TARGET PROFIT ON A FLIP

[Steve Callaghan]

I am debating taking on a flip for the first time. Doing the numbers conservatively I am looking at a 8-10% return. Worth the effort? 

[J Scott]

It depends on how you calculate that return and the hold period.  A 10% return on cash outlaid over 2 years isn't too great, in my opinion.  A 10% return on resale price over 3 months might be very good.

The bigger question is:  What's your margin of error?

If your target profit is $10,000, you're doing $50,000 of renovation, and this is your first flip, all it would take is a 20% overage (or surprise cost) to turn this project into a loss.

Personally, I shoot for 15% return on sale price (i.e., if I'm reselling for $200,000, I look for a minimum $30,000 profit on the project).  And this is for projects that generally take about 4 months from purchase to sale.