How much profit is too little?

5 Replies

Im looking to buy auction and preforeclosures that sell for around 120k after repairs. I live in south texas ans its considered one of the poorest area of the country. So most people buying are around the 80 to 150 range. What should i be shooting as far as my ROI. 10% seems too little based on all the investment and time and 20% seems to be closer to what i would consider acceptable. Am I overshooting here. What is your opinion on what should be a good return on a 100k investment and risk.

It depends.  You looking at flipping these properties or renting them out?

I do buy and hold and I would be happy with 10% all day long.  But for a flipper that might not work. 

Daniel, if you're in for $120k and you want a 20% return, that would be $144k PLUS closing costs PLUS commissions.  That puts you over the top of the range and that poses a real risk that the property won't appraise.   It's important to remember that Auctions are just another marketing vehicle to sell homes; it doesn't mean you'll get a better price.  Auctions tend to get the competitive fever going in some folks and the price can actually be higher than if traditionally marketed.  Sometimes a deal just isn't a deal...stay mid-range in the valuation range and to attract more buyers and sell fast.

Personally, I love that price range. Easy exit strategy is to REFI and rent out. If you shoot for 10%, you can easily run into losing money with any rehab cost overruns. I would say 20K or 20% would be more than acceptable for me. Need to make it worth your time while leveling off the risk.