So what's actually left out of 65k gross on a 260k buy?

Question

The number I keep tripping over is the reported typical flip: buy near 260,000, resell near 325,000, gross profit around 65,000, gross return roughly 25 percent, described as the lowest since 2008.

I hold land and I'm slow, so I want to understand the arithmetic before I decide this isn't for me. 65,000 sounds like a year of somebody's income. But that spread has to pay for the renovation, the financing, the carry and the sale, and none of that is inside the 65,000 as far as I can tell. Is the typical cosmetic flip in that data actually clearing anything, or is the median deal roughly a wash and only the well sourced ones make money?

Rena Expert · Accepted Answer

Gross flipping profit in that dataset is resale price minus purchase price, nothing else subtracted. Gross return is that figure divided by the purchase price. So 325,000 minus 260,000 gives 65,000, and 65,000 over 260,000 is 25 percent. Renovation, financing, carry, agent commissions and closing costs all sit outside it. The number is a spread, not earnings.

Run a cosmetic version through. Buy-side closing and points, 5,000. Cosmetic scope at that price point, 25,000 to 35,000. Short-term financing on 200,000 borrowed at double-digit rates for five months plus origination, 12,000 to 16,000. Taxes, insurance and utilities while vacant, 3,000. Selling at 7 to 8 percent of 325,000, 23,000 to 26,000. That totals 68,000 to 85,000 against a 65,000 spread. The median deal in that shape doesn't clear, which is consistent with the share of flips falling to low single digits as sales.

Two things keep it viable. Cash or partner equity strips out most of the financing line, and a genuine off-market discount moves the purchase well below the median rather than paying the median. That's why the strategy has shifted toward off-market sourcing and short timelines. Where the reported returns run far above the national average, in the affordable Midwest and Northeast metros, the spread as a percentage of a low purchase price is doing the work.

One caution on reading the medians at all. That data counts arms-length resales inside a twelve month window, so it includes wholesale flips with no renovation and light retail resales alongside real rehabs, and the median buy and the median sale are not the same houses. Treat it as a direction of travel and underwrite your own deal from the cost stack up.

laurenkim53 · Answer

In my price band the percentage is even more misleading. Buy at 90,000, sell at 125,000, that's a 39 percent gross return and it reads beautifully, but 35,000 of spread with 9,000 of selling costs and a 20,000 kitchen doesn't leave anyone a living.

ryanmck27 · Answer

The 7 to 8 percent selling line is the one flippers argue about hardest. Some list on their own license to save the sell side, which is real money on 325,000, and then discover that fielding calls and showings while running a job site costs them weeks on market.

brandonlee36 · Answer

Also nothing in that 65,000 is after tax. Profit on a house bought to resell is generally treated as ordinary income rather than long-term gain, so the take-home is smaller again. Talk to a CPA about your own situation, but plan for it before you count the spread as yours.

kevin_lombard · Answer

Went back over this. So gross return here doesn't include the renovation at all? That seems like a strange way to publish a number about renovating houses.

dpatel_re · Answer

@juniper it's the only number you can compute from public deed records at scale. Nobody can see what the reno cost, so they report what they can see.

My own screen is a required net after every cost at a resale 5 percent under my ARV. If that survives, I look. The 70 percent rule never told me anything useful above about 400k of ARV.

karen_whitfield · Answer

Which is why I sit in land. No crew, no vacancy, no eight percent to sell if I'm patient. The trade is that nothing happens for years and I've made peace with that.

priya_n21 · Answer

I came in hoping this was semi-passive income. Reading the carry math, this is a job with a loan attached, isn't it.

ehernandez74 · Answer

@arbor the piece I'd want to test before deciding is the distressed supply story. Foreclosure filings being up year over year is a different thing from properties reaching auction at a discount you can buy. A filing can cure. Do you know if the pipeline in your metro is actually producing acquisitions?

tashaford30 · Answer

@sextant when you say the affordable metros post far better returns, is that survivorship? Cheap markets also have thinner buyer pools at resale, and 90 days on market at 1,800 a month of carry undoes a good purchase price.

marcus_hale41 · Answer

Methodology point worth chasing before anyone builds a thesis on this. If the twelve month resale window captures wholesalers who never renovated, their spread inflates the median gross return while their costs were basically a title fee. Strip those out and the renovating operators may look worse than 25 percent, not better.

So what's actually left out of 65k gross on a 260k buy?

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