Investor · Dallas, TX · Member since 2015 · 7 posts · 0 votes
I've done a couple flips in the 400k range in the Dallas area lately and am curious what kind of return other investor/flippers are seeing in this market. Its almost October now and the market seems to have softened a touch, but DFW has great job growth coming as a driving factor so the market should remain one of the best in the country.
I was told I should be making 20%. But 20 % of what? Should I be netting $80k on a $400k sale price? What are you seeing as a net profit on your flips after all expenses including rehab, realtor, closing, and holding costs?
(First, because I'm possibly the biggest Rangers homer on BP, are you any relation to Shawn? He's done an incredible job for us this year!)
OK...now back to the regular program...
I don't think it's really possible to answer your question, because the profit potential is always driven by what you paid for the property in the first place. We make our money on the purchase, not the sale. With that said, there is so little inventory in DFW right now, particularly in areas with median prices in the $400k range, that margins on purchases are tighter these days.
I know a couple of investors who won't touch anything with an ROI of less than 20%. That's fine, if that's what works for them. But, this is very much like the 70% Rule. It's a rule of thumb, not a postulate. In the end, if the amount of profit you are realizing is sufficient for you and justifies the risk/exposure you have in the deal, then it really doesn't matter what % anyone else is talking about.
However, generally, you would calculate the ROI by dividing your profit by the cash you have involved in the deal. That's a really simply view that works well for shorter flips. If you start getting into long-term projects, you need to start looking at NPV & IRR, so you account for the time value of money. That's an entire conversation on project portfolio management that we won't go into here. But, the ROI goes something like this, assuming these were paid in cash...
$50,000 cash down
$3,000 purchase costs
$60,000 rehab costs
$7,000 holding costs
$120k cash investment
$45,000 net profit (that's less any & all sales costs)
(First, because I'm possibly the biggest Rangers homer on BP, are you any relation to Shawn? He's done an incredible job for us this year!)
OK...now back to the regular program...
I don't think it's really possible to answer your question, because the profit potential is always driven by what you paid for the property in the first place. We make our money on the purchase, not the sale. With that said, there is so little inventory in DFW right now, particularly in areas with median prices in the $400k range, that margins on purchases are tighter these days.
I know a couple of investors who won't touch anything with an ROI of less than 20%. That's fine, if that's what works for them. But, this is very much like the 70% Rule. It's a rule of thumb, not a postulate. In the end, if the amount of profit you are realizing is sufficient for you and justifies the risk/exposure you have in the deal, then it really doesn't matter what % anyone else is talking about.
However, generally, you would calculate the ROI by dividing your profit by the cash you have involved in the deal. That's a really simply view that works well for shorter flips. If you start getting into long-term projects, you need to start looking at NPV & IRR, so you account for the time value of money. That's an entire conversation on project portfolio management that we won't go into here. But, the ROI goes something like this, assuming these were paid in cash...
$50,000 cash down
$3,000 purchase costs
$60,000 rehab costs
$7,000 holding costs
$120k cash investment
$45,000 net profit (that's less any & all sales costs)
Investor · Murphy, TX · Member since 2011 · 189 posts · 86 votes
11y
We are currently working on our first flip. We might hit 20% of selling price, but that is purely because of rapid appreciation. Not expecting to get that on every one. For the next house I'm considering making an offer on, I've got a profit of 10% of exit price built in to my numbers. I'm working in the $500k ARV range.
I am very early in my flipping career. At this point I'd rather take a house that is going to pay 10% than sit and wait for a house that will pay 20%. Maybe I'll get pickier as I get experience.
I also wonder if the person who said that to you wasn't referring to % return. A 20% return on your investment would be pretty low if you are financing, but might be a pretty high mark to hit if you are paying cash.
Investor · Dallas, TX · Member since 2015 · 7 posts · 0 votes
11y
Thanks for the replies guys. I think for simplicity's sake it would be better to refer to profit as a percent of sales price. I know the standard formula, or used to be, was to offer 70% of ARV minus repairs. The 70% takes into account closing costs and profit, etc. So regardless of whether you pay cash or use financing, we're talking apples to apples.
I realize in the hot market it may be difficult to purchase every property at such a steep discount as to realize a 20% profit to sales price ratio.
Rockwall, TX · Member since 2014 · 380 posts · 211 votes
11y
There's supposed to be profit in flips? Hattie's right. It's very hard to find good deals in most of Texas today. However, since we are expecting the population to increase by about 5% per year, buy-rent-flip can work if you can find something that will cash flow for the rent period.
Rental Property Investor · Arlington, TX · Member since 2012 · 788 posts · 640 votes
11y
I currently have 8 flips under my belt this year. My profits ranged from $3,200 to $28K. All homes were less than $100K (all in). The majority of homes were resold within 1 month to a new cash buyer. While I would like to hit a home run every time I am not going to wait for it so I'll continue to do small deals. In a price range of over $400K I would be expecting a minimum profit of $50K.
