What are buyers looking at closely when buying houses to flip?

[Christopher Campbell]

Hello!

My name is Chris Campbell and I'm an aspiring investor in San Antonio, TX.

The real estate market is strong here across residential (single and multi-family), commercial and land development. We're seeing nice and stable returns year over year per SABORs numbers and at least in Central Texas we aren't showing any signs of slowing down. In San Antonio specifically, there's a big opportunity in single-family affordable housing as there's a shortage and the city's population is continuing to grow at a quicker pace. I see this and land development as a really nice returns vehicle for the coming years. 

What I want to learn more about is what investors that typically look to pay cash or use hard money for their properties are taking closer looks at when analyzing deals. Are you going to live and die by %s? From the experience I have as a wholesaler I've discussed the % of the deal that my investors look for but what I find is that they're always in search of that unicorn 50%, 60%, or even 70% deal these days when there are so many low hanging fruit ~75% deals that can still bring a really great chunk of change on the back end. Obviously, the % of the deal is very important but I'm curious if there is value seen in doing good deals at slightly higher %s that still allow for sizable $ profits. If you can come across these deals without having to do all of the front-load work by working with wholesalers or having bird dogs on staff, is that just as interesting and worthwhile as the occasional unicorn you're fighting the mob for? I guess I'm wanting to know if making a specific $ amount per deal is just as worthwhile in the seasoned investor's eye as the %s?

Investor insights will be greatly appreciated. This will help me expand my business as well as better connect with the investors I currently work with and any future investors I work with. 

Thank you,

Chris

[Rick Pozos]

Hey @Christopher Campbell you probably work for one of the NW companies in San Antonio. I noticed that you never mentioned their name in your post or on your profile.

The problem is that when you get to 75% or 80% there is nothing left for profit. You know that holding costs are going to be 5-10%, selling cost is going to be 6% realtor and about 4% for buyers and your closing costs. There will also be closing costs when you buy, right?? You guys do your own hard money lending which charges 3 or 4 points?? So lets add all that up: 10% holding, 10% selling, 3% buying. That comes to 23%. Subtract that from 100% and you are left with 77%. This is your break even point. And you want me to buy from you at 75% so that I can make 2% of the ARV????

Even if it was a $$Million$$ house at 2% I would clear 20k. I guess what you are saying is that I should be ok with 20k, even if it is on a million dollar house?? I dont think so. You can sucker people in by telling them that they are going to make $XX,XXX. But if they have half of a brain, they know that there are going to be all the costs that I mentioned AND MORE; cost overruns, electric, water, taxes, bad contractors, and a few others I can't think of right now in addition to the simple %s mentioned

This is why you should never deviate from going over the 70% of ARV minus repairs AND you should do your own repair costs. Dont take for granted that the wholesaler is going to look out for you.

70% of ARV sounds greedy at first glance, but when you get into the numbers, you should clear about 10% of the ARV.