There is no limit to how much an experienced house flipper can make. I suggest for newbies that you limit yourselves to something you can buy for 10%–20% less than your break-even price. If you think you can sell a house for $160,000, after fixing it up and holding it for six months, then you have to work backward to find your maximum purchase price.
Example (I invented these numbers. Do not use them as a guide for your project.):
1. Three-bedroom, two-bath brick homes in this neighborhood typically sell for $160,000 after three months on the market.
2. The house I want to buy will require $15,000 worth of work and be ready for resale two months after I buy it, three months if I run into delays.
3. As a result, I can anticipate having interest expenses, insurance, taxes, and utility payments for six months. These will probably total another $7,200. (I usually estimate interest on the high side. Six months of interest on $128,000 at 8% annual interest is $5,120. Then it is just a matter of estimating utilities and other expenses.)
4. My share of the purchase and selling closing costs will be around $2,000.
Sales price $160,000
Minus Repair Expenses –15,000
Minus Holding Expenses –7,200
Minus Closing Expenses –2,000
If you bought this house for $135,800 and sold it for $160,000, you would break even, assuming you did not have to pay a real estate commission or any marketing expenses.
You want to buy this house for 10%–20% less than your breakeven price. Ten percent of $135,800 is $13,580. Twenty percent of $135,800 is $27,160. You can afford to buy this house for $108,640 ($135,800 – $27,160) to $122,220 ($135,800 – $13,580), depending on your particular margin requirements. Your profit would be $13,580 to $27,160.