The SGF market seems to have a lot of investors, relative to the deals, but I think if I adjust my profit margins (expectations) slightly, that would open things up more.

If you have both cash flow and appreciation, you create a greater margin of error for yourself.

Flippers really need to question if they actually have a legitimate business if they can't afford to actually work with quality vendors, if your profits are the margin between using legitimate vendors and the dregs you use, what is that telling you?

The reason they require a much larger discount is the increased financial risk involved with this much larger capital requirement.There may be luxury home deals out there at 80% ARV and you think they are attractive but if anything goes south with your repairs etc. you don't have enough margin to absorb those unanticipated costs, and you can get into some serious financial trouble.I'm in the school of thought that most RE investment opportunities are found at "below median value" in the market.  

Foreclosures are dying down, competition is heating up and the margins are getting harder to hit.So, I decided to take a walk.

My profit margin is smaller than I would like, but i feel like this is the best one I've seen so far.  

In the eyes of the IRS I believe I qualify as an investor and not a dealer which would have me pay capital gains instead of income tax.Now, the reality is that short term capital gains are still taxed at your marginal income tax rate, so it is still treated as income tax in that sense.

I especially like these cities, but anything with margin in it around the East Bay is good for me.

Or were the margins just too small to compensate for the unexpected?

In a perfect scenario you wouldn't have to pay the developer or GC his profit margin or the hard money lender his cut(have to figure in normal finance rates).