Why we decided to try and earn less on each deal in order to grow

[William C.]

Just a quick back story I am a real estate agent/market knowledge guy teamed up with a GC/construction expert.  We make a great pair.  I handle all things " re deal" related.  He handles all things property improvement.  Up until recently, we have had limited resources in terms of financing for projects.  We could essentially do only one deal at a time.  Given this limitation, we would spend months scouring the market, walking properties, and running numbers in search of that home run that would net us $100K+, and make all this work worth our effort.  We were passing on projects everyday that would have easily netted 50-60k.  I had finally had enough.  We started to lower the bar a bit.  I can hear the gasps now.  Yes, we actually purposely started perusing deals that had softer profits than we previously required.  We are only "actively" working on a project for about 4-6 weeks out of the roughly 12-16 weeks it takes to purchase, renovate, and sell a propery.  That meant out of those 12 weeks there could be 8 we were not actively working on a property.  We needed to fill the dead weeks with work. Rather than need to make $100k on each deal, we might be willing to do a deal that would net $60k, it takes us 5 weeks to renovate, and we move onto the next one as we try to sell the newly renovated deal.  By lowering our required profit, and bringing on other investors to allow us to carry more than one property, We can now flip 3 properties in 4 months, rather than 1 property every 3 months.   We are generating 180k in profits over 3 projects, rather than 100k over 1.  Im not a math wiz, but those numbers tell me it was a good move.  What do you think?

What does the BP community think about this shift?  If finding deals is the one thing holding you back from growing, maybe you need the rethink what the definition of a deal actually is.

[J Scott]

Originally posted by @William C.:

We are generating 180k in profits over 3 projects, rather than 100k over 1.  Im not a math wiz, but those numbers tell me it was a good move.  What do you think?

Unfortunately, there's not enough info here to know if this is a good move or not.  If that $180K profit is on a $10M investment, that's a pretty bad return.  If it's on a $500K investment, that's a great return.

What does your risk profile look like?  What are your margins?  How much would the market have to drop in order for you to go from profit to break even?  Do you have capital to cover a loss if a major surprise comes up? 

There are lots of variables; the profit numbers will never tell the whole story.