30% Margins flipping houses?

Question

Is there any city in FL where you can actually follow the 70 rule? There are currently no properties in today's market that can meet that. There are no margins for people that can only get high-rate financing plus other funding like gap financing, but is it possible to constantly find these properties?

Stephen Herbert · Answer

As a hard money lender, I have conversations with investors nationwide every day, and a lot of the investors I speak with are telling me similar stories. They're talking about margin compression, lack of inventory, too many players and the inability to easily find homes with margins that work for them. The key here is margins that work for them. In today's market, you need to work for the margins.

Gone are the days of 3 houses on a block being easy flips bought at below market value. Gone are the days of rampant foreclosures and vacant houses. Today, you have to be able to look at situations creatively to find a way in. I spoke with an investor in DFW the other day who was talking about her current strategy of reinstating loans out of foreclosure, and another in Austin who laid out his business plan of buying properties with large lots, building an ADU in the back, completing a condo conversion for the lot and then selling each unit individually (in effect, a short cut to subdividing the lot). I have buyers in NY that specifically target below-market rent properties, buy the tenants out with a cash for keys offer, and reno the units to bring the rents to market value, adding hundreds of thousands of dollars to the value of the property. I have buyers in CO that are tapping into local zoning codes to find properties that are being underutilized, i.e. basement into a rentable unit, or an in-law in the back, to maximize returns.

The deals are there, but sometimes they're hidden, and sometimes we need to work for the margins.

Will Barnard · Answer

The 70% rule is not a rule, it is a quick back of the napkin calculation used as a guideline, nothing more and requires adjustments based on price points, market conditions, rehab (light or heavy), etc.

in the competitive market we find ourselves, you must do one of two things (and often both simultaneously) - direct market to sellers or find some creative means to locate and contract deals, or you must create the spread/deal (which takes experience, knowledge of how to do it, and a solid business plan). Creating deals may include changing the bed/bathroom count, increasing square footage, adding amenities, etc.

J Scott · Answer

70% rule doesn't mean you're getting 30% margins.

J Scott · Answer

I don't invest in Florida, but I'm quite certain that you find properties in most places that can hit the 70% rule if you're good at acquisitions.

Edward B. · Answer

@Arturo Borges, I would all but guarantee you that there are people in FL and most likely in your area flipping properties with the 70% rule and probably better. You just aren't looking for properties in the right place.

Eric James · Answer

I think many new people have gotten into house flipping.  It almost seems to be a 'craze' lately, maybe in part due to all the shows on TV.  Everybody and their brother want to try it. That makes it difficult to find good deals, as a lot of these people are overpaying.  This makes the whole aspect of finding ways to buy properties at a discount a critical component of learning how to make money in real estate these days.

Dean I. · Answer

@Rod F.

Best and final is used a lot here, with and without competition. The banks love doing this. They hope that people will budge and offer more. When we look at a property, we do the numbers and whatever our offer price comes out to, that is what we submit and stick with. When they call for best and final, we submit the same exact number. The only time we may change it is if we get a counter offer and it isn't far from what we originally offered. We have even had situations were we weren't willing to budge at all. The banks would give us 3 counter offers and we would keep submitting the same exact offer until finally they give in.

Rod F. · Answer

I agree, I tried to buy one last week. offered asking price, offered cash, and to close in 10 days.  reply was what is your best and final offer? there are 10 people bidding on this one.

another we offered 8k over asking price. didn't touch it.

We are looking into building right now

Arturo Borges · Answer

@J Scott And what are your thoughts on my question in general?

30% Margins flipping houses?

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