Investor · Dallas, TX · Member since 2015 · 7 posts · 0 votes
11y
Thanks again for the replies to all.
Rocky, are you talking about properties that have ARV's of 100k or properties of higher values where you have 100k or less out of pocket? Just to clarify your last statement, a 50k profit on a 400k ARV would be 12.5%. Realizing that your return could be anywhere on the scale depending on what price you purchased the property at. So if you purchased it for 230k and it needed 50k jn work, that would fit the 70% rule.
My initial question could be better framed as this: Is anyone in the DFW area buying properties at the 70% minus repairs number? You don't have to disclose where you get them, but I'm curious if anyone is having that kind of success, or better, in the current Dallas market where the margins seem to be squeezing profits.
Rental Property Investor · Arlington, TX · Member since 2012 · 788 posts · 640 votes
11y
@Andrew Tolleson ARVs were under $100K. I typically have 70-85% in them ( all in - includes purchase price, rehab, closing cost, commissions, etc.). I've been choosing to wholetail the majority of my deals. I primarily deal with all cash in order to save on lender fees and closing cost, otherwise, I would have been negative on 2 deals.
In your example the main factor I would take into consideration is TIME. Would you be able to buy/rehab/sale property within 3 months? How much of your actual time would you spend on project? Now....what's your time worth? I choose quick cash because that is the best use of my current time and easily profit over $1K/hr based on my actual time spent on projects ( Just wished I worked a 40 hr work week.....lol ).
Investor · Dallas, TX · Member since 2015 · 7 posts · 0 votes
11y
@Rocky V.
Thanks. Yes, the last couple deals I did were 3 months to the day from purchase date to close date. That won't always be the case. I choose to deal in higher ARVs for the higher profits, but of course that's also more out of pocket on the typical deal - more risk as well.
By "wholetailing" I assume you mean you're doing the rehab and selling to a cash investor for a slight discount to market, and their advantage is a turnkey property? I'm new to these forums so please forgive my lack of term knowledge.
Investor · Dallas, TX · Member since 2014 · 2k+ posts · 1k+ votes
11y
@Andrew Tolleson I just picked up a property and turned it over as wholesale that was spot on the 70% rule. It came out of our marketing campaign. So, yes...there are still 70% deals to be had.
Investor · Dallas, TX · Member since 2015 · 7 posts · 0 votes
11y
Hattie, was that 70% minus repairs minus your wholesale fee? So if it's a 100k ARV, you bought it for 70k - 20k repairs - 5k wholesale fee = 45k? I know the numbers may be different but is that roughly your scenario?
Investor · Riverside, CA · Member since 2014 · 351 posts · 220 votes
11y
I have completed 12 deals this year and have 3 going right now. I have made as little as $16,000 and as much as $82,000. I typically buy for around $200,000 and sell slfor $300,000 I use a very high leverage hard money loan where I only have a 8% fee or cost and get 100% financing on the purchase and rehab money.
Hattie, was that 70% minus repairs minus your wholesale fee? So if it's a 100k ARV, you bought it for 70k - 20k repairs - 5k wholesale fee = 45k? I know the numbers may be different but is that roughly your scenario?
Nope. In the scenario you laid out, I would have bought the property at $45k and sold it to my investor buyer for $50k. The 70% Rule (70% of ARV, less repair cost) is what I want to be able to give it to my investor buyer at. Therefore, I have to purchase lower than that.
It's the same scenario if I'm flipping it myself, excluding the wholesale fee. We can't always hit the 70% rule numbers, but we try to ensure there is sufficient profit margin to support the risk, whether we're flipping or wholesaling.
I have completed 12 deals this year and have 3 going right now. I have made as little as $16,000 and as much as $82,000. I typically buy for around $200,000 and sell slfor $300,000 I use a very high leverage hard money loan where I only have a 8% fee or cost and get 100% financing on the purchase and rehab money.
Jim
Wow would you care to share more details on the 82k profit deal? I'm assuming that was not a 100k ARV? Hehe
Investor · Riverside, CA · Member since 2014 · 351 posts · 220 votes
11y
I found the home on craigslist, after some hard negotiations I paid $155,000 and it took 2 months to close because of a title issue. The 3 bd 2 bath 1345 Sq ft pool home in Riverside, Ca needed $39,000 in repairs. We fixed and upgraded the entire home and site.
We premarket all our homes by holding open houses in Listings close to our flips. In doing so we just line up buyers for our home. By doing this we had 3 pre approved buyers on day one, and we sold it to one of them on day one for $298,000 after cost, commissions, construction, everything we made $80K plus and my wife was the listing agent.
All and all a great deal and one you could have bought to if you would have seen it on craigslist like we did. It's why I love this business 80K just waiting for someone to pick it up off the street.