What profit do you make?
AZ · Member since 2008 · 50 posts · 1 vote
For anyone willing to share, what do you typically profit (after all fees, not including capital gains) make on a single family home rehab with an ARV of say 200k? What is typical and what is the minimum you'll accept? Better yet, what were those (expected) numbers on your first few deals?
! know to pay "about" 70% ARV but really just as long as the numbers work but I'm really to hear about the bottom line you expect.
Thanks!
On a rehab project, I would be looking to make atleast 15% of the ARV or a minimum of 12K. When I started I just factored backwards to what I would make on the deal and decided whether that was enough money or not.
I know a lot of new investors brush over the 70% of ARV minus repairs formula, but it really is where you need to be. I think new investors get discouraged because 70% equity in a deal requires some diligent effort to find, so they get discouraged and start rationalizing the numbers higher. What happens is you get bit, and when you get bit hard enough you start sticking with 70% of ARV minus repairs as a maximum offer.
The reason behind this is found in Jim Watkins', aka thedfwmentor, poignant signature, which states. . .
You will NEVER lose money on a deal you walk away from.
Thanks so much for your reply, it really helps! So wow, 70% is your max huh. I do seem to see others posting all the time about 65% and sometimes even 50. I;m going to write down your quote "you'll never lose money on a deal you walk away from" That's a great point to keep in mind when you're wanting to MAKE those #s work. Thanks!
The reason behind this is found in Jim Watkins', aka thedfwmentor, poignant signature, which states. . .
You will NEVER lose money on a deal you walk away from.
Now I am going to get a big head! I'M DOOMED!!!! lol
Glad to see my little words are taken to heart by some of the guru's on the site.
The thing I wanted to add to my quote is one word that looms in everyone's vocabulary, that is capable of killing EVERY deal you look at:
[size=18][/size][b]COMPROMISE
[size=12][/size] In my dealings, the first set of cost numbers I run are usually the highest AND most accurate (not saying they are realistic).
Investors, and mostly new investors fall into the Compromise trap.
The numbers don't look good, you take another look at what's involved in the deal and search for area's you can cut costs without any real basis for doing so.
You say to yourself, "All I have to do to get my profit up is use less expensive materials and do some of the work myself so I will save on labor."
You just compromised yourself and your deal.
The worst compromise that I see happen too often?
"I will save the 6% it will cost me to use a Realtor and list it on MLS and sell it For Sale By Owner."
If you ever find yourself even THINKING that thought..... move on to another deal!!!
Realtors are a valuable asset to have in this world. You may think they make a ton of money but consider they ONLY get paid at closing. If you still think they are overpaid.... jump the fence to the other side and become a Realtor. I have a hunch you will see the grass was greener where you came from.
-Jim Watkins
www.dfwmentor.com
I completely agree, Jim. Compromising your numbers is a very easy thing and potentially a very dangerous thing to do.
It's natural to want to make a deal work, but don't do it at the expense of your business' livelihood.
The best advice that I have found in evaluating a deal is BE CONSERVATIVE. Be conservative in every aspect. If you can't find a deal that will fit your conservative numbers then get better at finding deals, not at compromising numbers. If I can't afford to sell it with a realtor then its not a good enough deal for me to risk tens if not hundreds of thousands of dollars on.
I have made a lot of money using this advice, and I have lost a lot of money learning it. Be conservative in your numbers and don't compromise them just to make the deal work.
Buying for 195.0 ...5.0 closing costs.......20.0 for repairs....in property for 220.0 ...fast sell @ 260.0 .........40.0 profit....foresee any problems???
You forgot your cost to market and sell the property! I would like to think that putting a sign out front is the way to properly market a home but you need to allocate funds for marketing. If you are going to market it yourself remember to allocate 3% for a buyer agent if a realtor brings someone in addition to your other marketing expenses.
balloons and large cardboard signs are not very expensive at all...when you come from poverty...you get REAL creative....when I am selling it will look like the Macy's day parade on the nearest major road...Old school stuff....They will come in flocks....old school says ther is results in numbers......
What is the market like where you are selling this property? it has slowed in my area to where flipping is only a good idea if you buy really low and sell low. Can you move that house fast for 260k? Here the average house is sitting for 6 months which would be big holding costs.
Lets be old school-- in my market a do it yourselfer is the only one trying to sell the property. List with an agent you get 6000 trying to sell it.
