I am a general contractor who is new to fix and flipping. I have a client of mine looking to invest. The property that I am looking at requires about $275,000 (purchase, and construction costs) what kind of return is he entitled to? what is the going rate? I live in southern California if that makes any difference. and does my proffit on the project have anything to do with his return? thanks for you time
Our general criteria, @Jason Jorgensen , defines a good deal as one where the flipper makes 10 to 12 percent of the ARV as a gross profit. If the project cost (purchase price plus rehab costs) totals no more than 75% of the ARV, or $367k in your case ($275k/75%=$367k), then this would be a good deal which should result in that profit. If the ARV was substantially less, or the purchase price plus construction costs substantially more, then this would be a lousy deal for the rehabber. What's your expected After Repair Value (i.e. final sale price) for this project?
No one can stop an investor from paying all cash. However, if there is a private/hard money loan involved here, the lender is obligated to make sure the borrower will make a fair profit and can repay the loan.
Like any contractor providing a bid, your profit is included in the construction costs. If, in addition, you found this deal, you would be entitled to a nominal finders fee, say $5k. This would also be included in your estimated project cost. Good luck, Jason.
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