How Much Profit Do You Want?

to question no. 1 is that I would be happy with 3000,but would prefer at least 5,000 for most deals. I know that many would say 1000-1500 is fine, and I agree, but for the effort and taking some risk I would prefer it to be the upper numbers.

To question no. 2 I would say that flipping traditionally means that you buy a house that you do some repairs to to sell at a much higher profit than you bought it for including the costs including in the flipping process. Tammy

First of all lets define what "flipping" is. There are a couple of exit strategies that the term can be used for. Flipping is considered a Short Term strategy. Not to be confused with longer term buy and hold, then sell. This is not "flipping"

1. The most common exit strategy is "wholesaling" This is when you get the property under contract and "flip" it to your buyer for your net profit. Such as an assignment, double close, selling the LLC, selling the trust etc.

2. FIX/FLIP is when you actually buy and take title to the property, spend the money on the rehab/remodel and then sell it for a profit.

So if you do #1 the deal has to be strong enough to collect your fee. If the TOTAL net profit on a fix/flip deal you are trying to wholesale to a rehabber buyer is $10,000, your fee has to come out of that $10,000. To make $5000 on a $10,000 net profit deal just will not work. Number 1 is what 99% of the people on this site are trying to do. No money down strategies. Wholesaling requires a true wholesale deal.

Then again, is it a $10,000 profit on a $300,000 house or a $50,000 house. The numbers provided are way to vague to know anything about the deal. If you have any money costs like hard or private money and you are not 100% cash you will have to take those costs out of the net profit. It will depend on your buyer and how the numbers work for him/her.

If you yourself are doing #2 than the risk you assume is much higher. $10,000 may not be enough net to assume the risk. Again, what are your money costs?

I have made as little as $750 doing a wholesale deal. The numbers were very tight so in order to move it I took a small fee. In wholesale "flipping" you have very little risk but the deal must be strong enough for your buyer to make his money AFTER your fee.

I would never do a fix/ flip where the profit was only $750. So you can't ask, "wouldn't you take $10,000 profit" and get a real answer. You must explain in detail what the particular deal is and how the investor would make that $5000 to $10,000.

Isn't REI fun!! Takes a while to figure it out.

Michael Mangham
Mentoring/Team Building Nationwide
MD Home Acquisitions LLC

Tammy, I think that some people would be happy with $3000 profit as would I, and others are looking for at least $20,000, $30,000 or whatever other amount. That's why I started this thread, I wanted to see how much people would take.

Of course, the common answer is likely to be, "the more the better." I'm happy with any profit I make. So far as commissions are concerned, a minimum commission is $2500.00, but that gets divided between more than one agent and/or broker.

Mike, you crack me up. You say you took $750 on a deal, and then in the very next paragraph you say you would never do so. Wow.

Of course one has to be very specific and careful, but that doesn't mean that one has to be doubtful from the outset and assume that something is not a good deal without knowing anything about the deal hardly.

'Flipping a contract' for profit, and "flipping a deal' to an investor buyer for profit and 'flipping a house' for [retail] profit that you've created equity in by rehabbing it (for $5-$20K per sq. ft.) are really 3 different animals. The profit possibilities are in the guts of each deal. It really depends on each individual deal, what the numbers determine (the spread), and then what YOUR end strategy will ultimately be. Some you'll flip the contract, some you'll flip the deal, and some you may even be the rehabber who flips it for resale profit. Some you may even rehab to hold as a rental investment. It really depends on the numbers and risk factors involved, including what, you as investor, have to bring into each deal. The greater the risk, the bigger the profit! (or it's NOT a deal!)

PS. Flipping paper is lighter than flipping brick n' mortar. Assigning a contract, and wholesaling a property, and rehabbing are different techniques in real estate investing. It's more productive to have all kinds of deals flowing through your business pipeline.($750 here, $5500 there, $20,000 for this one...$300/mo. cash flow on my rental...$10K down on my lease option...living rent free in the quadplex---it all adds up!)

Clearly you miss the difference in the two exit strategies!! Oops! Realtor think coming into play.

If I co-wholesale a deal and take $750 that is TOTALLY different than NOT taking $750 to do the Fix/Flip myself. So I did not say I would take $750 then in the next paragraph say I would not. NOT THE SAME TYPE OF DEAL!!!
1. Would I take $750 to co-wholesale a deal? Yes! Better than NOTHING!
2. Would I take $750 to do a fix/flip myself? No way!

