What ROI Do You Look For In Rehabs?
Do people doing rebabs look for a specific ROI, or just to beat returns where they current have money.
I and looking to fix and flip a duplex, have a budget for financing and rehab costs and base on market estimates of value, selling at the rehabed value would net between 2% and 9%
Well, I am just starting to rehab, the rehabs Iam getting into are EO's going for between 15K and 25K. The rehabber that I am working with who has been doing this for the past 25 years or so has basically told me that he won't get int a rehab unless he is going to get at leae 10K back out of it. Normally I work backwards to figure if it is worht my time. I add the intial cost, insurance, repair costs, any ROI to investors(including me), I add in if there are going to be any seller concessions to the buyers and that is what I set my selling price at. Just my formula but it has worked so far. Market may be very different in your neck of the woods though
[addsig]
Here's what I found, and why I asked the question.
Some people want a specific amount back, and other want a %.
Which I sorta don't understand.
Hypothetical, If you have the opportunity to make 5000 on a 500 investment, why not do it? Because it doesn't yield 10K?
I guess I could under stand if there was sig. more risk in one.
bty, what's an EO?
Well let me comment on your comment. Anythime you are going to make 5K on an $500 investment and it isn't a scam...do it and do it many times lol. What I should have elaborated on is this. I could be working on several different houses at once putting in the same amount of time into each one and selling each one for the same price (hypothetically). No one one house I get it for 12K the other I could get for 20K I put maybe a little bit more in repairs into the 12 k one but still don't top the 20K price of the second one. when it is all said and done one the first house I make 15K on the second house I would have made 8K. It just makes more sense for me to concentrate on the higher deals. Now having said that if there came a time when there weren't any better deals than making 5K on a house would I do it? Sure I would cause I gotta keep bringin the bacon home to mama! Again I would say it depends on whats going on in your area. Talk to some other rehabbers in your area and get a feel for what is going on in your market. In closing I would say whatever is going to make you the most money with the least amount of time, effort and risk involved is probably your best bet. Not to say REI is easy but there are degrees of difficulty that you need to look at.
Joe
[addsig]
Makes sense.
Thanks.
There is a good reason that investors often mention 10k as a minimum profit on a house. Like all things, there is no perfect one fits all answer for every situation. However, people often will underestimate the costs of rehabbing, selling, holding, etc. Therefore, if you are estimating a profit of $5k and you are off by $7k you have paid someone $2k for the priviledge of taking on risk, and investing a considerable amount of time and effort in rehab. Therefore, most investors will require an estimated profit of $10k to cover themselves. Of course, this assumes a modest price house. If you are rehabbing a $700k house you would want to have a minumum that was much, much higher.