All That Glitters

In March 2007, I wrote an entry about my distaste for the 1/2 dozen house flipping shows on television and how misleading they can be. The tendency is to paint a picture that, simply put, ain't very realistic. At the end of the show, we are often left with a shot of Mr. and Mrs. WeCanFixIt and a graphic that says they profited about $80,000 (sales price - purchase price - repair costs). But dive a little deeper and you'll realize that the producers politely overlooked about 4 dozen "hidden details" of the transaction... details that could have easily brought their make-believe profit of $80,000 down to about 23 dollars and 68 cent, give or take a nickel. The moral of the story was that when the truth is told, house flipping is typically not as glamorous as many will have you believe.

With that said, when V and I first dove into the Pennsylvania flip property, I promised that I'd come back in the end to divulge the numbers. In doing so, the goal is to hopefully be informative, and provide the next guy with some information that may be helpful towards planning similar endeavors. I guess the secondary (inadvertent) goal is to provide more numbers for those nosey folks out there trying to keep score and fervently figure out how much money we do or don't have. [Nooo... I'm not talking about not you. I mean the guy sitting next to you]. So lets see what we have...

First, here are our pre-flip TLC television studio numbers:
Expected sales price: $176,500
Purchase price + expected repair costs ($118,000 + $20,000) =
$138,000

Potential Profit: $176,500 - $138,000 = $37,800

Whoohoo... we're gonna be rich... right?

Well, not exactly. Sometimes the difference between potential profits and actuality can have a lot of zeros behind it. Lucky for us we were smarter than that, and with a little reading and experience we were able to anticipate about 95% of the expenses we actually incurred... Giving us a much more realistic picture of what to expect. In the end, we were dead on with our pre-purchase repair cost estimate and were smart enough to budget for the house to be on the market at least 6 months prior to sale (it actually took 8). However, the biggest thing we did not anticipate was the drop in sales price that would be required to sell. With mom potentially being the agent at the selling end of the deal, we also didn't know what expect in terms of realtor fees. But luckily we budgeted for that as well. As for the remaining untold expenses, watch and learn as $38,500 dwindles to enough money for two pairs of shoes and a can of soda. Here are the four major expense categories:

Repairs
Estimate from Contractor $17,745
Additional Repairs $350
Additional Painting $575
Chimney sweep 95
Merry Maids $170
Misc Purchases $150
Home Depot (cleaning supplies) $64
Lowes (cleaning supplies) $50
Gratuities (nondeductible)$25
TOTAL: $19,223


Miscellaneous expenditures + Operating Costs
I guess some people call this carrying costs. Basically, it's all the stuff you have to pay to maintain the house until you sell it. These include...
1-year home owner's insurance policy $653
Website dedicated to propery $17
Telephone Calls $47 (I went over on my minutes)
Mortgage for 8 months (1106.15 x 8) $8849
Water bills (Apr - Dec) $639
Electric bills (Apr - Dec) $518
Paper for flyers $11
Mail to Realtor $4
Lawn Service in July $40
Interest paid on $20K borrowed for repairs $724
TOTAL:$11,502


Selling costs deducted at closing table
Realtor Fees (5%) $8,395
1% Transfer fee (tax stamps) $1,679
Recording Fees $41
Title Co. Overnight Fees $20
Title Co. Deed Preparation $100
TOTAL: $10,235


Selling costs outside of closing
USPS (mail contract) $4
Notary Fees $50
Express Mail Charge $30
Resale Certification$125
Repair Lists $750
More Notarization $20
Mailing of Final Docs $16
TOTAL: $996

Combine those categories with a final selling price of $167,900 and here's what you have the following:

Description	Plus/Minus	PROFIT
Sale Price		$167,900
School Tax Credit	+1,956	$169,856
County Tax Credit	+53	$169,909
Homeowners Association Credit	+82	$169,991
Mortgage Payoff	-112,332	$57,660
Selling Costs at Closing	-10,235	$47,425
Title Co. Refund	+41	$47,466
Homeowner's Insurance Credit	-593	$48,058
Escrow refund	+1,303	$49,362
Mortgage overpayment - final PMI payment	+60	$49,421
Operating Expenses	-11,502	$37,919
Seller's costs outside of closing	-996	$36,924
Repairs	-19,223	$17,701
Recoup 5% down and initial closing costs	-7,112	$10,589
Project Management Pay	-500	$10,089

Not $37,800 (duh)... but still more than we had 8 months ago. Either way you slice it, in the end we were none-the-richer: Two weeks later we turned around and dumped every penny of it (plus some) into the purchase of rental property #2, which is scheduled to close in about a month. Not the most provocative way to spend 10 grand, but at the very least it provided us with a little fuel as we stumble along in this marathon called retirement planning. Don't get me wrong, we are eternally thankful for the opportunity, and would do it again if we could. But we thought you should know that we're not exactly about to be on the cover of Forbes magazine discussing our killer profit and the joys of flipping properties.

All that glitters ain't gold.

But then again a little silver never hurt nobody either.