment + Property Taxes + Homeowners' Insurance + PMI/HOA Fees + Utilities + Maintenance + Home Improvements + Home Security and Monitoring
Total cost = $955 + $300 + $67 + $250 + $200 + $150 + $1,250 + $30 = $3,202
Holding CostEstimated Monthly AmountMortgage Payment$955Property Taxes$300Homeowners' Insurance$67PMI/HOA Fees$250Utilities$200Maintenance$150Home Improvements$1,250Home Security$30Total Estimated Holding Cost$3,202
With the example above, housing costs should be within $3,500 to $4,500.
You can round this up from $3,202 to accommodate miscellaneous expenses.
Selling costs can be within 10% to 13% of selling price.
Assuming a seller intends to sell a property at $300,000, here's how to calculate their selling costs.
Real Estate Agent Commission
The real estate agent commission, typically costing 5-6% of the sale price, compensates the agent for representing a seller during the sale.
For our example, this amounts to $15,000 to $18,000.
Closing Costs
Closing costs cover fees for finalizing the sale, including legal and administrative expenses.
They generally range from 1-3% of the sale price, translating to $3,000 to $9,000.
Home Staging and Preparation
Investing in home staging and minor improvements can cost between $500 and $2,000.
Transfer Taxes and Recording Fees
This facilitates the change of ownership, usually amounting to 0.1-2% of the sale price.
For our $300,000 home, this translates to $300 to $6,000.
Title Insurance
Title insurance safeguards against potential title defects and costs around 0.5% of the sale price, roughly $1,500.
Home Warranty
A home warranty that covers post-sale repairs for systems and appliances costs between $300 and $600.
Home Inspection Fees
Home inspection can cost $300 to $600.
Summing these gives an estimate of the selling cost:
Total Selling Cost= $18,000 + $9,000 + $2,000 + $6,000 + $1,500 + $600 + $600= $37,700
Selling CostEstimated Monthly AmountAgent Commission$18,000Closing Costs$9,000Home Staging$2,000Transfer Taxes$6,000Title Insurance$1,500Home Warranty$600Home Inspection Fees$600Total Estimated Selling Cost$37,700
For this example, the total estimated selling cost is $37,000. This is approximately 12.57% of the resale value.
Real estate investors often use the 70% rule to estimate the maximum price they should pay for a fix-and-flip investment.
This rule, though not comprehensive, ensures there's enough potential profit margin to cover all costs and generate a satisfactory return on investment (ROI).
It states that an investor should not pay more than 70% of the property's after-repair value (ARV) minus the estimated repair costs.
Here's a formula for the statement above:
Maximum Purchase Price = (ARV x 0.70) - Repair Costs
For example, a property has an ARV of $300,000 and an estimated repair cost of $40,000.
Calculating the maximum purchase price using the 70% Rule:
In this example, according to the 70% Rule, the investor should not pay more than $170,000 for the property to ensure a decent potential profit margin.
This rule doesn't account for several other factors, including location or property specifics, so it's best used as a starting point for initial analysis.
While house flipping profits slowly decline, it still provides a decent income.
For instance, earning at least $30,000 on every house sale translates to $150,000 per year if you flip five houses. This alone places you above the average yearly income in the US.
Flipping houses isn't just a profitable side hustle--it's a business you can scale.
Learn more about this side hustle and find others similar to it
