How much are you profiting flipping homes in Atlanta?

Atlanta, GA · Member since 2017 · 130 posts · 29 votes

I am purchasing a home and financing the rehab with a partnered developer who manages the entire project. Profits are to be split 50/50.

$350,000 purchase price

$60,000 rehab price

$520,0000 ARV

$83,600 total profit before split & taxes

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Joel OwensBusiness Member

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Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes

There is no such thing as guaranteed returns.

Purchase to sale in 4 months sounds aggressive. You will be in January to February some of the coldest months in GA and when people like to move the least.

Are you putting debt on this and personally signing? Is the developer signing also? Paying all cash?

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Joseph M.
Flipper/Rehabber · Los Angeles, CA · Member since 2009 · 1k+ posts · 732 votes
9y
Hi @Harry Williams , just curious about the structure of the deal. You are putting up all the funds for the purchase of the property and the rehab and your partner will be doing all the work, and then splitting the profits?
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Michaela G.
Investor · Atlanta, GA · Member since 2013 · 3k+ posts · 3k+ votes
9y
So, you're putting up 410K in order to potentially make 40K? Great for your partner, but I don't think this is all that good for you.
By the time there's a 'not full price' offer and commission and closing costs, that buyer is asking for - there won't be much profit left.
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Harry Williams
OP
Atlanta, GA · Member since 2017 · 130 posts · 29 votes
9y
Originally posted by @Michaela G.:

So, you're putting up 410K in order to potentially make 40K? Great for your partner, but I don't think this is all that good for you.
By the time there's a 'not full price' offer and commission and closing costs, that buyer is asking for - there won't be much profit left.
As mentioned, the $83,600 is TOTAL profit, meaning after commissions and closing costs. The timeframe of purchase to sale is 4 months which is a 10.64% return or 20% per annum return.
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Harry Williams
OP
Atlanta, GA · Member since 2017 · 130 posts · 29 votes
9y
Originally posted by @Joseph M.:

Hi @Harry Williams , just curious about the structure of the deal. You are putting up all the funds for the purchase of the property and the rehab and your partner will be doing all the work, and then splitting the profits?
Yes, that is correct. There is a development agreement between the developer and I with the fine details. A real estate attorney put it together. I purchase and own the house, and reimburse rehab costs. Upon sale, we split profits 50/50 and I am guaranteed a 20% per annum return.
For example: if my return was only $25,000 or 6.05% in the four-month holding period, that is only 18.16% per annum. Because the contract secures a guaranteed 20% per annum return for me, and I pay the developer after I am paid, then $5,551 would be deducted from their pay bringing me to $30,550 profit or 20% per annum return.
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Rob Drum
Real Estate Broker · Bradenton, FL · Member since 2017 · 544 posts · 363 votes
9y
Interesting deal structure. Definitely a great way to tackle bigger flips. Sounds like a good setup for both sides. I'm gonna keep that in mind.
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Harry Williams
OP
Atlanta, GA · Member since 2017 · 130 posts · 29 votes
9y
Originally posted by @Rob Drum:

Interesting deal structure. Definitely a great way to tackle bigger flips. Sounds like a good setup for both sides. I'm gonna keep that in mind.
Thanks for your response. I'm curious — how is it different from other structures you have done or seen?
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Account Closed
Investor · West Los Angeles, CA · Member since 2014 · 230 posts · 239 votes
9y
@Harry Williams
I would say this is pretty standard. I will be going into a similar agreement down the line. However my goal is to learn how to flip a house first hand. So I will be the project manager and he will consult. I'd rather split 50% of something than 100% of nothing. Good luck
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Harry Williams
OP
Atlanta, GA · Member since 2017 · 130 posts · 29 votes
9y
@Account Closed Thanks for your reply. I can (and will) be as involved as I would like. Or, I can be as passive as I'd like. I plan to also use this opportunity to learn but with the confidence of someone with a proven track record steering the ship.
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Joseph M.
Flipper/Rehabber · Los Angeles, CA · Member since 2009 · 1k+ posts · 732 votes
9y
Harry Williams , sounds like a good opportunity to learn the business while also making a nice ROI especially if they are an experienced operator like you mentioned . It is interesting they would be willing to guarantee the return, especially since you are more a partner rather than lending money like a hard money or private money lender. Was the guarantee something they brought up , or did you ask them for it ? Best of luck
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Harry Williams
OP
Atlanta, GA · Member since 2017 · 130 posts · 29 votes
9y
@Joseph M. As I am the one taking the financial risk, I required the 20% guarantee.
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Rob Drum
Real Estate Broker · Bradenton, FL · Member since 2017 · 544 posts · 363 votes
9y
@Harry Williams The guaranteed 20% annualized is what I thought was interesting. It's an equity deal, but because of holding costs and time, that 20% guaranteed gives it debt characteristics. I think it creates good incentives for your construction partner.
Most deals I've heard of are straight 50% profit split.
1 Reply
Harry Williams
OP
Atlanta, GA · Member since 2017 · 130 posts · 29 votes
9y
@Rob Drum Do you mean good incentives for him to perform?
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Valerie Hiscoe
Investor · Richmond, BC · Member since 2013 · 316 posts · 133 votes
9y
Sounds like an investment, not a flip so you're just asking the wrong question in the wrong forum. Assuming that you're financing the deal though, it would be a good cash on cash return. I would be very surprised though if you were able to play an active role in the process or if you actually learned anything about flipping.
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Harry Williams
OP
Atlanta, GA · Member since 2017 · 130 posts · 29 votes
9y
Originally posted by @Valerie Hiscoe:

