How do you set your target profits for flips?

[Luke Terry]

Hey folks,

We're in the East Cleveland market looking at buying SFH's to flip. For those with experience doing rehabs, what's your target profit margin you look for evaluating deals?

We've been going for a 20% profit off sales price but the markets pretty tight and when analyzing properties we typically don't think we'll be able to achieve those targets without asking for $10K or less than the listing price, which sellers aren't willing to bit on.

We're trying alternate forms of finding properties (driving for dollars, tax delinquent lists, and auctions) as well. But for anyone with experience doing rehabs through the the MLS, what's the target return you go for when buying a house? Any recommendations on how you modify your plans during a seller's market or how we should be thinking about this? I understand some profits is better than no profits but we don't want to tie up too much cash and time in a 6 month project that isn't going to move the needle much for us.

Thanks for your help.

Here's an example:

Property is listed at $65K. We think we can rehab it for $40K (including holding costs and closing costs) which would make total cash needed at $105K. We estimate we can sell it for $120K, making a $15K profit.

However, a 20% return on $120K is $24K, so to achieve that target we'd need to buy the house for $56K instead of $65K, which hasn't made us very successful so far.

[James Wise]

Originally posted by @Luke Terry:

Hey folks,

We're in the East Cleveland market looking at buying SFH's to flip. For those with experience doing rehabs, what's your target profit margin you look for evaluating deals?

We've been going for a 20% profit off sales price but the markets pretty tight and when analyzing properties we typically don't think we'll be able to achieve those targets without asking for $10K or less than the listing price, which sellers aren't willing to bit on.

We're trying alternate forms of finding properties (driving for dollars, tax delinquent lists, and auctions) as well. But for anyone with experience doing rehabs through the the MLS, what's the target return you go for when buying a house? Any recommendations on how you modify your plans during a seller's market or how we should be thinking about this? I understand some profits is better than no profits but we don't want to tie up too much cash and time in a 6 month project that isn't going to move the needle much for us.

Thanks for your help.

Here's an example:

Property is listed at $65K. We think we can rehab it for $40K (including holding costs and closing costs) which would make total cash needed at $105K. We estimate we can sell it for $120K, making a $15K profit.

However, a 20% return on $120K is $24K, so to achieve that target we'd need to buy the house for $56K instead of $65K, which hasn't made us very successful so far.

 The market is, what the market is. The market doesn't care what you want to make on a deal. If others are willing to pay $65k but you want to pay $56k the market doesn't care about you.

What you need to do now is understand what's out there & figure out how you can create a competitive advantage over your competition. If your business is set up where you need to pay $56k but others are able to pay $65k what can you do to allow yourself to pay $66k???

You need to lower your costs. You can become a Realtor yourself to save those costs, you can do a lot of renovation work to cut costs. What else can you do to create that edge?