BiggerPockets

Wow, 42k on first flip is pretty good. Especially with just 2.5weeks of repair.

Congrats. I don't want to cast any negative over a positive experience. However, and this is really for the newbies out there, your margins were dangerously thin.

The rule of thumb, and this is for your protection, is to buy at no more than 65% of the ARV minus the repairs. You guys apparently purchased at 81% of the ARV and then put in another 10% towards the rehab. You were lucky. Had the market turned south or something popped up that you didn't anticipate (bad roof, contaminated soil from an underground storage tank, etc.) this could have turned out bad. The good thing was that you guys were able to do the rehab work at cost. Not everyone can do this and not everyone can buy at the margin you used and make a profit.

Again, congratulations but you really want to stick to the formula. There have been many an investor who got burned out of the business using the margins you used.

All the best and on to the next deal!

Good for you Shawn! It looks like you and your brother have a great set of combined skills that should prove to be very beneficial in this business!!

Originally posted by Ibrahim S

Congrats. I don't want to cast any negative over a positive experience. However, and this is really for the newbies out there, your margins were dangerously thin.

The rule of thumb, and this is for your protection, is to buy at no more than 65% of the ARV minus the repairs. You guys apparently purchased at 81% of the ARV and then put in another 10% towards the rehab. You were lucky. Had the market turned south or something popped up that you didn't anticipate (bad roof, contaminated soil from an underground storage tank, etc.) this could have turned out bad. The good thing was that you guys were able to do the rehab work at cost. Not everyone can do this and not everyone can buy at the margin you used and make a profit.

Again, congratulations but you really want to stick to the formula. There have been many an investor who got burned out of the business using the margins you used.

All the best and on to the next deal!

Abrahim,
Thanks for the feedback. This is a positive for me. We were talking to people around. They said that we were crazy for buying at that price and sell it at that price. We pretty much gain mostly on labor and discounted materials. It is a lesson for me. Thank god it is a positive one. This first sale really open my eyes. Thanks everyone. The people who bought it was really happy. The inspector that inspected the house was consider of selling his and buy ours. Lol. I thank everyone and this forum for helping me out.
Btw, what is arv?

The rule of thumb, and this is for your protection, is to buy at no more than 65% of the ARV minus the repairs.

Actually, the rule (or more acurately, the guideline) is 70% of ARV (after repair value) minus repair costs, however, the rule/guideline must be adjusted according to exit values (ARV's). For instance, a home with an ARV of $100k or less, you need to be at the 65% minus repairs, a home with an exit such as yours of $475k can be as high as 77% IF it is an easy and quick flip, guideline should be set no more than 75%.

For homes with longer rehab times and higher ARV's like $750k and up, you need to get the rule back down to the 65% mark again.

Point being, the rule needs to adjust according to each property type, time factor, difficulty factor, etc.

At 81% of ARV + you added in rpeairs on top of that (if that costs was $25k) then your "all0in cost to exit price was 86.5%

Your $42k profit based on an estimated $411k cash investment gives you a cash on cash return of 10.2% (that is only half of the minimum I shoot for). If I can't make a cash on cash retrun of 20% or greater, I likely do not have a deal.

As others stated, if anything went wrong, you could have lossed money. Count your blessings and don't make the same mistake next time. Make sure your offer is 75% less repairs of ARV and no more than that.

Congrats on your first deal.

Shawn,

Take what Will said very serious, he is spot on as usual. Right now you are pumped up over the dollars you are seeing, and not taking note of the risk vs reward. You are in what i call the "casino effect". It is as if you just finally went to a casino for your fist time, and walked out cash up. Odds greatly are, that you will try it again, and loose.

a 10% return was only rewarding due to the numbers you did it at, although have you truly removed all expenses yet? How about uncle sam's cut?

Myself, I would never look twice at a 10% ROI, not anything below 20% ever, because I have learned thru experience all too many times a projected 25% ROI can quickly turn into a 14 realized ROI.

Originally posted by Joseph M

Congrats! Would you mind sharing what market/city you are in ? Just curious. Also a little bit about the financing. YOu stated that you paid for it in cash, was that cash you guys had in the bank. Or did you make a "cash offer" using hard money or some other type of funding?

Joseph,

I live in Orange county CA. We paid it cash. no Financing.