I hate posting like this, but since there is a lot at stake -- It always comes down to the math. Maybe it's just me, but I believe that in order to make a decent return, you need to work with at a minimum, $300K and above homes. There is a theoretical mark up / gross profit level out there somewhere. For the sake of argument, let's say it's 20%. 20% of a 100K home is a lot of work for the return, which could result in minimum wage or less per hour for your troubles. Remember too that while you're doing the flip, the expenses for the project keep coming, as in insurance, interest, electric, taxes, water & sewer fees, and so on.
With the market currently in the toilet, the risk of re-sale at a healthy mark up is indeed a big gamble. I am involved with a 45 acre hill top property with 4,000 sq ft home and dramatic mountain view that comps at 1.2. There isn't even a slight interest at 700K. In the meantime, expenses still accrue, including tax, maintenance, and so on, all of which gnaw away at any chance of profit.
It's tempting to Mom & Pop a venture like this, in order to stay under audit radar, but Mom & Pop mode does splay one wide open to liabilities. An LLC (or other corporate veil) and a good insurance policy is to be considered as well. You are a link in the liability chain as deed holder, should any ancient pollution or other issues arise. Be aware too that a typical insurance policy usually allows only a very paltry $50,000 maximum limit for pollution coverage. Once the 50K is gone, guess who they look to for the rest?
Be wary of all your tax implications too. In addition to the ever popular cap gains tax(es), if residential restoration is sales taxable there, as it is here, a field auditor could consider the entire gross profit is income, and so subject to state sales tax. One way or another, the revenuers are going to take a chunk, whether it's personal income tax, cap gains, or corporate income tax if you go LLC. It wouldn't hurt to figure to lop at least 30% off the gross for taxes when planning your net profit margins.
If there's a way to buy some time in order to research this a bit further, (read - stall the idea) perhaps that would be prudent at this juncture, as the saying goes. The advice of local & seasoned real estate agents could prove useful. Part of their job is researching comparable pricing, and so they should know the local market very well.
I'm sorry for bringing all the doom & gloom, but they're all part of the package. A large part of operating a business in the US in today's world is dancing with the assorted state & federal devils, and trying to dodge their pitch forks. Perhaps a dry run on paper would be useful, and incorporate all my doom and gloom expenses from above. In this market, a 20% gross profit might be too generous a yield, but at least it's a start in the cipherin' process.
