What do you consider a good net profit or home run?

Buying & Selling Real Estate
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What do you consider a good net profit or home run?

Terry Lao
Professional · Anaheim, CA · Member since 2017 · 1k+ posts · 686 votes

What do you consider a good net profit or " home run" ? I'm thinking of selling. I know that there are many variables such as ROI, COC, time/duration, percentage, CAP Rate, etc.

Looking for a number dollar figure. I would say that $100k is a good round number. 

Terry

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JD MartinBusiness Member
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Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 17k+ votes
7y

No good way to answer this question. In my current situation or ideal one? In someone else's situation? In general? I wouldn't consider making $100k a home run if it was a $100 million deal. 

Me, personally, I consider anything a home run that wildly exceeds my expectations for the property, assuming my expectations were reasonable to begin with. That might mean making $10k on a property that was an expected loss based on market timing, unexpected costs, etc. 

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  • Terry Lao
    OP
    Professional · Anaheim, CA · Member since 2017 · 1k+ posts · 686 votes
    7y

    Is anyone hitting home runs? a single like 10k?

    1Reply
  • Cody L.
    Rental Property Investor · San Diego, CA · Member since 2013 · 3k+ posts · 4k+ votes
    7y
    Originally posted by @Terry Lao:

    What do you consider a good net profit or " home run" ? I'm thinking of selling. I know that there are many variables such as ROI, COC, time/duration, percentage, CAP Rate, etc.

    Looking for a number dollar figure. I would say that $100k is a good round number. 

    Terry

     $250k - $1m

    1Reply
  • Terry Lao
    OP
    Professional · Anaheim, CA · Member since 2017 · 1k+ posts · 686 votes
    7y

    @Alexander Felice

    Trying to get input as to what constitutes a good net profit or " home run" ? I'm in process of selling a 4plex in Las Vegas.

    Terry

    2Reply
  • Alexander FelicePro Member
    Guy with Great Hair · Austin, TX · Member since 2013 · 2k+ posts · 4k+ votes
    7y
    Originally posted by @Terry Lao:

    @Alexander Felice

    Trying to get input as to what constitutes a good net profit or " home run" ? I'm in process of selling a 4plex in Las Vegas.

    Terry

    Are you only going to sell if you can make what you consider a home run? 

    I mean, my approach is to determine what the market value is, and what I'm going to do with the funds. What I don't do is "I'm only selling if I can make $100K because 100K is what I want to make, that's arbitrary and makes for terrible strategy. There is a great book written about this called Bed of Procrustes. 

    Do you have a better way to spend the money once you sell? If you sit on the property whats the long term prospect for it? How does selling fit into your long term strategy? 

    Vegas 4 plexes are selling at a premium and all the ones I've seen are ugly as sin and in low growth areas. Sure does seem like if you wanted to sell, the time to sell would be right now. 

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  • Syed H.
    Developer · NY/NJ/PA · Member since 2018 · 758 posts · 935 votes
    7y

    Depends on a bunch of factors for my flips. 

    Hold time, risk, & investment amount is what I look at. Also I have a minimum. 

    I need to make $75k-$100k profit on a project or it’s just not worth my time. I’d rather do less projects and make the same money. On larger houses for $1m+ I need to make $200k+

    The only exception is in a few select hot markets for cheap starter homes. These are houses that are quick Reno’s bc they are small and you don’t have to be as anal on the Reno. Also they go into contract the first week or two of list. 

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  • JD MartinBusiness Member
    Moderator
    Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 17k+ votes
    7y

    No good way to answer this question. In my current situation or ideal one? In someone else's situation? In general? I wouldn't consider making $100k a home run if it was a $100 million deal. 

    Me, personally, I consider anything a home run that wildly exceeds my expectations for the property, assuming my expectations were reasonable to begin with. That might mean making $10k on a property that was an expected loss based on market timing, unexpected costs, etc. 

