A: It’s simple in concept: You buy a fixer-upper house at a low price, fix it up in all the right ways, and sell it at a profit.
Nationwide, flipping is relatively popular.
This house-flipping report by ATTOM Data Solutions says that in 2019, flipped houses accounted for 6.2% of all home sales — certainly a meaningful proportion.
I don’t have precise data for how many of Bellingham’s home sales are flips, but I would put it at less than 2%.
When you flip a house, you’re paid when the sale of the fixed-up house closes. But you make your money — your profit — when you buy.
That means, to make money, you have to buy at the right price. Your purchase price has to be low enough to allow for all expenses, closing and holding costs like mortgage payments, insurance, utility bills, the labor and material costs of the actual remodel, and of course the various “surprises” that spring up during your project.
Then you have to account for the cost of selling it, like Realtor fees, excise tax, title and escrow. Oh, and let’s not forget about the income tax on the profit.
When the dust settles and everyone’s been paid, the reward for all your risk and hard work is what’s left on the table.
The professional flippers rule of thumb is the “70% rule”. That is, you want your initial purchase price, plus all rehab costs, to be no greater than 70% of the end market value.
From that remaining 30% you pay the costs of holding, selling, and taxes, then take your profit.
With Bellingham’s prices and competition among buyers, can you still buy a house for a low enough price, to then take it through a remodel, and then sell at a profit?
I manually clicked through the MLS history of about 500 listings, looking for houses that sold once, then underwent a remodel and sold again less than 18 months later. I found about 15 matches.
Here’s where they laid out across Bellingham:
***NOTE that my only criteria was time period between sales, NOT necessarily the seller’s intent to make a profit or even conduct a remodel.***
NOTE ALSO that all data and images below were taken directly from the Northwest Multiple Listing Service (NWMLS).
We’ll review some before-and-after photos and this basic data:
Note that I do not have any data on actual costs of the remodels, or the resulting net profit/loss numbers. (I do share that level of detail in the eBook though!)
Per the report I mentioned above, the national average gross profit on a flip is $62,900. Let’s see how a few of these Bellingham flips compare.
Looking at the photos, how much do you think the investor spent on the remodel above? Remember the 70% rule? He was in for 82% on purchase price alone, before the remodel ever started.
From that $120K gross profit, back out the cost of the remodel, the holding costs, the expenses of selling, and the income tax on the remaining profit.
That’s an awesome gross margin. But gross margins are a lot like revenue, and you know what they say:
“Revenue feeds the ego. Profit feeds the family.”
Without the full picture, we can only hope this investor pocketed a healthy profit in the end.
Earlier I mentioned that I’ve flipped a house and wrote a short eBook about it.
It was this house, below, 2728 Utter St. in the Columbia Neighborhood. It was also during the Great Recession in the Summer of 2010.
For this flip, my buddy Tyler and I were on site nearly every day in carpenter and general contractor mode. It was a full-time job on top of my full-time job as a Realtor.
Reflecting on the experience, my two primary thoughts right now are:
Click here to read the eBook. And let me know if flipping a house is something you’d consider, or if you’ve already done it!