Fix and Flips - What do you consider acceptable profits?

[Karen Margrave]

We have always built spec new construction. However; it seems like there's some opportunities in fix and flips in a few places that I've seen. What do you consider an acceptable profit on a fix and flip deal? 

[J Scott]

Lots of variables, but if I had to reduce it to one metric, I would use:  

Minimum profit of 15% of ARV.

So, on a house that we believe will resell for $400,000, we'd be looking for a minimum profit of $60,000.

That said, here are a few additional thoughts:

-  Obviously, not all rehabs require the same amount of time and risk, so if we run into something that is out of the ordinary for either (much quicker/longer or much lower/higher risk), we will adjust that requirement.

-  These days, good deals are hard to find.  So, we've reduced that requirement on a couple deals down to about 12%.

-  Given that were are likely near the top of the market (just statistically speaking), I'm not a fan of projects that will take a long time.  Therefore, I will generally require a higher return on any projects that will take more than about 6 months.