Realistic profit margin ?

Question

Call me crazy, but after gobs of research I believe I can consistantly buy/sell distressed (HUD, VA, bank owned) properties in my area and average $10-12k net profit with a average 90 day turn.   These would be houses in the $75-125k range...so we are talking a 10% + / - profit margin.  Yep, it's close but in my calculations I'm very liberal with estimates on rehab/holding/selling costs.

I'd rather sail along "under the radar" and consistantly make my $10-12k house after house rather than fight for the houses with larger profit margins.

Seems like most of the folks that do this for a living are always talking about 30-40% profit margin ???  Sounds nice but seems like those properties are very few and far between.

What am I missing ??

pfinder

N/A N/A · Answer

Thanks for the response.

Thought I might be missing something...would rather get some feedback on my business model than jump right in and sink !!

pfinder

Bryan Casteel · Answer

Now this is an interesting topic that is very close to my heart.  I have been 'round and 'round with this one many times before with wholesalers and other rehabbers.  Here is my take:

Both of you are right that base hits are the way to make it in rehabbing...BUT, make sure the base hit doesn't get taken away from you because of a mistake on the bases.  OK, enough of the analagy.

There is nothing wrong with going for quick $10K profits as long as it doesn't turn into a $10K loss right before you eyes.  In other words, make sure your risk and reward are in balance.  You mention that you are considering ALL expenses such as purchase, fixup, holding and selling costs which is great.  So many people miss the HUGE expeses of holding a property and selling a property.  Also watch out for market corrections in the neighborhood.  I have been bitten by a 10% price correction in a very nice neighborhood that all of the sudden had too many sellers and not enough buyers.

If you are going to take on a very light job that is straight forward and you are going to account for all expenses, then go ahead and feel good about the $10K profit and go get another.   On the other hand, if you are going to get into a big rehab, that $10K can go away in a quick hurry and you will be one sorry pup.  I am finishing a property right now that I have had over $20K in surprise expenses that I didn't plan on when I started.  If I had only planned on a $10K profit, I would be sick right now.  As it stands, this project has enough margin to cover the extra expenses and I will still make a healthy profit.  Sure, it would have been more profit without the surprises, but at least I bought it right and I can absorb the hit and still feel good when it sells.

Make sure your risk and reward are in balance.  Don't take on a $30K fixup job for only a $10K profit.  If you were right with your numbers you will quickly figure out that it wasn't worth it and if you made a mistake or find a surprise, you will be very sorry.  Focus on making base hits and take the doubles and triples as they come.

Dwayne Hirsch · Answer

You are cool on this issue. You will always eat well with less stress while others lurk in the shadows for the home run. Keep playing small bal and remember, 4 base hits in a row is better than one  lead off home run.