BiggerPockets

I've been studying BP lately and have a question I've been unable to answer through my search.

My wife and I stumbled upon a good deal on our home two years ago, renovated it, and are listing it for sale next week. We have done 90% of the work ourselves and hope to realize a net profit of $35k when we sell (that is the number I arrived at after deducting all associated sales and renovation costs).

My wife and I have a strong desire to continue in our real estate investing, beyond our primary residence. One point of consideration is we love doing the renovation work ourselves but it's slow and physically taxing. For our next deal (other than our primary residence), I'm toying with the idea of utilizing seller financing or a hard money loan to finance a rehab property that we aren't also living in.

My question: assuming all contracting work is hired out, what is a good rule of thumb for estimating profit on a flip? I value time and money and if I can do one flip per year doing the work alone versus two or three hiring the work out, I would rather hire it done! That being said, I'm not opposed to a little hard work and "payment of dues" to learn what we need to learn to be successful.

Thanks for your thoughts,

Jim

I am in much the same position. It does seem slow but here are a couple things that have been important to me:

Its very nice to be able to keep it simple. Pay cash for everything, do the work on your schedule. No emergencies, problems with the bank, problems with contractors.

When I look at the costs of financing a flip it just doesn't seem worth it..Hard money lender/bank/contractors just suck all the profit right out of it. If you have "private money" at decent terms available wonderful..otherwise its not a rosy picture.

Won't be running a business, or making as much as possible, but if you buy right there really is no way not to come out ahead, and gradually build up assets.

J Scott,

I 'm not sure if my question will take the OP off course, but one thing I'm finding that sellers do not understand is, how you actually determined the $100k sale price.

Most people know that the $100k is based on comps, but maybe you can (in this post or another) explain how derived at your final sales price when there are one or more competitive properties in the neighborhood? Do you price near the lower, middle or upper tier of listings? Do you take into consideration of days on market?

Thanks to everyone for all the valuable feedback.

J Scott, I took a look at your website (okay, more like a 2 hour "look"), and I really appreciate all the helpful information you shared! I like your idea of setting a profit goal and using that to evaluate the purchase to see if the property can meet your goals. I suppose the next thing for me to do is establish a profit line in the sand. I would like to start using contractors to do the work, which I know will cut into the total profit. I'm fortunate to have a stable job that allows me to not need to realize a huge profit initially. I will also be able to reinvest 100% of the funds into the business.

On a somewhat unrelated note, how long did it take you to replace your job and how was that transition?

Jim

I've been mulling around the same question: when is it "worth it" to do a flip? I suppose it depends on the individual. I'm kinda bored and I have time and cash. I LOVE to buy and sell. My basic strategy is "buy and hold", but I like to have a project going on. What is acceptable for a profit on a flip? I think it should be correlated with price/risk.

If I'm all in at 85K and expect a quick sale at 120K (less commission and closing costs/buyer contribution to CC), I'd guess my net sp at 108K, resulting in a profit of 20K+, should I do it? It's quick and dirty (paint, appliances, power wash, carpet). I'd take the 20K. What the heck. Just something to do.

OK, I give up. How do I delete a double post?

Cheryl,

If you can earn $20K on an $80K investment in a few months, that's 100% return. Not sure what you're currently doing with the cash you have sitting around, but I would imagine it's not returning nearly as much.

So, from a purely financial perspective, if you have the free time, it seems like a no-brained...

J. Scott,

The cash is sitting in a ckg acct. I am kinda bored. I think I'll go for it. It won't be much work for for me. I have my contractors already. Plus, as I said, I LOVE THIS STUFF! When all is said and done, I'm sure I'll hear from the other half (who has a real - good- job) that "it was only 20K". I'll take the 20K and be happy. He does his stuff and I do mine. It's made for a happy 30yr+ marriage!

"Only $20k"? Nothing wrong with $20k in 3 months with an investment of under $90k!

I won't get out of bed in the morning for anything less than $20k on a rehab flip, but I work and live in a higher value area of CA so that is a bare bones minimum I expect to make on a deal.

One poster suggested some input on some guidelines and here is what I would suggest, again, these are guidelines not hard fast rules:
Shoot for a 20% or better cash on cash return - Example, if you invest $100k into a deal, at the very end, you should make at least $20k profit after ALL expenses. If you can average 4 months or less for each flip, you will be making 60% return every year! How many stock investors do you know who can tout such consistant returns?

Then institute a bare minimum of total profit per deal (mine is $20k). If your investment area has properties where you can be in and out on projects for under $100k, perhaps you can go below a $20k threshold, but don't go too much lower and the reason is this: With a $10k minimum profit expectation, if a few things go wrong, you have very little room before you start losing money. This is why a COC return is only part of your equation, having enough margin for the worst case scenarios will keep you in the black each time.

The question I have to all flippers, those experienced and newbies, what sets you apart from everyone else? There's a lot money floating around, and everyone and their brother can hire a contractor and buy cheap flooring/windows/appliances. What do you bring to the table that will make you earn that hypothetical $20K or whatever that amount might be? You might think you're special and you might be since you're here, but I recall when every cousin and friend wanted to flip houses back in 2005-2006, most ended up in the red. What I saw was people overestimating their ARV, underestimate their fixed and rehab costs, and were completely not cognizant of the human toll those projects took on their physical and mental beings.

So why does one lawyer earn 3x more than the average lawyer, why can a surgeon earn multiple times what other surgeons do, how does one value their talent and their experience? Why is certain a singer or a writer earning millions while others can barely scrap by?

The answer to how to determine your "flip profit" is not something you can do on paper, what kind of talent do you have, what kind of creative thinking do you bring that will make your flip completely stand out compared to every other flip? Sometimes simple cheap touches can make a huge difference than someone spending thousands on new floors or shiny appliances, do you think you have that knack? Everyone should be able to make some minimum profit by investing some time and sweat, but what's going to set you apart in the future is whether you have the right abilities and talent to spot a property, evaluate it properly, make the right decisions rehabbing it, and have the appropriate expectations selling it.

Originally posted by Jim Stardust

The question I have to all flippers, those experienced and newbies, what sets you apart from everyone else?

I think the way I run my business and the relationships I have developed set me apart from others. I have set up good teams and solid systems so that I can minimize and often mitigate risk while keeping hefty profit returns.

Most of my acquisitions are gained from contacts I have developed and these contacts provide me inventory that I can flip and wholesale for maximum proifits without having to play the numbers game.

Sure anyone can hire a good contractor and fix up a house nice, the key is the acquisition price. Ever heard of "you make your money on the purchase and not on the sale?