Liberty Kat,

Well said. To me wholesaling is always flipping the paper. Whether it be an assignment, co-wholesale, double close, entity exchange, whatever. I am not on title for more than 8 hours if I go on title at all.

Personally I never CLOSE on a property, own it and then try and wholesale it. The only time I go on title and fund the deal myself is when I intend on doing the fix/flip on a property that I can bring value to by doing the rehab/remodel and then RETAILING the property.

So to my way of thinking I only have 2 exits. Wholesale or fix/flip. This is just my own terminology.

Of course then there is the take it "subject to" and L/O to your tenant buyer. But as we know, that is a buy and hold strategy, not a flip strategy!

Michael Mangham
Mentoring/Team Building Nationwide
MD Hom Acquisitions LLC

I was thinking in terms of wholesaling for the amount I stated. Fixing and Flipping would be a whole other ballgame. Tammy

Yes, it depends on the individual investor's model. How they choose to run their investment business.

• One can simply flip contracts (assignment of contracts)...
• One can wholesale houses-2 ways: flip the contract to investor end buyer or flip the deal to end buyer investor.
Each one has it's profit potential.
• One can buy at wholesale pricing, rehab & flip...or rehab & hold themselves; using HML, PM or their own $$$.
• One can buy cheap from MLS listing Sellers: Individual owners (via a buyer's agent) or Banks: Foreclosures/REO Repossessed Houses, Auctions
• One can buy from Private Sellers (off market): FSBOs, Probate, Absentee Ownership, Deceased Owner, Distressed or Abandoned Houses, Tired Landlords, etc.
• One can buy from Shadow Inventory: Asset Managers or REO Listing Agents (Vacant Bank-owned Properties)
• One can do Lease Options/Purchases, Wraps, Short Sales, Subject To's (Distressed Homeowner, Pre-Foreclosure or No Equity)
• One can buy Liens and Deeds, as well.

Once an investor "purchases" a property (under contract), there are a multitude of applications. Each investor decides which of these avenues they'll choose to take. One can choose a single model or any combination of any/or all the above. It's up to each individual investor's savvy, personal preference or specialty. Each model is unique unto itself.

We ACQUIRE the properties anyway we can! No matter HOW we ACQUIRE the property , we know what our exit strategy will be BEFORE we make our offer. We will either wholesale, fix/flip ourselves or take it subject to and L/O to a tenant buyer. That's what we do. Others buy,rehab, hold, re-fi whatever.

So many times we see "deals" that some one swears is a good wholesale or fix/flip deal but the numbers just don't work. Sometimes they are decent "subject to" deals.

Usually true ARVs are off. Rehab/remodel estimates are to low to bring the projected ARV. On and on. Most of the time these deals don't even work as a buy and hold.

This is why successful REIs make continuous, multiple offers to ANY and all kinds of motivated sellers! Where ever we can find them.

Michael Mangham
Mentoring/Team Building Nationwide
MD Home Acquisitions LLC

Hi, Rick!

As for the homeowner vs. investor inquiry...

Most retail buyers (owner occupants) buy a single property to live in and they look for an APPRECIATION factor after long or short term holding. They buy ONE house at a time. They pay down their mortgage over time or buy for cash.

Investors, on the other hand, typically, buy MULTIPLE properties per annum with the intent of either immediate turnaround profit or monthly cash flow (other people's $ paying for it). Alternately, some investors buy multiple units (commercial: above 4 units) for long term cash flow or PASSIVE income. Most investors look for profit and ROI either way. They consider tax breaks or deferral on DEPRECIATION factors.

You can buy a brand new car and you're ready to go. Or, you can buy someone else's used car (gently used or a junker), realizing you will have to make improvements on it and sink some cash into it before it's up to par and it's ready to go. It's the same with houses.

You really don't think I know the difference between the common definition of an investor in forums such as this and programs like Dean's and the a home buyer?

My point was/is, a home buyer is an investor in that they are buying an asset that pays them (equity), just as an investor is someone who buys stocks, gold, etc.

But, we're really getting of the point of the thread.

Mike, $750.00 is $750.00. What difference to you is it whether it comes from flipping paper or flipping the house itself? Is it your risk that makes you think like that?

The old formula for a fix/flip is 70% of ARV - repairs = maximum allowable offer.
The farther you depart from that formula, the more dead nuts on your numbers have to be when dealing with smaller profit margins. It essentially boils down to risk/reward ratio. Only you can decide if the ratio will work for you.

