One of the more common questions we hear in our industry relates to small investors buying houses that need work hoping to flip them for a tidy profit. As with any business, the newbies struggle at the beginning. Most who try it once seldom try it a second time. There are many reasons these projects don't make money, most of them stemming from inexperience.
Those who succeed work within a very strict formula and never waiver.
I recently received a phone call (from a sign in the front lawn of one of my listings) from a local renovator/builder and I knew immediately he was successful. I knew because he didn't ask questions that would have no bearing on his decision to buy the property. For example, he didn't ask about the wiring or the plumbing. Why bother? He was going to replace it all regardless. The fact is, he wasn't all that interested in the house. It was the lot that he was going to offer on. He was all business. He impressed me.
He told me "I have 4 or 5 projects going at any given time. I only work within my specified neighbourhood. I know the area, what the buyers want and I renovate accordingly. A $150,000.00 profit is built in to each project. The renovation will cost around $100,000.00. My turnaround time is 3 months for the renovation plus however long it takes to get the permits. I know ahead of time what I will sell the house for and how long it will take to sell."
If he offers on my listing, he'll act quickly and offer the price he needs to make the project work and the closing will be whatever the seller wants. If he doesn't get this house, he'll simply wait until the next opportunity and go through the process all over again.
The only number I question is the cost to renovate. $100,000.00 sounds low, even for an experienced builder. He told me has a tough time finding good tradesman. Maybe he keeps his costs low by paying them a pittance so they don't stick around very long.