Average ROI for flipper in Sacramento area

[Randy Bayo]

Hey guys,

First time posting on here. I am very new at real estate. I bought my first rental back in November, and now I am in the beginning stages of wholesaling real estate.

I am curious, after factoring in the MAO, ARV, after repair costs, etc., what is the average profit that a flipper usually strives for when flipping a deal from a wholesaler in the Sacramento area?

Any insights and information is much appreciated.

Thank you,

Randy

[Dan Sundberg]

The investors I work with have a sort of 3 tier evaluation to figure out what price will work for a project. The project needs to pass most of them, but there's always some wiggle room too. 

First, at least $30k bottom line profit. This is not a hard number but really a quick gut check, based on their business and the other things they can do with the money.

Second, the Cash on Cash Returns should be above 10%. If the project returns $30k, but they had to put in $600k cash, that's only 5% cash on cash and is a bad project. 

Third, Internal Rate of Return (IRR), which factors in speed of the project and how quickly the money can be recycled, which should be around 30%. So for example, a project returns $30k profit, and the all-in costs are $300k, that passes the first 2 tests, but if the project is complicated or in a slow selling neighborhood and will take 6 months to close, that is roughly a 20% IRR, which fails the IRR test, and would be a no-go for the project. If on the other hand it's a super simple job and the property can be turned around in 90 days. That's above a 40% IRR, meaning the money comes back and can be used for another project fast, and makes that project a hard yes.

This last one is really important and often overlooked, as I've seen MOA increase for a project that was mediocre on the profit and Cash-on-cash, but great on IRR, purely to keep a good construction crew busy so they don't all fade away while waiting for a slam dunk project.