Updated almost 12 years ago on . Most recent reply
Profit and Risk vs. Reward
Hello BP, I had a quick question hoping to glean from more seasoned investors
In regard to risk and return when analyzing a potential purchase. Do you assign an acceptable percentage of net profit for different levels of rehab?
For example, a property that needs minor cosmetic repairs (paint, carpet and siding). As opposed to a more “risky” property that requires advanced repairs (structural, waterproofing, foundation).
Obviously capital expenses will be higher on a purchase that requires more repair. But this also introduces a higher level of risk in the form of budget revisions, schedule overruns, longer time frame of holding costs, etc.
In short, do you assign different percentages of minimum net profit when analyzing different types of deals? And if so what are they?
Or is this kind of analysis invalid in the RE world? I have more of a background in financial instruments where risk and reward is a useful metric when deciding to invest in different equities.
Hope the post wasn't too long and thank you in advance for the responses!