On average, a rehabber shoots for a 10 to 20% profit of the After Repair Value, but it varies depending on the market and the specific project risks.
A 10% profit would be on the lower end, and a 20% profit would be considered a 'home-run' by most rehabber's standards.
So for example, if a property's After Repair Value (Resale Value) is $250,000 a rehabber should expect to make $25,000 on the lower end to $50,000. on the higher end.
The House Flipping TV Shows always give the illusion that they are making hundreds of thousands of dollars on each flip, but honestly a lot of the numbers are fake & they don't take into account all of the project costs it truly takes to flip a house.
Right now the market is very competitive, so profit margins are being compressed. In expensive markets on the East & West Coasts, some flippers are making less than 10% profits of the ARV.
How to Calculate Your Profit
Your profit is calculated by simply taking the Project Revenues (Resale Value) and subtracting all of your Project Expenses.
Profit = Project Revenues - Project Expenses
Profit = Resale Value - Purchase Price - Repair Costs - Buying Costs - Holding Costs -Financing Costs - Selling Costs
Profit Calculation Example
A flipper purchases a property for $95,000 that has a resale value of $210,000, and needs $65,000 in repairs, 1% Buying Costs of Purchase, $750 per Month in Holding costs, & 8% in Selling Costs. The flipper is using a Hard Money Lender that is providing a loan for 70% of the ARV ($140,000 Loan Amount), and charges 12% Interest for 6 months.
Resale Value = $210,000
Purchase Price = $95,000
Repair Costs = $65,000
Buying Costs = $950Holding Costs ($750 / month * 5 months) = $3,750
Selling Costs (8% of Sales Price) = $16,000
Financing Costs ((12%*$140,000)/12)*6 Months = $8,400
Answer
Profit = After Repair Value - Purchase Price - Repair Costs - Buying Costs - Holding Costs - Selling Costs -Financing Costs
Profit = $210,000 - $95,000 - $65,000 - $950 - $3,750 - $16,000 - $8,400
Profit = $20,900