Investor's Minimum ROI on Investment Property?

Question

If an investor fix and flips a home and sells it to an end buyer, what is the minimum ROI should the investor expect to gain when he/she sells the property?

J Scott · Answer

Every investor is going to have their own specific criteria, but I'm generally looking to earn at least 15% of the resale value (regardless of the purchase price, the investment or the amount of rehab), with a $15K minimum.

Matt T. · Answer

For me, it varies on the amount of money I have into the project.  I shoot for $xx profit rather than a percentage.  My personal goal is $20,000 for my market.  Here are a couple examples why percentages could be misleading:

1.  purchase price $26,000 cash...$50,000 rehab/holding cost....$10,000 real estate fees/closing costs paid.  Sale price of $106,000

$106,000 (sale) - $76,000 (total invested) - $10,000 (sales cost) = $20,000 profit before taxes
$20,000 / $76,000 = 26%

2. purchase price $38,000 owner financed with $5,000 down....$30,000 rehab/holding costs/payments...$9,000 real estate fees/closing costs paid.  Sale price of $97,000.

$97,000 (sale) - $32,000(loan pay off) - $35,000 (cash invested) - $9,000 (sales costs) = $21,000 profit before taxes
$21,000 / $35,000 = 60%

I've only done two flips and have at best a loose understanding of figuring ROIs.  There are some very experienced flippers on this site that will come along eventually to weigh in.

Dee W. · Answer

J  Scott That's ok.  I'll be moving to ATL soon.  Maybe we can formally meet.  I visit quite often also.  Would it be ok if I add to my buyers list for the ATL area?

Will Barnard  Thank you for the insight.  I see that every investor looks for different things.

Will Barnard · Answer

My target is a COC (cash on cash) of 20% or better with an exit of 4 months max, usually just over 3, this way I can get 3-4 times the 20% per year.
I take the tital amount invested (acquisition, plus rehab & holding costs) and divide by my end result net profit. If that is 20% or better, I am all over the deal.

With that said, I really like J  Scott 's way of calculation because it is so simplified, mine requires more math and digging, however, if you apply his to mine, they come out very close with his being slightly below my 20% return.

For example, I had $850k into a deal that gave me a net of just over $200k. That was a 23% COC return. The exit price was $1,175,000 so using Jason's 15% rule, 1,175,000 X .15 = $176,250 (I ended up with just over $200k but as you can see, they are both close.)

J Scott · Answer

Unfortunately, I don't know Riverdale at all...sorry...

Bill Gulley · Answer

Sounds like squaters to me, maybe paying the contractor something, I doubt they would have an occupancy permit without plumbing, I know the Atlanta area is more advanced than that! J  Scott, what do you think?

Dee W. · Answer

Bill Gulley  Thanks.  You have presented a new area of real estate that I need to learn.  Gotta cross the t's dot the i's.

I was actually thinking if I could wholesale the properties to an investor. The properties are 95% done. Just need ac/heat and some plumbing work.

There were tenents in one property. IDK how they survived so long without a/c, heat and not so awesome plumbing...

Bill Gulley · Answer

I have picked up contractors failures and they can be a very good deal. The lender, if you or if you have an experienced contractor, will allow an assumption of the loan after discounting it or provide financing. I picked one up at 100% financing and 80% of improvements to finish with the construction loans. Be sure to check on the last work date anyone was on the properties and the time for filing any lien waivers, making sure it's free of encumbrances. You'll need a detailed punch list to justify your price and reasonable profits.
That's on the construction loan side, BTW, if you want to hold them, you'll need to ask for the loan to roll over to the end loan.

Inspect very carefully if you plan to sell especially as you'll be responsible for defects of a new home.

Good luck

Dee W. · Answer

@j scott Thanks!

The 3 properties are in the Riverdale area. All located on the same cul-de-sac. Right now they are potential leads.  At the moment I am able to locate 2 owners but the other property owner is hard to reach.

I am here in Texas, but I fly from time to time to Atlanta.

J Scott · Answer

Where are the properties?  If I know the area, I'm happy to provide any info you might need...

Investor's Minimum ROI on Investment Property?

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