It’s officially been one year since my wife and I started flipping houses. After spending more than a year to research, write our business plan, get familiar with the local real estate market, and get settled back into the East Coast before we started investing, it certainly seems like we’ve been doing this forever. But, today marks our one-year anniversary since we purchased House #1.
I’m going to use this post to recap the first year…
First, let’s start with the question everyone has been asking me — what do the financials look like? Before I jump into the details of the financial results, here is one big disclaimer about how I did my calculations:
Because it can get difficult to try to analyze financial results with houses that are ready to be sold — but haven’t yet been — I’m going to assume that any house that is currently under contract to sell will actually sell under the contractual terms, and I will pretend that the income from those sales is already recognized. Specifically, The Corn House, The Sunglasses House, The Mini House and The Red Garage House are all is scheduled to close in the next 6 weeks; for the sake of this first financial analysis, I am assuming they all close under the current contractual terms.
That said, here is the quick summary is the following:
COGS (All Rehab/Holding/Etc Costs): $852,354
Gross Profit: $223,446
Employee Pay/Bonuses: $49,696
Total Operating Expenses: $67,936
Net Income Before Taxes: $155,510
My goal for the first year was to earn $250K pre-tax, and while we didn’t quite get there, I’m still very happy with what we achieved, both financially and in terms of our general progress. It’s a far-cry from what we were earning in the corporate world just a short-time ago, but on the flip side, we have no bosses to report to, we can sleep as late as we want, and our success (or failure!) is completely within our control…
In terms of financial success, it’s worth noting that we earned about $28K of our profit from the commissions my wife earned as a licensed real estate agent (the $28K is after all fees, dues, etc that agents have to pay). So, not only did getting her real estate license give us the ability to have a lot more control over our deals, but it also allowed us to earn about 20% more income.
In terms of volume, we purchased 11 houses this year (with one more under contract for 5 months now that we can’t seem to close on). Of those 11, we’ve wholesaled 2 of them, rehabbed and resold 5 of them, rehabbed and have under contract 3 of them (all closing in the next few weeks), and have 1 under contract as a lease purchase.
The average purchase price of our properties was $44,864, and the average sales price was 97,618. Our average profit per house was $20,339. This included the two houses that we wholesaled for only $5K each, and the house we sold to our project manager for just a $10K profit.
On average, we sold our properties for 96% of what we originally listed the house for, and it took an average of 27 days to get each property under contract from the day it was listed for sale.
We spent nearly a quarter of a million dollars on rehab of our houses, with about $180K of that going to contractors and nearly $70K going towards materials. The average rehab took 45 days, and the average total hold time (from purchase date to sale date) was about 125 days.
We paid just under $10K in interest payments on the money we borrowed, and just under $5K on utility costs during the rehabs.
Most importantly, we’ve built a strong internal team, with my wife taking charge of the real estate marketing/sales and the staging part of the business, my brother managing all aspects of our rehabs and contractor relationships and my focusing on the acquisitions, budgeting, and scheduling. In addition, we’ve built a tremendous team of contractors who work for reasonable prices, provide top-quality work, and consider our projects to be our top priority.
Ultimately, these are the things that will allow us to continue to grow, scale and improve the business in year two and beyond.
Btw, our goals for next year are $2M in gross sales, $500K in gross profit, and $300K in pre-tax income…