Flipping Annual ROI

7 Replies

For all you experienced flippers out there, what kind of average annual return on your money can you get by flipping rental property? I've read supposedly experienced people on this an others sites say that can they can average a 50%-100% annual return on their money by actively flipping homes. Do you guys hear agree? I understand a newbie probably cant get those kinds of returns but do you guys think that with experience those types of returns are generally possbly.

I understand it would also vary depending on the amount of money someone had to work with so lets say for the sake of discussion that you had 240k cash to work with.

If I could could get a 50% annual return working for myself on my 240k I would happy as a clam!!!! I'd even be happy with a 25% return on that money.

If you cant tell i'm itching to leave the rat race and work for myself.

Do you mean flipping as in wholesaling or flipping as in fix and flipping?

Wholesaling return is going to depend on how many deals you do and their size. The investment is mostly into your marketing. Though, if you can afford to put your own cash into it and avoid transactional lenders and the hassles imposed by the sellers, you're in a better position than many wholesalers.

With fix and flips, the rule of thumb is that a purchase plus rehab cost of 70% of ARV will yield a profit of 10-15% of ARV when using hard money and turning the deal in six months. If you have your own cash, you can pocket another 7% or so of ARV. So, that gives you 20% +/- of the ARV, with a total investment of about 80% of ARV. That's a 25% ROI. If you can turn your money twice a year, that's 50% annual.

One problem with real estate is the size of the deal varies. And there are times between deals. So, even if you manage the above returns on a fix and flip, its not as if you're going to get 50% on the full $240K.

The returns on either kind of flipping are going to depend a lot on being in a good market. That's one where you can find good deals yet you can manage to sell the finished product. Denver's pretty easy to sell, seems to me, but so competitive its hard to find good deals. Looks like your kind of in the boonies (I'm from northwest of you not too far and have relatives in Sikeston), so your market may be limited. You might have to look at moving to a bigger market.

Thanks for the quick reply!

By flipping I mean fix and flip not wholesaleing.

The 240k is the cash i've currently got in hand and willing to allocate to my next RE investment/s. I dont want to mess around with any hard money and will use my own cash to purchase and fund improvements. 50% return on the full 240k is something i imagine I would have to build up to over some time. Going for a 50% return on the full 240k in my first year of flipping is really not possible for me since that would require me to hit this pretty hard and take on more risk than i'm comfortable with in my first year of flipping. Just so you know my experience level, i've been successfully managing/maintainting up to 9 units of mine for the past 5 years and do have a degree in finance and real estate.

Columbia is a town of about 125k people when school is in session. I think about 90k people without the students. Lots of student rentals. No chance of me moving to a different market.

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Hi, Neighbor! My advice, don't worry about what your ROI will be, because you won't know until it's over. You can't target a specific ROI because in RE investing, things are not in your control. Other factors effect the ROi, that can change while holding a property and the term an asset or investment is held effects the ROI. Your cost of money is a factor, as a basis, and most investors don't realize what their real cost of money is, what opportunity costs exist or the degree of leverage that yields the highest return.

These conversations at the individual investor level are for simply passing time, perhaps establishing a bragging base line or give your calculator finger a workout!

If you need a ratio, try a return on cash invested. The amount you had to put into a deal divided by the amount your closing check! Not financed amounts, just your money! That should make you smile. Maybe we should have a blog on ratio analysis sometime and economic factors that we can have fun with. Good luck, Bill

I took Como to be the tiny town in SE Missouri. I'm originally from Richland, near Ft. Wood.

Take an example. Around here a good range for fix and flipping is $200K ARV. Say you buy a house for $110K and it needs $30K in fixup. That put you at $140K, or 70% of ARV. You'll have closing costs on the purchase around $2500K. You'll have insurance, inspections if you do those, utilities, and other small costs during the purchase and while you hold. Lets use $2500 for those. So, your total investment is $145K.

