Is 10% ROI good enough?

5 Replies

My Buyers are looking for a minimum 15% ROI. I've been loosing a lot deals with a good 10% return.

I'm in Los Angeles, to get over 15% is tough, and getting harder.

Now, I'm looking into Hard Money to get my own deals. I'm happy with a $50-$80k profit.

Why 10% is not enough?

Regards,

@Emerson Miranda   What happens when something goes wrong, and that 10% gets cut in half? Then is it worth it? 15% profit with all of the unknowns and risks is not excessive. A little extra holding cost, a cut in sale price to get it moving and expected profit can evaporate pretty fast.

Coming into a deal with double digit upside is tough around here. The higher dollar market still delivers these returns, but you'll fight a tough battle scouring for deals under that price point.

@Emerson Miranda  I've never seen anything you wholesale, so my comment is less an observation about you, and more about the wholesale market in general.

My guess is that your experience / responses are less about you and more about the underwriting.  Many deals we see from wholesalers have inflated values, under estimated renovation costs and occasionally include multiple wholesale fees that can reach 10-15% over the contract price.

We, and our partners, would buy deals in LA with a 10% ROI, however many that are brought to us with that return expectation, turn out yielding far less once we underwrite the project internally.

My suggestion to you, if you haven't done so already, is to close, rehab and sell a few on your own.  This will do two things for you.  1) it will help you better underwrite deals, and 2) it will give you a track record.

My second guess is once you've done this and found success, you will no longer be the "wholesaler from Torrance" and become a private investor...

Best of luck out there!

Great advice @Allan Glass !

I've noticed, and discussed with my Buyers these inflated fees from other Wholesalers. I've been very conservative on the deals I present them.

But I definitely need to work on my own deals. I'd rather have smaller returns, than wait for a better one.

Thanks for your time!

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