I think the big question you want to find out the answer to is after you've done all the improvements and your costs wind up being twice what you estimated, will the market bear the new price of the home?

You mention not wanting to do this full time and that's fine but the longer it takes to rehab, the more it costs you.

Flipping doesn't necessarily mean you have to fix anything or do improvements. I think for a while people were buying new construction, tacking on a very small profit then selling it. Your ideas of new flooring and cosmetic stuff may work for 1st time buyers but don't get too unrealistic about profit. Adding $1500 in new flooring doesn't make the house suddenly worth a substancial amount more in the eyes of most buyers.

"The homes either had major structural problems, were infested by insects, were bank forclosures that were all torn up inside, or homes where the person lived there 50 years adn died and the family is selling the home without updating any of the 40+ year old carpet, cabinets, etc"

You said it all with this statement. If a prior homeowner hasn't taken the opportunity to upgrade or paint an older home, its pretty likely that there are other issues not obvious to the eye until you really start renovating a home. There will always be surprises I don't care what anyone tells you. You would also be surprised at how quickly paint, carpet and appliances add up - plus any other potential messes you run into once you start your renovation. You also reference doing this as a "hobby". I think this is a huge mistake. Putting a few hours and weekends into flipping a house will prolong the process and increase your carrying costs. This will slowly chip away at any profits you might anticipate getting by flipping. If you do decide to do this, just plan carefully and try to get as much free help as you can from friends and family (well, this will home improvement abilities anyway!). Good luck!

This is not really "flipping" - this is rehabbing and selling. True flips are when an investor/speculator buy a property, do nothing and turn around and resell immediately for a profit.

At any rate, I agree with the others here - you have to rehab these pretty quickly, the longer they sit, the more you lose. And you MUST make your money on the "buying end", in other words get it way under appraisal. It is not automatically going to appraise or be worth that much more that quickly, no matter how attractive those TV shows make it seem. I just rehabbed a little house I bought for myself in NC, got it under appraisal, but I had to put over $30,000 and I would be lucky to sell it and recoup all my money, even after one year! Of course, I just did it for myself and not to resell right away.

Please give it a lot of thought. Or if you do try one, you have got to get it about 30% or more below what it will sell for after fixup.

Good luck!

I do it nearly full time with a crew that does work full time.
You need a big break going in, and detailed knowledge of what you can (and should) do to bring it up to like condition for other homes in the same market and price range.
If you have to borrow a lot of cash to get in it can get very risky.
All I loose is oportunity money (interest) if my cash gets tied up for a longer time since I am pretty much self financing now.
If the market tanks (or repairs cost more than anticipated) you may have to hold and rent, so not having a large mortgage helps.
It is not for the squemish or undercapitalized.
I buy those folks out when they crash and burn.

I think you need to look into how house valuations are really done. Cosmetics have realtively little impact. House values are much more affected by number of rooms, bedrooms/bathrooms, square footage, and location, location, location.

When evaluating a home a buyer or appraiser start by assuming that everything is in good condition. Dollars can be taken off for things not in good condition, but RARELY do dollars get added on for excellent condition. Excellent condition is just a little plus that puts your house ahead of other houses with the same rooms, location and price.

If you are buying a house near its appraisal, then the difference is about all you have to play with. Adding value means adding rooms, finished space, or doing major renovation of kitchen or bathrooms. All of which cost major money that may not be recaptured.

Also, you comment that people buying the starter houses don't have the money to make the repairs/improvements. So who is going to buy your fancy improved house? If they don't have the money to make improvements, they don't have the money to pay a higher price.

Don't forget to factor in selling costs -- maybe a realor, lawyer, bank fees -- and taxes, that come off the top of your profit.

I thank everyone who responded. I guess I understand where you are coming from but I don't think you understand where I am coming from or maybe I am just thinking about the situation the wrong way. My train of thought is that I can get this house for a price under appraisal (it is being sold as is)and put some money into it that would make it a very nice house in my opinion. After even spending twice my estimate for repairs I could place this home for sale in a price range where it would be competing with the homes I spoke of before- the foreclosures, the older homes that aren't updated, the homes that are on small city lots and also may need repairs. My home would be competing against all these homes that aren't updated, dont' have new appliances, and don't pass inspection. My house sits on over an acre, would have new flooring, new furnance, new paint, new garage door, nice landscaping, new wiring, all new appliances, all new bathroom fixtures etc. So my house would be competing against less desirable properties in the same price range so I would think it would be an easy sell. Since I would do most of the work myself I wouldn't have a lot of expenses other than materials. Also ny mortgage payment would only be $300 a month so even if I had to rent it out I could very easily do that or carry the mortgage because its less than a car payment. Am I thinking about this the wrong way?

Why don't you spell it out numerically (hypothetically):

Under appraised value is what amount? (none of us really knows what this means)

Cost of repairs and carrying costs are what?

Final sale price will be what?

So your net profit will be?

I think we are confused about what you are really saying, that you can buy a house for example for 50k that as is may be worth 75k? that you can fix in your spare time, invest 20k (anything less than that for a major rehab even if you did it all is impossible) and then sell for 100k? Or are you saying that you will buy the same house for 70-75k and make it nice and sell it for 100k? The reality is that most buyers would prefer a house that is done to one as is assuming both were comparable in size and amenities. However, many buyers would take a larger as is house (although perhaps not one that fails inspection due to having mice and peeling walls!) that has not been updated but is sound over one that is smaller but has been updated. For a variety of reasons, buyers figure they can paint too and its easier to replace cabinets than to add on a room. The other thing is just because you updated it does not mean it will appeal to all buyers. I looked in the early 90s right after mauve was popular. You would be amazed at how many kitchens I saw that just made me shudder but were almost new

Assuming its neutral, updates may not make a house sell for the cost of the upgrade, it just makes the house more likely to sell faster

Pam is right, its really got to be about numbers

Purchase Price is _________
Appraisal Price is __________
Cost of repairs is _________ then double it or at least add 30%, factor in cost of appliances, counters, cabinets, flooring, sheetrock and whatever other products you need plus the cost of any profefessional work such as plumbing

Then cost of permits, transfer taxes, mortgage fees and closing costs, realtor costs, carrying costs such as interest, electrical and real property tax and double whatever timetable you have_________

Net Sale price________________