You hold it for a while, and then sell it and get the $200K. You'll pay 6% in commissions, about 2% in closing costs, and these days another 3% in concessions to your seller. So, that's 11%, netting you $178K on the sale. Less the $145K invested gives you $33K in profit. Divide by $145K and you get 23%. Do two of those a year and you have $66K in profit for a total of 46% on the $146K.

However, you had another $95K not invested. So the total ROI considering both the invested and uninvested cash is only 27%.

All that money is taxable at your ordinary rates. You would owe tax on the $66K net profit. You may also owe SET - self employment tax, which is FICA plus medicare, currently about 15% total. An Missouri tax. So, the tax consequences of flipping are pretty significant. Tax wise, its the same as any other retail business, though the details of the treatment are a bit different.

A key parameter is the ARV. You have to know your market inside and out and KNOW the values for properties. If you're off by 5% in this case, your profit takes a $10K hit. Off by 10%, and you're down to only $13K profit. Underestimate the rehab costs or over rehab and you'll eat into your profit, too. I think all this is what Bill's getting at. Easy to make plans. As they say in the army, plans rarely survive contact with the enemy.

Around here it is really tough to find a 70% deal like this. Much easier to find one at 75%. In that case, you're investment is $155K and your profit is $23K, which gives you a cash on cash return of 15%, 30% if you do two a year. Consider the entire $240K, you're at 19%. If you could do two cheaper houses, you might get more of your money to work.

Just my experience, but earning 100% return on your cash is very possible by rehabbing...

A couple things to consider:

- This is pre-tax return. Perhaps others can get 100% return post-tax, but I haven't been able to yet.

- It's easier to do this with leverage. As Jon pointed out, if you don't use any leverage, you'll likely have a chunk of your cash not working for you at any given time. This will reduce your overall returns.

- In order to get these types of returns, you have to either have huge margins or turn your properties relatively quickly (no more than 3-4 months, on average). It's hard to generate high margins in flipping these days, so volume is key. To get volume, you need to focus on how to scale your business, *NOT* focus on the day-to-day rehab activities of your business. In other words, it's tough to do if you don't have a strong team behind you.

Great Post.
One thing that isn’t mentioned is your action step in order to get your properties.
You can crunch numbers all day long, but if you aren’t playing the game then you are just a fan in the stand.
So if you are ready, then jump in and start competing.
Find yourself a buyer’s agent that understands what you are looking for and is hungry to work with you.
Locate an area near by you that has a lot of activity, and that you will be able to drive to within 30 minutes or sooner.
Create a spreadsheet that includes everything from offer price, closing cost on initial purchase, resale value, holding costs, and resale expenses. From there you can see your return.
I believe a big mistake with many investors, new and old, is that they move slow. There is too much competition, so plan on writing up offers in groups. This will increase your odds of getting one. Many investors are over thinking and not moving and they only get an offer out here and there, and the laws of average do not stack in their favor.
Think of Kobe Bryant. He practices on his own more then anyone, and during the game he isn’t scared to shoot the ball, and he is notorious for hitting the game winning shot. So play to win!
If a property pencils out, have your agent call the listing agent, gather facts that will assist in getting your offer approved, and write it up and move to the next.
Your offer needs to comply with the listing agents comments. Your offer needs to be complete and legible. Emailing your offer is better then faxing.
Don’t worry about driving around and looking at each property before you write it up. You will have time later if the bank likes your offer and ask for your best and final. At that time you can go out and do your inspections and double check all numbers from comparables and rehab expenses.
You may need to write up 15 to 1. That’s what it took me this time last year.
Lately, I have been blessed and the ratio has been closer to 5 to 1
You want REO properties.
Properties that are distressed, and the uglier the better.
Prepare to write up offers on new listings that just come out that day, listings that have been on the market for some time, as well as listings that have fallen out of escrow.
My general rule is to stay away from un-permitted rooms. You do not want the city inspectors on your butt and over see your entire project.
This is just some info that can help you out. Sorry that I couldn’t finish explaining more on the rehab, but it is time for me to get off the computer.
Good luck!

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