ARV is After Repaired Value. It is what the house will sell for all fixed up.
I can't say what does and doesn't work in other US markets but I do know that selling FSBO in the Dallas/ Ft. Worth area is a futile move.
Granted, a good percentage of people do it FSBO because they simply don't have sufficient equity in the property to cover the 6% Realtor fee's but, as I teach/preach in my classes... Compare extended holding costs to what Realtor fee's would be.
Here is a decent example:
[b]$1,000 per month holding costs for a property of 100K value.
*With Realtor:
Rehab time (1-2 months), Listed time on MLS (1-2 months+), Contract, Option and Pending time (3-4 weeks). Up until the closing of the sale. And that's IF a contract doesn't Fail!
$4,000 total holding costs - 4 Month
*Without Realtor:
Rehab time (1-2 months), FSBO advertising time (1-4,5,6 ++ months), Contract, Option & Pending time (3-6 weeks w/o Realtor guidance) and GOD HELP YOU IF A CONTRACT FAILS!!!
$4,000 up to but not limited to $12,000 +
Bottom line: Use a Realtor and pay them up to if not more than the regular fee. It motivates BOTH Realtors (listing & buying) and cuts holding times (listed time) into the single and low double digit times.
All that does is SAVE MONEY on the holding costs!
Hope it helps.
Jim Watkins[/b]
I sold five houses between June and October this year by FSBO. If you have a product that is remodeled to the 9's and are willing to have a good series of open houses...you can sell your own houses. You must put out signs, have attractive color flyers with good information and be willing to answer the telephone and show your house at the drop of a pin. You must be open with everyone and answer every question...even the stupid ones. Don't be sensitive. Keep those tubes filled outside of the house daily. People resent finding an empty tube. Have several examples of a contract. A buyer will not (I repeat) have any idea where to go for a contract or how to get a copy of one to even amend...so help them get to the information as much as possible.
After you finish remodeling a house...no one knows more than you do about that house. If you don't have a sales personality...get a friend to help you show your house. I never have enough profit to pay 6% commission to realtors but I will always agree to pay any realtor 3% if they want to bring a customer through. They never do want to make that split of 1.5% with their broker but I'm sorry. They may wish one of these days that they courted FSBO's.
your skilling in fixing is time and cost of saving labor
high cost states such as calfornia, new york and hawaii.
labor cost is too expensive unless you can do the work yourself.
however, states such as texas, new mexico
labor are cheaper and but the risk is if you can able to move the property
(able to sell it)
test your market first.... slow moving states i would stay out unless you have a buyer...it make sit for months or years.
thanks
sunsmicro
test your market first.... slow moving states i would stay out unless you have a buyer...it [might] sit for months or years.
thanks
sunsmicro
True, much depends on your investment philosophy. Excuse a newbie to this site, but I live in one of those states (New Mexico) and if the goal is to rehab, refi, and obtain cashflow until the market changes, then this state can be a place to do that well.
In Abundance,
Jim
the property that i am working on now i bought at 28% ARV based on quick sale price. I paid 70k, have 45k going in it and expect to sell it quickly at 249,900.00 because it is in the private beach area which is very coveted over here. Even if i were in a position to have to sell it at say 199k, that is still only 57% ARV.......FIXED...If i sit on this property for 2 years it will probably be worth 300k (but i cant sit on it due to lending restraints)...If i had to sit on it, the house sleeps 10 so in the summer months i could easily get 2000 per week renting it out to vacationers from May to September which would net me 40k per year...
So including rehab my total ARV is 46%. If I sell it FSBO and send faxes to all the realtors in my area and offer them a decent percentage (5-6%) to the buyer's agent, i should have a good offer on it within 30 days. We also market them by telling the neighbors to tell their friends and we give them a nice kick back if we close their buyer...
The last one i did ended up being in total 71% ARV because of serious unforseens (electrical issues and plumbing issues) From that i learned to just always account for that in each budget because im a freak about electrical problems....
The one before that 64% ARV FIXED....the one before that 35% ARV fixed....
They are out there you have to keep your eye on all of the properties or have an excellent bird dog to find them for you. The one im doing now i stalked for over 3 months and bought it before it even got onto the MLS.
that said, to answer your question there is no "typical" profit for me anyway. It varies with each property....You really want to strive to buy as low as you can....