Minimum Profit to Flip?

Question

Hey guys,

About to go into our 4th house flip and wondering how everyone analyzes a deal and decides on their minimum profit required to do the deal? Is this a personal preference or a % of the cash you put in? Are you going into any deal at any price with a minimum dollar amount return, or a return on the cash or amount of rehab you put in? Trying to nail down my minimum because I only have enough cash to really do 2-4 deals a year. How do you guys decide on your number?

Evan Polaski · Answer

@Jesse Harris, admittedly, I am very selective and don't "need" a flip at any point, so I wait until there is something that works for me.  For instance, we (wife and I do these together) sold our last flip in May, 2023.  So we are over a year since we last bought a property.  In that time, there was one other property we pursued and didn't end up getting.

For us, since we are not "full time" flippers, meaning we essentially use the MLS and rarely get brought a property from someone we know but we are not running direct mailer or hunting for off market deals, our projects are full scale guts, anymore.  We can make a fairly large profit on these type of deals, because the typical retail buyer will undertake a kitchen facelift and/or repaint stuff, but they won't undertake a full rework of the floor plan and taking the property down to studs with new electrical, HVAC, potential addition, drywall, and then all new finishes.

Another area that allows for larger margins is additions.

Effectively, if you are not going to spend the time and money to try to source off market deals (which are never guaranteed "good deals") you need to have a vision of a property that is beyond what the retail buyer pool will see to find any real margin.

Matthew Crivelli · Answer

@Jesse Harris

Your all in costs (full purchase & rehab) shouldn't exceed 70% of the ARV. This will give you wiggle room to ensure you make money. If you are using a hard money loan, you may want to drop that number to 65% of ARV to account for 6-9 months of holding costs. It's very easy to get to the end of a project only to realize the bank is the only one who made money.

James McGovern · Answer

There are volume flippers that will seek to make $20K or so but are doing so at a high volume. For me, I need to make $100K on each otherwise I will not touch.

Jesse Harris · Answer

Makes sense, that was my thought too. As we get to bigger properties I'm thinking we need more return than we did initially. Good insight, thanks

Caleb Brown · Answer

Simple answer is it depends. Most want to make 15-20%. But another factor is to determine the timeframe. If it takes a few weeks to make 5-10% is that worth it? Or if a project takes 8+ months and you only make 15-20% is that worth it for you? I would also reverse engineer it. If you want to make 100K a year from flips then work backwards. 4 deals would mean you need to make at least 25K per one. The numbers will be different from you but you need to determine how much you want to make and have the deal flow to support that.

Evan Polaski · Answer

@Jesse Harris, clearly you are asking for each persons criteria, so will likely get a wide variety of answers.  For me, I want to make at least 20% on my investment and a minimum of $50k per house.  So, even if the all in is $100k, it is not worth all the time and effort to make less than $50k, generally.  Or if it is $500k all in, I would want make roughly $100k.

Have we deviated from this?  yes.  Early on, we did properties that we thought (and actually did) make $25k on.  But that was early on, before we ran into bigger issues and didn't value our time as much as do now.

Jacob Sherman · Answer

Hey Jesse ! My name is Jacob with Lendbright and would love to answer any questions for you that you may have in the analysis of a deal . Average investor is looking for 10%-20% profit when research a deal . When is a good time for us to connect and discuss ?

Morgan Gutierrez · Answer

If you do not want to spend the time or money to source off market deals, you can work with wholesalers and some investor friendly realtors also can help you source deals. True, just because it is off market doesn't mean it is a good deal. You are likely to find them under or around 70%-repairs purchase price though.

Evan made a great point with the types of deals to keep a lookout for on the MLS.

I hope this helps!

Alan F. · Answer

Econ 101 margins × volume=$

Minimum Profit to Flip?

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