Doing a co-wholesale deal where I have done nothing other than supply a buyer is a whole different deal compared to buying a junker, funding the fix/flip and waiting to retail it to the owner occupant. I can't believe you can't see the difference and why I would take $750 just supplying a buyer(that's the least I have made) and why I would NOT take $750 to do the fix/flip myself. $750 is not $750!!It is the time, the amount of money invested (zero on a wholesale. Purchase, rehab and holding costs on the fix/flip) and the level of risk. If I invest no money I feel OK making less. Make sense?? Again, this is investor world, not realtor/agent world.

Michael Mangham
Mentoring/Team Building Nationwide
MD Home Acquisitions LLC

Some people think houses are assets, some think they are liabilities.

Oh, I must have misinterpreted what you meant by this query:

Rick's partial quote...

"Another question: I know what most people mean by "flipping," but if someone/anyone buys a property and uses it for whatever for however many months or years and then resells it, aren't they still flipping but just doing it over a longer time frame? Technically, anyone that buys a house is an investor (they're purchasing an asset supposedly), and when they resell it they're flipping it. Since most owner occupants only stay in their houses for 7-8 years, they are flipping a house, they're just doing it over that time frame."

PS. I think my distinction was pretty UNcommon!
And these days, not so many homeowners would say their homes are "building equity" with the toxic upside-down mess and the astonishing amount of bank foreclosures!

Houses can be considered either liabilities or assets. It depends on a variety of different factors, including how the house is owned and financed, and also it's a matter of perspective. Technically speaking, an asset is anything that pays the owner, and a liability is anything the owner pays (on).

Of course, if a house is paid for, and I realize most of them aren't, then it's an asset. Nothing is being paid on it, and it is worth whatever it is worth to whomever owns it. Often I find that home owners/occupants don't consider their house an asset during the first 15 years of the mortgage, because mostly all they're doing during those years is paying interest and not building very much equity. There are ways around that, though. For instance, one can buy a house at a substantial discount and/or they can make a larger down payment or both.

Also, once a house has equity, I would say it's really both. Now, if an owner is an occupant, then they have the equity (asset), but they also have the payment (liability).

The thing to do is to purchase a house and get instant equity, like Dean teaches.

I guess a lot of time it depends on how whomever looks at it. Most financial institutions, etc., consider a house an asset, because the person paying on it is building equity, even if it's only $25.00 a month at first, whereas if they were paying on a car note, they wouldn't be building equity at all, because the depreciation of the car.

Typically but not so much in recent years in some markets, houses have lost value/depreciated rather than appreciating. There are still some places in the country where you can get houses for 50-75% less than what the house last sold for in 2006/2007/2008. Sometimes, those houses are even starting to appreciate, again.

But, now we're really off topic. The question in the original post (OP) still needs to be answered by more people.

Yes, but the question is how much of a smaller profit are some willing to accept? Everyone may not be looking to make a million dollars on each flip. Lot's of investors are willing to to take less. It depends on what one's goals, dreams and aspirations are.

This is the biggest shopping weekend of the year. Retailers are taking smaller profits per item, but they are willing to do so to increase overall revenue by having more sales. There are lots in this forum who are willing to accept a lower profit, even as little as $1500-5000 as to not having anything at all. We as realtors are the same way. Of course, we'd rather have 3-6% of $500,000 than we would $5,000 (commission profit), but sometimes one takes what they can get.

1. Most people will take $1500 to $5000 (I have taken less) to wholesale a property. Rick, that is when you get a property under contract and sell the deal to a fellow investor. You have NO money out of pocket and you make your money at or before closing. Very short time frame, no money invested, very little risk. I have also made up to $36,500 doing a wholesale deal.

2. Most people WILL NOT take $1500 to $5000 to do the FIX/FLIP themselves. Rick, this is when an investor funds the purchase, funds the rehab/remodel, lists the property and tries to sell for a profit. You have your money invested, all the risk and a much longer time frame to collect your net profit.

So to ask if some one will take $1500 to $5000 can't really be answered. I am sure I speak for every one on this forum. IT DEPENDS ON THE DEAL AND MY EXIT STRATEGY.

Realtor think is "Hey, I sold a property, I get the same commission I would get no matter what my buyer does" Not true in investor world.

