Minimum Spread for Flip

[Jonathan Schwartz]

I have listened to every BP podcast and many of REI experts talk about the 65% (or slightly higher in some areas) of ARV formula for determining if a property can be a successful flip.

My question is if people would stray from that formula in more expensive markets. For example, I am looking at a REO in a hot market MA that can be acquired for $500K cash, that with repairs of $40K could be sold quickly for $625K and possibly closer to $650K. Since I don't have that kind of cash sitting around, I would need private or hard money loan to finance the purchase & rehab costs.

If I budget $25K in points/financing for 4 months, a 5% Realtor commission to sell the house and other incidental costs, my total expected costs would be around $600K, leaving $25-50,000 profit depending on final sale price. 

So this is a long way of asking, is this expected profit margin enough to make the deal worth pursuing?

Thank you all in advance for your advice!  Even if I don't pursue this particular property, I want to be better educated for the next time a similar opportunity comes along.

[Anthony Dadlani]

Good Morning, 

I think a good target would be 25- 30% profit margin on a flip. Some of the higher priced homes would prob only net a 10- 20% margin. However to make 10% net on a 500k ( $50,000) is nothing to sneeze at for 90 days of work. 

I think each deal is different and although you may have a target margin, unforeseen circumstance arise. Both good and bad. sometimes the market can rise during your rehab phase and you get a higher price then anticipated as well. 

Best of luck in all your ventures.