What is considered a good deal?

[Nick Stango]

There is a neighborhood 5-10 mins from my house that has many investors swarming to, who are picking up great deals on real estate and fixing / flipping, wholesaling, renting, you name it, their doing it. But is it a great deal or does it just appear to be? From what I've gathered, these properties are being purchased for $100-120k with a $35-50k repair cost and sold for $185-230k is this considered a great deal or a to close to call or run fast deal?

[Gideon Sylvan]

Every deal shares certain constants and certain unique costs. Using your example neighborhood, let's say you can safely flip for $200,000, you'll incur somewhere between 6-12% in selling costs (3% selling commission, 1-3% listing commission, 1-2% excise tax, 1-4% closing costs).

Next you'll have more specific costs including improvement costs (huge range, but let's go with your $45,000ish) and holding costs (depends on time and other factors, but let's say $1,500ish average). At this point, very generally, you're down to $135,000.

Now you work from the purchase price end. With an on market deal, you're mostly looking at closing costs (1-4% or $2,500ish) and, if you're using it, hard money costs (2ish% origination + 1ish% a month around here). There may be unpaid obligations, so let's round up to $10,000.

Budget for unknowns and property specific knowns, and you arrive at your estimated profit. With no additional costs your example net would be $25,000.

So yes, the numbers appear to work for flippers, but each deal really is its own. Generally speaking, a neighborhood with more deals will also have more competition, driving offer prices up and profits down. It's often helpful to have a minimum acceptable ROI for making an offer (includes unkowns) and make your offer right up against that. The number of deals you'll have the opportunity to pursue will largely depend on that minimum.