During my recent vacation, I had the chance to watch one of those reality shows about flipping real estate. These two partners in Texas bought a house, fixed it up, and then sold the house. The show illustrated that they made $52,000 from the deal. Really? I have yet to see a deal like that in my accounting experience. I have done the accounting for over 45 deals with 7 different business operations. Not a single deal came even close. So I’m going to illustrate for you the truth about this industry, I’ll identify the best deal and the worse. I’ll also calculate the average so that you can truly assess whether or not you want to get involved in this industry.
In your typical business operation, turning the inventory over as often as possible has several benefits. First, it generally reduces overall costs, secondly, it generates greater profits and third, by increasing the profitability, the company has a greater return on equity. OK, this seems all well and good, but does turning the inventory over in the house flipping business as fast as possible generate the same benefits?
There is a lot of misinformation about flipping real estate on the internet and on television. I’m mostly shocked by the lack of detailed information related to the entire cost of the project and the adjusted sales price. I have yet to read a single article that goes into the details of the business dynamics of flipping houses.
These two partners in Texas bought a house, fixed it up, and then sold the house. The show illustrated that they made $52,000 from the deal. Really? I have yet to see a deal like that in my accounting experience.
