Target profit margin for flips
Hey folks,
We're in the Cleveland market looking at buying SFH's to flip. For those with experience doing rehabs, what's your target profit margin you look for in evaluating deals?
We've been going for a 20% profit off sales price but the markets pretty tight and when analyzing properties we typically don't think we'll be able to achieve those targets without asking for $10K or less than the listing price, which sellers aren't willing to bit on.
We're trying alternate forms of finding properties (driving for dollars, tax delinquent lists, and auctions) as well. But for anyone with experience doing rehabs through the the MLS, what's the target return you go for when buying a house? Any recommendations on how you modify your plans during a seller's market or how we should be thinking about this? I understand some profits is better than no profits but we don't want to tie up too much cash and time in a 6 month project that isn't going to move the needle much for us.
Thanks for your help.
Here's an example:
Property is listed at $65K. We think we can rehab it for $40K (including holding costs and closing costs) which would make total cash needed at $105K. We estimate we can sell it for $120K, making a $15K profit.
However, a 20% return on $120K is $24K, so to achieve that target we'd need to buy the house for $56K instead of $65K, which hasn't made us very successful so far.