What % do you leave on a Flip to Rehabber? - Posted by DJ

Posted by Kernsey Fan on July 24, 2005 at 01:43:12:

This should be an article. This is the most useful post on this subject I have seen. Thank you, you explained that as clear as it can be described. Great post!

What % do you leave on a Flip to Rehabber? - Posted by DJ

Posted by DJ on July 23, 2005 at 16:58:38:

Anyone know how much to leave on a flip to an investor?

I got a property under contract for 50% of ARV.

I don’t want to be greedy but there is lots of room for a Rehabber. Just curious as to how much to leave for the Rehabber. Any formulas that are used.

Any suggestions would be helpful. Thanks,

DJ

Re: What % do you leave on a Flip to Rehabber? - Posted by Kristine-CA

Posted by Kristine-CA on July 24, 2005 at 01:09:20:

DJ–this is just one wholesaler’s opinion here, so take it for it’s worth:

You don’t need to “leave” anything for the rehabber. What you need to
do is to price the property appropriately so that someone else wants to
buy it, whoever that may be: rehabber, buy and hold landlord or owner
occupant. Knowing your market will help you here. Also, after you
have worked with some buyers over time, there may be other reasons
to offer properties at a discount to those that buy alot, etc.

There are rehabbers who will spend 20K for repairs and be ok with 7K
profit. There are rehabbers who will want to spend no more than 5K
on repairs and clear no less than 25K. The variables are way too great
for you to figure out what to “leave” them. Putting your asking price
out there and getting responses is the only way I know to find out if
what your thinking will fly.

Remember–many rehabbers are in the business of reminding
wholesalers that they are doing all the work and that you should be
happy with a number they think you should be making. And many of
them think it shouldn’t be near what they are making. If you can,
disregard just about everything anyone else says about “fair” when it
comes to selling a rehab deal. It’s the rare buyer out there that is
squared away about what they want to pay and who is not worried
about what you are making. It’s the rare person that’s squared away
on that. I bought a property for 75K that was worth 150K. I can
assure I was not concerned about leaving room for anyone. I called the
people I knew that wanted it and we talked about what they could pay.

As for greed? What’s that anyway? It’s not greedy to profit on a price
that someone else is willing to pay is it? I mean, we are talking two
adults acting of their own free will, right? What if you inherited the
property? Are you greedy if you sell for maximum FMV. Again, in my
experience, the marketplace bears all this out. If you mark up the
property 50K and nobody wants it, that’s some good information.

Best of success with this and congrats on a great deal. Kristine

Re: What % do you leave on a Flip to Rehabber? - Posted by John B. Corey Jr.

Posted by John B. Corey Jr. on July 23, 2005 at 17:20:55:

DJ,

It can depend on a lot of things.

Here are some rules of thumb from others

  1. Work the deal so the rehabber can get in for no more then 70% ARV. That way they can make a profit (assume 20%) and have room for holding costs, etc. This also allows room if they want to get financing.

  2. Dwan BT talks about marking up a deal by 10% to 15% as what she sees nationally from people who flip a lot of deals.

  3. Larry Goins talks about making $5K on a $70K to $100K ARV quick flip. Very quick in his model.

  4. If you want to deal in volume you want to be in and out without the ink really having time to dry. Hence you have no holding costs and little time invested. The idea is to minimize the work involved so you can find another deal. Earning a high margin can slow down the process as you will not have rehabbers pounding on your door waiting for the next deal.

John Corey
Chelsea Private Equity LLC

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Re: What % do you leave on a Flip to Rehabber? - Posted by DJ

Posted by DJ on July 24, 2005 at 08:18:23:

Thanks Kristine! Believe me this deal has been hard-earned. I talked with this owner for 14 months… :slight_smile:
I appreciate your insight.