Profit Margin

16 Replies

For experienced flippers, what do you consider to be your acceptable profit margin?

Hey J Scott! I read your "The Book on Flipping Houses" !

Totally depends on your business structure and what you would like to get paid.  Also on your first couple of houses you want to aim high for your "just in case" fund.  Also keep in mind your putting months of overhead in, and your taking a large risk.  So don't be afraid to compensate yourself for it.  The more hands on you are with it the more you should earn on it as well.

I agree with @J Scott 

I would only add this little extra rule. if i am doing a $20k rehab, i want to make $20k. If I am doing a $40k rehab, there better be $40k for me. AVOID doing a $30k rehab just to make $15k.

Notice my use of the word "avoid", it aint set in stone, there are times to break every rule... just think long and hard before you do.

@Judah Hoover @J Scott A year on, with a HOT Flipping market (we are focusing on Dallas) do you still use the same metrics you mention above? thanks in advance.

Originally posted by @Lucia Rushton :

@Judah Hoover @J Scott A year on, with a HOT Flipping market (we are focusing on Dallas) do you still use the same metrics you mention above? thanks in advance.

 Yes, though we're doing bigger rehabs these days, so I tend to look for a bit higher returns when I know I'll be holding properties a bit longer and spending more on renovations...

Have these numbers changed for you all over the past 7 months? We are having a hard time getting offers accepted with 15% profit, trying not to go any lower however we are getting beat by people willing to go down to 10-12% 

Michael Kappel, Real Estate Agent in GA (#362992)

I would think 10% is my worst case scenario, but you're still making a profit, gaining experience, and building your portfolio. If your flip takes 3 months where else can you get that type of return in that same time frame....legally. Most stocks are returning less than 10% on a yearly basis. 

Kevin Polite, Real Estate Agent in GA (#269676)

Makes great sense, but my CPA is still having me pay capital gains and short term gains is killing me.

Originally posted by @Doug W. :
Originally posted by @Tami R.:

Makes great sense, but my CPA is still having me pay capital gains and short term gains is killing me.

 Get a new CPA if he/she is booking your profit on flipping as capital gains. 

 While I recognize that you are not a CPA and that what you write here is nothing more than your opinion and as such I should be getting the opinion of a CPA such as @Jim Kennedy or @Brandon Hall but how should a CPA be booking profits from flips if not as capital gains?

@James Masotti

As ordinary income. @Brandon Hall is a great resource for this. I believe that he has written blog posts on BP on the subject and I know he has responded to this question a lot here on the forums. I am on my phone right now so searching and pasting links to other threads is a bit of a PITA though I am sure his responses are easy to find if you are at a computer. 

@James Masotti as @Doug W. correctly stated, flips are booked as ordinary income subject to SE taxes. CPAs booking their clients flips as capital gains are going to be in a world of hurt should their client ever undergo an audit.

If you were to do the one-off flip, I can see the argument for capital gain treatment. But if you're building business on flipping, ordinary income all day.