What is a decent margin of profit

Question

LOT= $45k

HOME BUILD= $150k

If I decided to sell once the home was completed what would be an average profit to make on something like this. This is just a generic situation I put together but I’m unsure of how much I should be aiming for on the backend. 10% ? 25% ?

Jaron Walling · Answer

I agree with @Bob Stevens at around $275-265K. That's about 27-30% profit before taxes, etc. That's a solid deal in my opinion but I've never done new construction. We only remodel older properties. We had the opportunity to flip a 2/1 last fall but the ROI just wasn't there. Decided to rent and play the long game.

David Ramirez · Answer

If you're buying a lot, here's a good rule of thumb that I learned from a developer: don't pay more than 20% of its After Repair Value (ARV) if it's in the city. But if it's rural, 5-10% depending on the demand.

Bob S. · Answer

If under a year, not less then 50k NET, so this would need to sell for about 275k,

Chris Seveney · Answer

@Tony Nuttall

20%. Depends on if courts risk involved in project but 20% would be what we would look for at a min.

Edward Adams · Answer

The margin of profit you should aim for when selling a home you built depends on several factors, including the location, the local real estate market conditions, and the quality of the home you built. However, a general rule of thumb in the home building industry is to aim for a profit margin of 10% to 20%.

Using your example of a $150k home build cost, a 10% profit margin would mean selling the completed home for $165k, while a 20% profit margin would mean selling it for $180k. Of course, it's important to keep in mind that these numbers are just estimates, and the actual profit margin may vary depending on the specific circumstances of your project.

It's also worth noting that the profit margin is not the only factor to consider when deciding on a selling price for your completed home. You should also factor in any additional costs you incurred during the construction process, such as permits, labor, materials, and financing costs. Additionally, you'll want to research the local real estate market to determine what similar homes are selling for in the area. This can give you a better idea of what price range you should aim for when selling your completed home.

Ray Hage · Answer

I wouldn't be happy with anything less than 25% net profit and hopefully you get that back in a couple months. If it is a building project starting scratch, it will take a lot longer than 2-3 months so you would want a higher % gain. You already need to be really sure of the risks that get involved like city delaying your permits or your contractor running off (if you don't already have a good working relationship with one). Yes, unfortunately this really happens. It happened to my dad a few years ago where a guy ran off with 14k.

Theresa Harris · Answer

Ultimately it depends on what you think is a good return and what the market will bear.  Also how much time you've put into it-did the builder do everything in a few months or did you build everything and it took half a year, etc.  In the case of the latter, your labour wouldn't be factored into the costs, but you should expect to get paid indirectly and have a higher profit (difference between costs and sale price).

What is a decent margin of profit

Most Popular Reply