What's a good roi?

Question

Hi all,

What's considered a good rate of return for flipping properties (in your opinion)?

Please enlighten us noobs.

Bill Gulley · Answer

Hi, this is another aspect of investing in real estate that, to me, is just another number crunching game that has little influence on a buy decision. If you just consider financial costs with respect to profit (and you don't know until it's sold) I don't even see this as being a goal. 
          
           As djjk1 and wheelhouse illuded, cosider the internal rate of return or manager's rate of return. factor in what your efforts are worth and the opportunity costs. Anything positive above your cost of capital is OK if there are other positive factors. 
          
          If you were seller financing the deal, when you figure your profit will make a difference too. What's your return on an option not taken three years down the road? 
          
          What's the value of your reputation in the community for putting a property on the tax role, making improvements in a neighborhood and improving values for adjacent properties? What's the value to your reputation in putting someone in their first home, getting them off assisted housing? How do you value these aspects of investing to a return on your investment in terms of dollars?
          You can't!
          
          If anyone says they only invest to x% on a deal, they have no idea what they are talking about. IMO. Your real ROI won't be known til the fat lady sings. Instead, go into a transaction with the goal of maximizing your investment to the extent possible at the time, if you do that, you'll be fine.

Don't count your chickens before they hatch!  Bill

J Scott · Answer

For flips, I've seen real returns of between 20-200%, with about half being in the 20-40% range, and the other half being a good bit higher.  Annualized returns are generally in the 100-400% range.

That said, I don't invest with a specific ROI percentage in mind.  I look for a minimum absolutely value return and also look to leverage most of my flips as much as possible.

I don't consider the leverage risky because it is generally a short-term loan, and also because I have the cash to collateralize the loan if need be (so I can reduce leverage to 0% immediately if I need to).

Given those two goals (minimum return and maximum leverage), I find my returns to be relatively consistent and definitely reasonable given alternative investments.  Though again, ROI is not my primary goal.

Derek W. · Answer

For flips, I am looking for at least 15k net profit.  I am buying houses in the 50-120k price range.  I don't much care what roi that is.  I just know what I need to make to keep the business rolling.  For wholesale, it doesn't matter if I am not funding with my own money.  Making $500 bucks with no money spent is still an infinite return on investment.

Justin S. · Answer

Prei916-

6% per month is a good return on your money.  If its not your money, then its really up to you on what profit you want to make.  There should be time element associated with your ROI.  6% in 30 days is much better than 20% in 6 months.

Michael Quarles · Answer

Good to meet you...

As a flipper myself I believe your answer is dependent on exposure. If your flipping concurrent to buying then at the end of the day it doesn't matter as long as you're willing to kick the deal if you cant find a buyer before the COE...

With that said I like 52k or 25% of value which ever is larger because although I am always looking for the buyer I also know that that expectation is not reasonable all of the time.

Good house hunting

Michael

PS on shorts 52 is a little hard to come in those cases if you net 20k you should be happy...

Account Closed · Answer

I'm not flipping, but I like to get about $100,000 instant equity and no more than $15,000 repair and upgrade costs.

If I sold immediately, that would be somewhere between 33% and 50% in about 2 months, so that's, let's see, about 198%-300% annual rate? Simple interest, not compounded.

I'll pay closer to FMV if the property is in good repair and has some really desirable feature. (and I can upgrade to add value)

Bill Gulley · Answer

Hi, I don't think we are all on the same page. The ROI is a historical performance ratio that measures the performance of an invetment. To look at it as a future required yield alone is not really relevant. To properly measure performance you need to compare the investment to an alternative investment or cost of capital, the cost of your money. That cost is not really the return you get from a bank on the account but rather the best use of funds in your business. 
                    
                    Your return OF investment seems to be more of what is considered here. Also, money borrowed is not free in an economic sence. Not only are there loan expenses but also the "value" of having amounts at risk. As an example, if you're in a project and the lender goes to receivership to FDIC, you will really get stuck with debt and will probably have a hard time obtaing other funds. We seem to always look at it from the bank's side of things, but they can "default" too, especially in these times. Your cost of capital is probably much higher than you think and without any bearing as to any expected price. 
          
          A good place to find financial terms, ratios and formulas is Investopedia dot com.
                   
           Sorry for the babbling, Brian got me started, it's his fault, LOL! Bill

Brian Haskins · Answer

It really depends on what you mean by flipping. Are you wholesaling or rehabbing and selling. If your wholesaling then your rate of return is only gonna be as good as you are. Your buyers usually have a formula where they will buy at price wise. Some want to be at 70% of arv minus repairs others want to be at 80% and in todays market some want to be at 60% or less. So it depends on how good of a job you do to negotiate it down. As a wholesaler you determine how much money you make by what kind of deal you can get. Where as with rehabbing you generally put a lot of time and effort into the project, much more than wholesaling. A lot of rehabbers I talk to in my area, which is St Louis, want to make at least 20k on a rehab when its all said and done. It's because we're in a pretty low price point. That's another big factor is what are prices selling for in your area.

Brian Haskins

Kendra T. · Answer

Thank you all for your insights.  Keep them coming!

What's a good roi?

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