Math question! House flipping math.

I like to watch any shows that have to do with house-flipping, home improvement and tools and stuff.

One of my main bug-a-boos is the 'math' at the end of a show where a person/company buys a house, fixes it and sells it at a profit.

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Pencils up!

A house is bought for 50,000 dollars.
The company puts 5,000 dollars of work into the house.

The house is then sold for 70,000 dollars - and the program notes that the profit on the end sale is 20,000.


My question is this, if the company invests a total of 55, 000 dollars (the price and improvements), How can they make a profit of 20,000 dollars?

Clearly profit should be $15K.

The 5,000 is just a estimate of the labor put into the house, which I'm sure the people did the work themselves.
The profit when selling the house at 70,000, would be 20,000.

New math? :p

Maybe they can write it off? Although I don't believe so based on personaly experience.

ROFL, as Math Major, this always gets me as well.

Quote:

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Originally Posted by lizbud

The 5,000 is just a estimate of the labor put into the house, which I'm sure the people did the work themselves.
The profit when selling the house at 70,000, would be 20,000.

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My mistake, I meant 'work' to include materials.

I can see the estimation of labor, but the improvements usually are material purchases - updating kitchens with new appliances and such.

I know that the "This Old House" programs on PBS rely on sponsors -Home Depot and manufacturers to donate to the renovation - so the end investments aren't as pricey as a regular renos are in those cases. I am sure a segment on new technology is as good as a commercial.

I am sure they got many letters/emails/tweets correcting their math!

Richard, you would be correct. I studied accounting years ago. Gross Profit is 20 000. Net is 15 000. They would be taxed on the 15 000.