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  • Terry Lao
    OP
    Professional · Anaheim, CA · Member since 2017 · 1k+ posts · 686 votes
    7y

    @Alexander Felice

    You definitely have a opinion and a strategy. My goal from the beginning was buy, hold, and sell. I have a target goal for each of the three. 

    The sell is more like a formula that comprises of the the below:

    1. does it meet 10 years net cashflow and principal reduction payments? Which the numbers are 1,100 x 12 x 10 = 132,000

    2. which real estate cycle are we on, like peak, near peak, downturn? 

    My answer to those questions is 1. yes, getting 15.25 years. 2. peak/near peak.

    I guess you can call it timing the market. I will build war chest by investing in fixed rate securities ranging from 2% to 10%. Then buy again when market hits bottom. Las Vegas went through hell and back during 2008-2012, and lost up to 50% market values. I don't want to take that ride.

    Terry

    0Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    7y
    Originally posted by @Terry Lao:

    @Alexander Felice

    You definitely have a opinion and a strategy. My goal from the beginning was buy, hold, and sell. I have a target goal for each of the three. 

    The sell is more like a formula that comprises of the the below:

    1. does it meet 10 years net cashflow and principal reduction payments? Which the numbers are 1,100 x 12 x 10 = 132,000

    2. which real estate cycle are we on, like peak, near peak, downturn? 

    My answer to those questions is 1. yes, getting 15.25 years. 2. peak/near peak.

    I guess you can call it timing the market. I will build war chest by investing in fixed rate securities ranging from 2% to 10%. Then buy again when market hits bottom. Las Vegas went through hell and back during 2008-2012, and lost up to 50% market values. I don't want to take that ride.

    Terry

    your going to replace this with another cash flow property so you don't have recapture and cap gain?  so to me you need to see if the replacement you could buy is as good or better than what you have which is a stabilized asset / or think its stabilized.

    Unless your going to pivot and enter a different space in Real estate  Like notes or short term lending or  rehab flips or new builds or take the money and spread it to crowd funders or syndicators.

    or would you use the money to start some other business in a different field all together.. ?   

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  • Terry Lao
    OP
    Professional · Anaheim, CA · Member since 2017 · 1k+ posts · 686 votes
    7y

    @Jay Hinrichs

    Don't you remember? Your the one who said if sell, it is a good time to sell. You even mentioned that your partner who owners SFR's is selling or sold in LV.

    I know that I will have about 15% long term capital gain and recapture depreciation. Not thinking about 1031 into another property. 

    You mentioned that you have funds that get 10% but need minimum 100k. That sounds safe and good return.

    Terry

    0Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    7y
    Originally posted by @Terry Lao:

    @Jay Hinrichs

    Don't you remember? Your the one who said if sell, it is a good time to sell. You even mentioned that your partner who owners SFR's is selling or sold in LV.

    I know that I will have about 15% long term capital gain and recapture depreciation. Not thinking about 1031 into another property. 

    You mentioned that you have funds that get 10% but need minimum 100k. That sounds safe and good return.

    Terry

    Just pointing out the tax implications.. and my partner who sold did not sell he donated hs  3    4 plex's to his family charitable  foundation..  so he gave them away for the tax right offs..  

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  • Terry Lao
    OP
    Professional · Anaheim, CA · Member since 2017 · 1k+ posts · 686 votes
    7y

    @Jay Hinrichs

    Your partner donating his 4plexs will get the write off. Then the charity foundation, will sell and keep profits with no taxes since it is a 501(3)C organization. That sounds like double dipping no taxes.

    What do you think about Blackstone, bought massive amounts of REO's, and now selling?

    https://finance.yahoo.com/news/blackstone-looks-cash-massive-recession-193800728.html

    Terry

    0Reply
  • Account Closed
    Member since 2018 · 214 posts · 175 votes
    7y

    ....,

    0Reply
  • Terry Lao
    OP
    Professional · Anaheim, CA · Member since 2017 · 1k+ posts · 686 votes
    7y

    opps 501(C) 3

    0Reply
  • Mike Dymski
    Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
    7y

    "I guess you can call it timing the market. I will build war chest by investing in fixed rate securities ranging from 2% to 10%."

