Flat dollar spread vs percentage ROI: what’s your actual minimum right now?

Question

Textbooks always preach targeting a 15% or 20% ROI on value-add projects. But in reality, a 12% to 15% margin on a $250k purchase can get completely wiped out by an unexpected plumbing line and an extra 45 days of holding debt.

When you're running numbers on a deal today, are you underwriting strictly to a hard dollar floor—like a non-negotiable $35k or $40k net check—or are you still sticking to a percentage return? What’s the smallest net profit that actually makes it worth risking your capital right now?

Chris Seveney · Answer

First, you need to understand your cost of capital. But if you're talking about true profit, all I know is, if I told my wife I deposited 10% in the bank account, she would give me this funny look. But if I said I deposited 20,000 in the bank account, I would get a much different reaction.

Dollars over percentages

Matthew Morrow · Answer

@Alejandro Lopez I care less about which yardstick and more about how conservative the inputs are. We budget the actual rehab plus 10%, and that cushion only works because we've spent years building contractor teams we trust. Holding and financing costs go in from day one, and I don't count on the exit with appraisals coming in light. If one plumbing line and 45 days wipes it out, the margin was never really there.

Flat dollar spread vs percentage ROI: what’s your actual minimum right now?

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