Target ROI and % of costs on Flips

5 Replies

I'm a new wholesaler in Miami, FL who's in the process of putting together a spreadsheet to help me analyze my leads and make my offers based on what my potential buyer sees. In other words, I'm digging in deeper than the 70% ARV rule by looking at my numbers starting from the back end to ensure my buyer makes their targeted ROI and anything in the middle, if any, would be mine (which would be adjusted accordingly throughout my negotiation with the seller).

Where I need help from seasoned investors (local preferable but not necessary) is plugging in the basic variables using rule of thumbs.  I say rule of thumbs for now because, through further studying and experience, I expect to improve the accuracy as I go.  But I would like some help getting this up. 

If anyone can assist me with a real basic/general %  for each of the following, I'd really appreciate it.  I've already begun plugging in based on the numbers on the transaction for my own house but thought I'd reach out to the community anyway.

  • Target ROI on a flip (minimum, average, and realistically preferred)
  • Purchase Costs (% of Acquisition price aka my price)
  • Holding Costs (per month or year, whichever)
    • Average holding period(s)
  • Selling Costs (% of retail price, my buyer's price to the market)

I totally understand the numbers can be extremely high or low depending on location and the individual deal itself but I'm just looking for your typical deals and their averages so to give me an idea of what to look for.

I'll apologize in advance if anything above isn't all that clear. I'm trying hard to get the REI lingo right. I'll be happy to clarify or expand if needed.

Thanks,

Luis L.

I find a 15%-20% roi  to be the sweet spot. Don't over complicated this stuff. 

Originally posted by @Elio L. :

I find a 15%-20% roi  to be the sweet spot. Don't over complicated this stuff. 

 Thanks Elio, that's what I had in mind. Not trying to make this more complicated than it has to be. Eventually I want get into rehabbing myself, so getting familiar with how they analyze deals now can only help IMO. 

Originally posted by @Luis Lopez :
  • Target ROI on a flip (minimum, average, and realistically preferred)
  • Purchase Costs (% of Acquisition price aka my price)
  • Holding Costs (per month or year, whichever)
    • Average holding period(s)
  • Selling Costs (% of retail price, my buyer's price to the market)

 All my answers below are based on acquisitions of $100k-$400k.

ROI target is 15% or better on the deal and that should not take more than 6 months (should be 3-4), therefore, the annualized return should be at least 30%, with target being 40%+

Purchase costs should average about 2% (escrow, recording fees, title costs, prorations, etc.)

Holding Costs should be around $700 monthly (which includes taxes, insurance, utilities) of course different areas have different tax and insurance costs so that can charge very easily. Also, if you have a pool and or HOA, you need to tack that on as well. Additional holding costs are your interest on your loans and that will vary based on what loan type and rate you have. That should be a simple calculation for you to add in.

Selling Costs should average 7% (RE commissions at 5% - get a discount form the standard 6%; 1.5% for escrow, title, recording fees, transfer taxes, etc., and .5% for seller concessions - if your end buyer is FHA or requests more concessions, you can easily get this figure up, so choose your buyers wisely.

Thank you @Will Barnard Except for the taxes (super high here in South Florida), your numbers are pretty much in line with what I'm getting. I've read tons of your posts, which I find extremely helpful. So your response has just given me a total confidence boost. I'll definitely keep those "other" considerations (e.g. FHA Buyer, concessions, etc) in mind by saving a spot for those inputs.

I've put 2 lead/properties through this analysis and the % to ARV (excluding taxes) range between 72% and 78%. So now I see how the 70% makes sense as a guide. Sorry but when it comes to numbers, I'm a "why" guy.

I'm curious as to how you annualize the return...I'll google it though, as it shouldn't be that complicated.

Thanks again.

The return is easy, simply take the amount profit made and divide by the amount of cash out of pocket used for the deal (don't count the closing costs as that comes out of your profits from escrow). That will give you your cash on cash return. Now, I always take that one step further and see what the actual cash on cash would be if I did not borrow anything. This, I take the profits (I add back in all my financing costs I essentially would not pay in this scenario) and divide by the total amount needed (acquisition price, acquisition costs, holding costs, rehab costs). If that % is not at least 12%, I likely don't have a deal worth doing.

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