Sounds like an investment, not a flip so you're just asking the wrong question in the wrong forum. Assuming that you're financing the deal though, it would be a good cash on cash return. I would be very surprised though if you were able to play an active role in the process or if you actually learned anything about flipping.
I am funding a...flip. The house is 15 minutes away from my primary residence. I could be there every day if I desired to. Although, I would rather it be fairly passive. With that said, I am eager to learn, too.
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Rob Drum
Real Estate Broker · Bradenton, FL · Member since 2017 · 544 posts · 363 votes
9y
@Harry Williams Ya, exactly. More protection for you ;)
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Clancy Catelli
Real Estate Agent · Sequim, WA · Member since 2017 · 64 posts · 39 votes
9y
It's crazy to me that you feel so comfortable flipping such an expensive house if you have to borrow money to get the rehab done. I know a deal is a deal, but $400k is alot of money to try and make $40k profit(after your split). I'm not saying you shouldn't do it, I like taking risks myself, but I'm use to such different pricing up here in Washington state. The houses I typical flip are under $200k( entry level homes 1500 sqft, 3 b2b) and I try and make around $60k. There deffenetly is $350k houses you could flip and sell for $400, but once you get into the $500k-$700k, people would rather have a brand new custom home. I've completed 6 so far, but the least I maid was $42k. The most I maid was $82k. Basically we try and buy simple/first time buyer houses and try and make them middle-end homes. For example, buy a 3bed2bath for $165k in a mediocre neighborhood that is nice, but not high end. Then put about $40k into these small houses and shoot for $$275-$300k. I've got 2 going right now, one I bought for $135k, investing $15k and trying to sell for $209k, the other is a dump, bought for $92k and fixed up will sell for $189k but needs $40k in rehab.
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Joseph M.
Flipper/Rehabber · Los Angeles, CA · Member since 2009 · 1k+ posts · 732 votes
9y
Clancy Catelli sounds like you have some nice margins . Are you able to find those deals on the MLS in your area or do you have to do your own marketing to find them off market ? How long is it usually taking to complete these flips from the time you buy to sell ?
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Harry Williams
OP
Atlanta, GA · Member since 2017 · 130 posts · 29 votes
9y
@Rob Drum Wanted to ask you a quick question — is it common for the split to be higher than 50/50 for the investor? 60/40 or 70/30?
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Clancy Catelli
Real Estate Agent · Sequim, WA · Member since 2017 · 64 posts · 39 votes
9y
@joseph m. Most my deals come off market. I never thought that I would be able to find deals that weren't on the MLS , it was so deteriorating. But you kind of learn how to find these deals just by listening around town. Anytime someone is talking realestate or thinking of selling there house I try to get into the conversation and let them know that I might be interested. That's usually my first aprouch, if you tell them you might want to buy it, even if you know nothing about the house or person, it's like the ultimate ticket to at least check it out and make an offer. Seems to work good for me. I've found deals in the craziest scenerios. My wifes, moms, nail ladies- grandma died and I bought there house. Lol
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Joseph M.
Flipper/Rehabber · Los Angeles, CA · Member since 2009 · 1k+ posts · 732 votes
9y
@Clancy Catelli , yeah seems to be the name of the game in most places now,..unless you plan to do something like adding on square footage or something. I could see how being a licensed agent could be beneficial too for getting off market deals. There seems to be a good percentage of the general public that thinks you need a real estate license to be an investor too. If they don't want to sell the house quick or 'wholesale' then you can always list it on the MLS as well and get the commission which is nice.
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Harry Williams
OP
Atlanta, GA · Member since 2017 · 130 posts · 29 votes
9y
@Joseph M. One of the responsibilities of my partnered developer is to find deals. I pass along prospective properties, too, but they have connections in the space to seek deals quickly.
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Clancy Catelli
Real Estate Agent · Sequim, WA · Member since 2017 · 64 posts · 39 votes
9y
@JOSEPH M. That that is the exact scenario that just happened to me, I had a customer call me from California and their dad had died and they were looking to sell their house. Problem is the caretaker who is taking care of the dad just stayed in the house after he died for a year and completely trashed the place. If the place was clean and fixed up you could have easily sold it for $180,000, but the person had destroyed it so bad there's no way that you could get an FHA USDA or a rehab loan on it. Basically I told them if they want to try to list it they need to start off somewhere around 145,000, or they could just sell it to me for 135 and not pay any commissions. They were flying up from California every weekend to try and clean the place up and get it ready but it was costing so much and airfare it wasn't worth it. I close on that one on October 20th. I'll need to have a dumpster delivered new roof, new exterior paint and fixing some siding, new drywall texture new doors new trim new floors a major cleaning in the kitchen new countertops appliances and fixtures. Should be worth around two hundred sixty thousand twenty one
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Harry Williams
OP
Atlanta, GA · Member since 2017 · 130 posts · 29 votes
9y
@Clancy Catelli Speaking of — interesting scenario. I have not seen my elderly neighbor in over four months and I am afraid they may have passed away. As far as I know, they do not have family in the area. I feel guilty asking but how could I find more information about this?
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Clancy Catelli
Real Estate Agent · Sequim, WA · Member since 2017 · 64 posts · 39 votes
9y
@harry Williams I would probably go on to the county site and see if I could pull an old permit with his phone number or address. Maybe even go to your local utilities department and see if you can find his mailing address, then send a letter that is certified mail so they have to sign to read it, that way that you know that the family members had open the letter and seen youroffer. That's where I would start
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Jacqueline Basset
Real Estate Professional · Las Vegas, NV · Member since 2017 · 27 posts · 39 votes
9y
percentages matter. a lot of little wins can be taken down by one big LOSS..
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