BiggerPockets

Lets say you wanted to flip a property and required a 25k profit for it to be worth the effort. Would you be willing to reduce that minimum 25k profit if you could flip 3 identical properties that are all side by side?

It seems reasonable to me to reduce the required profit per property since there will be economies of scale when all 3 properties are in the same location like this.

Thoughts?

Decrease profit by how much? If it's to about 8k so that all 3 will equal a profit of about 25k then I'd say no. Each property will have different obstacles, be put on the market at a different time and sell at a different time. Why not keep looking to find 2 more properties that have about $25k profit in them?

Also, when you start trying to squeeze a small profit, there is much less room for error. A couple surprises or overestimation in your ARV and you might be in the hole.

I always look for a minimum profit and/or minimum cash on cash return.

Let me add one thing to my response above...

The downside to buying multiple properties in the same subdivision is that you bring all the values int eh subdivision up QUICKLY, which will do two things:

1. Bring in other investors who will start overpaying for deals;

2. Increase the REO prices in the neighborhood.

So, if you're going to do this strategy, buy as many as you can all at the same time, because if you wait until you start selling them, it may be too late.

We learned this lesson last year when we bought and sold 3 properties on the same street in the course of a couple months; there were probably 5 others we could have purchased at the time for about the same price, but decided to "wait and see" how the first three did before we put in any more offers. By then, it was too late, and the others were gone and values had increased by 30% due to our rehabs.

Ultimately, we lost out on what would have been about $100K profit in 3 months had we bought the other 5...

Thanks for all the replies so far!

I should probably mention these are duplexes. Buyers would be investors or possibly owner occupants. I could possibly sell them all to one investor thus making the project even simpler.

I was thinking of calculating my offer with with a minimum 20k profit per building instead of 25k.

Stephen,

The idea of requiring a 20% return on any investment sounds nice but to me it doesnt seem like it would apply to all situations. What would you do with the following choice.

Option 1: Purchase and rehab on one house will cost 100k and return a 19k profit.

Option 2: A group of 4 homes will cost 100k for puchase and rehab and return 20k.

According to your 20% return requirement option #2 is acceptable but option #1 is not. The 20% return requirement is not taking into account that your probably putting in 4 times the effort to get that extra 1% return.

Am I missing something?

With that being said, here are the numbers i've come up with regarding the deal at hand. They are 3 duplexes that rent for $475/unit. These numbers are based on 1 duplex

85000: After Repair Value
-400: Inspection Costs
-800: Title Company closing costs(Buy side)
-5100: Realtor commissions
-800: Title Company closing cost (sell side)
-3000: Repair costs
+$7,410: Net Rental Income(65% of gross income for 4 month hold time)
-20,000:Desired profit
=$62,310 Max Purchase Price

Advice?

a vote for you eduardo..way to use the search function!! this to me always seemed like putting all your eggs in one basket...then again, i just missed on a flip because it was down the street from another i had just finished rehabbing and putting on the market...sure wish i woulda bought it too..as j mentioned, if you know the area, you can drive your own comps, which would be great for appraisals