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Financial Planning / Tax Strategies
|Subject: Re: xpost - flipping a house?||Date: 1/16/2012 9:42 PM|
|Author: wrjohnston91283||Number: 114595 of 122051|
- He plans to do his usual spreadsheet to estimate how much work is involved and what that will cost. We can use that to figure out how much profit he might expect based on an estimated selling price. What is a good ROI on this sort of thing for us to decide if this is worth the effort? He seems to be thinking if he could make his usual weekly salary, that would make this a good deal because it would give him income, but I’m wondering if that’s actually too low and we should be looking for a premium above that. What’s a reasonable guideline to use when determining this.
Using weekly salary as a benchmark for ROI probably isn't meaningful in this situation. The options appear to be "pick up whatever work he can", or "flip a house"; with "work a normal schedule and make regular salary" not in the cards right now. Because of this, one may want to accept a LOWER amount than the normal weekly salary.
For instance, if all he can make right now is $500 a week as a handy man, making $600/week on this project makes sense. It doesn't matter that his normal weekly salary may be $1000, since that's not one of the choices.
On the other hand, you need to factor in the chance that it will take you twice as long to flip the house than expected, and thus you may end up with $300/wk, and he would have been better off fixing leaky faucets.
He is thinking of doing something in the starter home or low end market so there won’t be a lot of cash outlay and we won’t have a lot at risk here.
I would go this route; and be sure that whatever your "end product" ends up being is someone in line with the comparables. One of the duplexes I looked at when condo shopping was an old church that the developer bought, put in a ton of upgrades (hardwood, stainless, granite) and wanted to get $600,000 a unit. I looked at it when it was $400,000, and I think they ended up selling for the mid $300,000s, or basically 60% of what he hoped for. I didn't like them because they were much better than the homes around them - most of the other houses on the street were run down rentals; and the condo stood out like a sore thumb (of course, it being a church didn't help that).
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