    I agree with selling...and you can find 2-5% securities.  What fixed rate securities can you invest in at 6-10% that are not also at risk during a major market correction?

    0Reply
  • Frank Wong
    Real Estate Broker · Bay Area · Member since 2018 · 1k+ posts · 3k+ votes
    7y

    Hi Terry,

    For me its all relative to the percentage gain on the deal and how much risk and exposure I have out in general. In your case 4 plex in Vegas at those price points. I would like to net $100k but in the end, $80k net is still money.  If you believe what you believe and Vegas is selling at a premium then sell.  

    I would never sell bc some hedge fund is selling.  I have no idea what their reason is.  In many cases, it's trimming their risk exposure.  That's how hedge funds operate they manage risk.  The reason why I sell is based solely on risk. 

    2Reply
  • Dennis M.
    Rental Property Investor · Erie, PA · Member since 2018 · 6k+ posts · 9k+ votes
    7y

    @Terry Lao

    4% rule or better is a home run to me . Everything else is just okay

    1Reply
  • Doug Wright
    Radcliff, KY · Member since 2018 · 17 posts · 13 votes
    7y

    Depends on cash investment, time of holding, etc. I purchased a fix and flip with only 20k out of pocket. Bank financed remaining amount. Sold property within 6 months and made a 25k profit after all purchase closing costs, sale costs, holding costs, rehab, etc. So my return was 125% in 6 months. In my opinion this was a home run in my market. House ARV was 130,000. Now if I invest 20k out of pocket and had the property for 15 years I would expect to walk away with a lot more.

    1Reply
  • Alexander FelicePro Member
    Guy with Great Hair · Austin, TX · Member since 2013 · 2k+ posts · 4k+ votes
    7y
    Originally posted by @Terry Lao:

    @Alexander Felice

    You definitely have a opinion and a strategy. My goal from the beginning was buy, hold, and sell. I have a target goal for each of the three. 

    The sell is more like a formula that comprises of the the below:

    1. does it meet 10 years net cashflow and principal reduction payments? Which the numbers are 1,100 x 12 x 10 = 132,000

    2. which real estate cycle are we on, like peak, near peak, downturn? 

    My answer to those questions is 1. yes, getting 15.25 years. 2. peak/near peak.

    I guess you can call it timing the market. I will build war chest by investing in fixed rate securities ranging from 2% to 10%. Then buy again when market hits bottom. Las Vegas went through hell and back during 2008-2012, and lost up to 50% market values. I don't want to take that ride.

    Terry

    I have a client at work who buys rentals

    in up markets like now, he sells all this houses in Vegas and buys C class SFR in Missouri for cash flow.

    When the market drops, he will sell all those and start buying depressed housing in Las Vegas. 

    The next market downturn will be the third time he uses this cycle. Does he leave money on the table by not waiting for market peak? Absolutely. does he make a fortune using this method and rarely lose any money? Absolutely.

    If you are playing the long game and don't need the cash flow, maximization of resources is less important than reducing risk of ruin or even risk of loss. 

    I still can't say what you should do, but right now people are paying prices for 4plexes here that make my head shake sometimes and that is a good opportunity for you ;) 

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  • Mike Dymski
    Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
    7y
    Originally posted by @Alexander Felice:
    Originally posted by @Terry Lao:

    @Alexander Felice

    You definitely have a opinion and a strategy. My goal from the beginning was buy, hold, and sell. I have a target goal for each of the three. 

    The sell is more like a formula that comprises of the the below:

    1. does it meet 10 years net cashflow and principal reduction payments? Which the numbers are 1,100 x 12 x 10 = 132,000

    2. which real estate cycle are we on, like peak, near peak, downturn? 

    My answer to those questions is 1. yes, getting 15.25 years. 2. peak/near peak.

    I guess you can call it timing the market. I will build war chest by investing in fixed rate securities ranging from 2% to 10%. Then buy again when market hits bottom. Las Vegas went through hell and back during 2008-2012, and lost up to 50% market values. I don't want to take that ride.

