If you plan to originate and sell, to get yields into fair market territory, you'll be discounting your paper, meaning that your margin on the home will need to be high enough to absorb the discount and still produce a better return than just outsourcing the lending process.

I think folks who disagree with me are missing my point.Nobody is arguing a +$2400/yr margin from a +$200/month cash flowing property is a mechanism to "get rich."

Even when adding 10 - 20% profit margin.  

If you are already up into the higher brackets, then it won't make sense to take a bit out every year since it will be taxed at the same marginal rate...Can't easily negate the tax obligations... 

That profit margin is so small and could easily be wiped out with holding costs. 

Do not forget the state tax as well.At the federal level, if your marginal tax rate is 12%, depreciation recapture tax rate is 12%if your marginal tax rate is 35%, depreciation recapture tax rate is 25%

Essentially, on this model, the model only works if the cap rate has a slight positive margin compare to the interest rate. 

The equity and small amount of profit (new builds have a very slim profit margin) in the Chicago ground-up new construction was really from getting the land at a good price. 

Go to the CSLB website and much is outlined there.1 Lots of businesses including construction companies shoot for 20-25%, the higher the margin with increased volume=$.2 Most B1's that I know started as framers, some in concrete, some from underground construction.

I was grossing $1500-$2000 daily with 25% margin on sold goods, so I did well.