ARV Numbers & Brokerage Fees in Bay Area Flips

[Sol Bier]

Hi All,

I've been putting together excel sheets for flip targets in the Bay Area as practice and I am seeing some disconnects between the standard suggestions (70% ARV, lower profit margins than many here ask for but much greater absolute profit than many here require for 4-6 months of work) given the high costs here. Obviously these are rules of thumbs, so I wanted to know what CA investors use in these high COL areas. Here is an example below

Assumes 6 month flip 

$1.2M property

Estimates $120k in rehab costs (assuming 10% to start, these may not scale with property costs)

~$260k downpayment, 9% hard money financing

~9k holding costs (taxes + interest)

$16k loan origination fee

$1.6M ARV

This would give a 40% COC return at ~$130k in profit for ~6 months of work. However this is ~82% ARV purchase price, despite what looks like to me a good return. Is normal for the bay area? Does rehab costs as a % of total cost being much lower in the bay area allow for a larger ARV purchase to be feasible?

Also, a second important question, the broker fee (on the purchase side and the sale side) would total 5%. This amounts to 70k or 50% of the total profit ! This to me is a much larger drag than the financing cost (8 months of carry cost), or even potentially underestimating the rehab costs. Is it realistic to get a realtors license, or work with a fee only realtor? 

I don't mean to belittle the work of brokers, but my situation is that this will be part time investment for me, and I have time on my side to wait for the right deal (I am not at the scale where I need volume). I'd prefer to build in a larger margin of safety by removing this fee. How would I go about doing this? Getting my license, or staging myself on the sale side and using real estate attorneys. What are the downsides to this? Does it make my bids less competitive?