How thin is too thin? Growing flip company seeking buying advice!

[Gus Muller]

Good morning BP members. I'd like to see what other flip investors think about profit margins when doing 20+ deals a year. We are on track to have completed 14 fix and flips in 2020. I've passed on some thin deals, and in hindsight, should we have pursued these?

We've never lost money on a deal, and maybe I need to get that out of my head. We have the staff and experience in place to start taking a little bit more risk. For the 14 properties, we've made between $30K-$40K per deal averaged out, after expenses. This is where we are comfortable. But, I do know we've lost offer contracts to other home investors, wholesale deals, and leads from other real estate agents. These deals have had profit margins under $30K, usually under $20K which I consider thin as these are a few price reductions to a break even point. 

One particular deal recently is a turn key condo with an ARV of around $240K. We could buy it direct from seller at $201K. But factor in the light rehab of carpet, paint, appliances and then calculate the holding costs, $400/month HOA, and real estate sales commissions, and that deal falls well under a $20K profit. It would also tie up some cash, and condo's take a bit longer to sell.

I try to think of scaling our flipping in terms of a baseball game as discussed many times from other investors and on a ton of the podcasts. Bunts, singles, doubles, triples, home runs, grand slams all equate to a win. We have yet to completely strike out, but it is probably bound to happen.

We also take a general approach as recommended by @Ryan Pineda @ryanpinedashow of a 10% minimum profit of the end sales price. So if we flip a property and list it on the MLS at $250K, we should see at least a $25K profit after expenses.

I've had some issues with wholesalers in my market trying to bring me deals. I always let them know we are looking for property with an $80K-$100K spread between purchase and sales price so that we have enough room in our budget for the rehab, holding costs, sales costs, etc. Most of the wholesalers say this isn't possible in our "market". But the deals that we get direct from seller do have these margins. The problem is, we can't find enough of them. And most of the "wholesale" deals in our market are just slightly better than what can be found on the MLS, with more hassles. These "wholesale" deals are usually the stuff that other flippers know is too thin, too much work for them to pursue, so they usually shed these off to the less experienced investors excited to get an "off market" deal.

Should we start taking on these thinner deals and hope for the best? Or would this tie up too much time for not enough profit?

Thanks BP!!!

[Dutch Langley]

We don't do the volume you do per year, but I have gone through the same thought process. The market here is very good but it is tough to get properties that ARV for $250k because everyone wants that price range -- feeding frenzy. It takes really only an incremental amount of additional time/expense in our experience to flip a house that ARVs for $350k/$450K and there is less competition at that level. I can get a bigger spread generally on those as well. I look to get 10-15% of the final sales price as my profit. So for us we focus on those and it allows us to make the same amount of profit on 2 houses as we would have if we did 4 or 5 of the lower priced ones. Plus our time involved is much less which fits with our quality of life goals - work less/make more.