What is considered a "good" profit on a flip to make the deal worthwhile?

15 Replies

Just in general, what do any of you experienced flippers consider a "good" profit to make a deal worthwhile? I'm analyzing a deal right now on a REO but the bank has come back to all offers (5 of them) asking for our best and final offer. I've figured out all my costs and have predicted there to be a $15,000 profit when all's said and done. Just trying to determine how much, if any, I should go up on my offer, but that would then cut down on my proft.

How much of your own time will you be investing into this property?

Kathy,

Great to hear! Is this your first Rehab and flip? If so I would build in a % for mistakes high then normal and I like to do projects with a plus 25% net profit. If you do a dollar amount $15000 is a good place to start, depending on length of hold, holding cost per mth, etc. It really would depend on your risk level and how confident you and your team are. Have limited info here but, Up by $3000, $10000 to $12000 still is very good return. Maybe when doing rehab you can build in some value to up the price by half or more of your new upped offer.

Good luck

Subjective response if I was to reply. I would look at my business plan to see if I reached or exceeded my goals.. Just my opinion

I will be doing a lot of the work myself with some help from my partner but will have a little to contract out but not much. This deal is mostly cosmetic stuff. It is technically my first deal as my other one was quite a few years ago and I lived in it at the time so it's not comparable. I did build in a small contingency for such things as mistakes, suprises, ect. Asking price is $102,000 which is what i offered, cash deal, but all the offer were very close if not the same as mine. ARV is approx $150,000 with repair costs of $10,000. I've factored in the holding costs and reselling costs too.

I would up it by $3027

up what? offer or costs?

Sorry offer,

Kathy Reissmann One thing you can do is divide your total profit by your hours involved. I figure my "hourly" rate on opportunities versus my business plan goals.

@kevinpfeifer I'm thinking figuring hourly salary might be very motivating but could also make you rethink the deal. Interesting take.

@sydneychase where are you coming up with the dollar amount on the increased offer price? Must be a formula in the somewhere?

Also, if you utilized 70% ARV to come up with offer price you would come to $102,000. I'm a novice but a lot of what I'm reading shows 70% as the benchmark. Thoughts?

My 2 cents - I'd be very, very careful about going any higher. Does your 10k repair buget include contingency of at least 10-15% above what you've already estimated repairs to be? Are you extremely confident in your ARV? Where are you borrowing the money from, and what will it cost you to borrow it? Are you calculating holding costs of at least 6 months, including taxes to be paid? Insurance, commission, conveyance fees, attorney's fees?

Using your numbers and applying the 70% "rule," I get a maximum offer of 95k. (150k x .70, minus repairs.) If you reduce your profit to 15k - you would have profited about 22-30k using the 70% formula - you might be able to go to 102-110k on your offer.

However, a 15k profit is a very slim margin, imho ... too many things can go wrong in a rehab that can eat into that in a hurry. And if your resale number is off at all, there goes the entire profit. For example: all you need is to be 5k off on your rehab estimate and 10k off on your resale to eliminate your entire profit.

Take these comments for what they're worth, as I don't know all of your numbers and the area you're in. Keep us posted on how it goes!

Only you can decide what your time is worth. This also depends on your business goals. If you are looking to flip 1 or 2 a year then yes you want to see a 25k+ profit to make it worth your time and effort. However if you are more interested in 1-2 per month then lower your expectations on profit margins and focus on acquiring the properties and managing your business more than doing the physical labor yourself. You will 100% of the time make more money pushing a pen then slinging a hammer.

2 properties/year @ 30k profit/property = 60k/yr

1 property/month @ 15k profit/property = 180k/yr

- not to mention these high profit properties are in far less supply. (at least here in dayton they are)

I hope this helps. I too did all the labor myself on my first two properties which did give me the start up money to really develop the company I run today.

Good luck and message me with any questions!

Your profit margin seems OK if you are certain of your numbers for ARV and repairs. But there's very little room for bad things that can happen. If you have confidence in your numbers, you might consider upping the EMD being offered.

My ARV came from the realtor that showed me the property and other comps. He also said holding period in this particular area of homes and time of year are 90 days max. I ran through all the costs based on my list of what needs repair and getting prices on those items from the store and factoring in some other things based on estimates from contractors. The money I'm using is coming from my brother, some from savings, some from another business that I own and the balance from my home equity line of credit. The only monthly payment I will have is from the interest on the HELOC and utilities. The remaining funds won't be paid until the house sells. I have calculated interest and other costs, such as taxes and insurance for a 6 month holding period. I have also factored in a profit sharing for my brother of 10% of profit, which I'm willing to do just for letting me use his money. This wouldn't be possible to do without him and his money which I'm thankful for. If he's willing to help me make money to get started, I'm willing to pay him.

Originally posted by @Steve Babiak :
Your profit margin seems OK if you are certain of your numbers for ARV and repairs. But there's very little room for bad things that can happen. If you have confidence in your numbers, you might consider upping the EMD being offered.

Sorry, what's EMD?

EMD = Earnest Money Deposit

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