If I as an investor make $1000 in 10 days with no cash in the deal or $10,000 in 4 months, with $70,000 invested, which deal has the better ROI??

Hope this helps,

Michael Mangham
Mentoring/Team Building Nationwide
MD Home Acquisitions LLC

Mike, I knew that, and that's why I asked the simple question to you as to how you view the difference particularly by saying, "what's the difference to you? Is the amount of risk involved?" It was a simple question that could have been given a simple answer, but your longer answer will help others.

Again, you cannot speak for "Most people," because you do not know, "Most people." I realized from the outset that, "many," would not consider the deal we spoke about privately as a good flip deal, but some might, and that's why I brought it to this forum and said it, "Would be a good flip or rental." Some, although not many or most, might consider it a good flip and settle for a smaller profit. I realized all along that it would probably be a better rental, but the seller was hoping to sell it to another investor. If he couldn't, he would keep it as a rental.

Personally, and I am some of many people but not most (hee hee), would take a smaller profit on a flip than you. That is not the realtor in me talking, that is me looking at the deal as investor.

Of course, everyone likes a good ROI, but what one considers an acceptable ROI in any kind of investing, what "good" is is a matter of perspective - hence the topic of this thread.

The deal that we spoke of privately is one that I would be happy to take a smaller profit on, and I know lots of other investors that would do the same, and, again, you cannot speak for them or "Most," investors, because you do not know them, the types of properties they buy, what areas they buy in, what return they are looking for, etc. Yes, some of them are looking for properties to buy and hold (and they let me manage them), but they are also looking to buy houses and flip them, and they often do so at a lower profit margin than you do. You cannot speak for them by saying, "Most people would not...," because you don't know, "Most people," (much less these people).

Now, I'll give you an example without being to specific for confidentiality purposes. I have two investor clients (some people, not most or many), and one is a chiropractor and the other is a businessman who flips houses for fun. The later gentleman owns numerous properties, another business and two Walgreens stores. Anyway, sometimes they'll buy government owned, HUD foreclosures and other foreclosures from me. These properties usually only require cosmetic work; if they require anything else, usually the government pays for it. Of course, as you know, the lower repair costs also improves ROI. Anyway, these houses (when first put on the market) are usually sold for about fair market value. I know. I price them, as I represent the seller/HUD. I can't tell you exactly how far below FMV HUD will take at auction, but I assure you that it's seldom ever 20% (usually much less). If the property is resold at at FMV, than the client often only earns a much smaller ROI. My point is, some people do take less (hence the point of this thread).

Finally, there is one final thing to consider here and that is long term versus short term ROI. Sometimes, an increase in value (appreciation) will increase the ROI on a flip. One may have to wait a year or perhaps even two to resell (flip), but some are willing to wait and take the rental income in the interim while the appreciation occurs.

Money is money! Profit is profit! The investment world is an open highway.
Why "settle" for anything? This is America! Land of Individual choices!
The land of PROPortunity!!! LOL

It's a MINDSET. Investor mentality [obviously] varies from MLS Listing agents' mentality.

Being a real estate agent who sells MLS [government-owned] properties to armchair investor buyers is quite different from an INVESTOR flipping properties to their wholesale buyers for quick cash...

Michael has been speaking from an active WORKING REI's perspective and that's what MOST of us are here to do. Be Investor$.

(Not an agent's website. Surely a different prospective, albeit).

Can we rest here? And, yes, investing can be FUN (and profitable)!

Of course how much equity people are building or have depends widely on their market and other factors as I have mentioned. Often, I have found recently that values are going up in my market, and people are gaining equity without doing anything, and that's true of many Texas markets, and we were not strongly affected by the "real estate crisis" to start off with. In fact, in many areas of the state, especially up and down the I-35 corridor, the market is booming. In my own practice, I find that a lot of people are not upside down, but they don't have enough equity to resell, either. In other words, they bought more of a house than they could afford, have lived in the property for a year or two, and now they're trying to sell the property, but they don't have enough equity built up to where the selling price would even cover my commission much less give them profit. That's what happens when one buys more of a house than they can afford and doesn't make a large enough down payment and more.

So far as the government owned foreclosures (can be browsed free at HudHomeStore.com nationwide, free), there are some in the Texas Panhandle, but not as many (percentage wise) as other markets around the country. Texas's economy and housing markets are strong for the most part, and that's why people are moving themselves and/or their business here.