    Terry

    I have a client at work who buys rentals

    in up markets like now, he sells all this houses in Vegas and buys C class SFR in Missouri for cash flow.

    When the market drops, he will sell all those and start buying depressed housing in Las Vegas. 

    The next market downturn will be the third time he uses this cycle. Does he leave money on the table by not waiting for market peak? Absolutely. does he make a fortune using this method and rarely lose any money? Absolutely.

    If you are playing the long game and don't need the cash flow, maximization of resources is less important than reducing risk of ruin or even risk of loss. 

    I still can't say what you should do, but right now people are paying prices for 4plexes here that make my head shake sometimes and that is a good opportunity for you ;) 

    I am re-allocating from value to cash flow plays as well.

    There are also many people who are not in a position to take millions in net worth and put it under the mattress.  So, they pivot with market conditions.

    1Reply
  • Terry Lao
    OP
    Professional · Anaheim, CA · Member since 2017 · 1k+ posts · 686 votes
    7y

    @Alexander Felice

    The final numbers will be net 200k. Purchased Apr'16 for $170k, financed 4.125% 15 year loan, 25% down. Sold for $360k. Net in bank $15k. Reduction in principal/loan payments $20k. 

    I will pay the taxes since not looking to do 1031. Open to larger commercial if opportunity comes up.

    Your client who switches between Missouri and Las Vegas has an interesting strategy. Missouri must not have huge swings like Las Vegas. Switch from cashflow to appreciation cycle.

    The Las Vegas April median home price should be coming out soon. Last Mar'19 was $300k and not change much for last 3-4 months. I'm thinking April will hit $305k. Interest rates have been going lower and a lot of activity talk from realtors.

    Terry

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  • Nick C.
    Investor · Tampa, FL · Member since 2011 · 2k+ posts · 3k+ votes
    7y

    We shoot for a 20% ROI or better for flips. Anything under that isn't worth the risk.

    0Reply
  • Bill B.
    Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
    7y

    @Terry Lao

    Pretty darn good Terry. 

    Turning $45k into $245k. Making $200k in 3 years is what, 450%, or 150% annualized?

    Incase nobody else tells you, good job. :-)

    1Reply
  • Terry Lao
    OP
    Professional · Anaheim, CA · Member since 2017 · 1k+ posts · 686 votes
    7y

    @Bill B.

    Thanks for noticing the numbers. Since my down was about $42.5k and closing costs, that's my skin in the game. So in three years time, it went from $42k to $60k to $100k to $200k. Overall, 500% gain in ROI, and annualized to about 100% per year. When making 20% per year in stock market is outstanding, I'm hitting at 100% and less risk.

    Selling the 4plex on Maryland that you keep mentioning to others on BP.

    Terry

    0Reply
  • Luther A.
    Member since 2019 · 38 posts · 4 votes
    7y
    Originally posted by @Terry Lao:

    What do you consider a good net profit or " home run" ? I'm thinking of selling. I know that there are many variables such as ROI, COC, time/duration, percentage, CAP Rate, etc.

    Looking for a number dollar figure. I would say that $100k is a good round number. 

    Terry

    I watched the BP podcast about Ashley Hamilton investing in Detroit. She invested 20K in a SFH and rented the place out for $900/mo. That is definitely a home run. On top of that she owned the house out right with no mortgage. You would think since she announced these wonderful deals all the deals would be gone by now. However, the same deals Ashley got in Detroit are still there right now. Talk about "Buy low Rent high" she killed it. As soon as I save up enough money Detroit is the first place Ill investigate. I hope by the time I have the money these deals still exist.

    0Reply
  • Jim Chuong
    Rental Property Investor · Toronto, Canada · Member since 2012 · 102 posts · 95 votes
    7y

    @Terry Lao when I was buying property in Phoenix in 2010 during the credit crisis, I paid $55k for a detached 3/2 home on a short sale and quickly rented it for $1100/mo. That was a home run

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