The Price/Profit Sweet Spot of Real Estate Properties

real estate profit margin
Our aim affects everything we do in life. By “aim,” I mean any time we work toward a goal.
When we focus on hitting specific goals, we’re much more likely to get the results we’re looking for. Our chances of achieving success increase even more when we start by choosing the right goals to aim at.

For REIs, the first part of every fix and flip is to find the right real estate property in which to invest.

I have a simple formula that I want to share with you that will help you focus your property-finding goals on the areas where you chances for success are the highest. I call it the “Price/Profit Sweet Spot.”

This is one of the tips from my own experience and research that I share in my VIP membership program, and you’ll probably notice that it’s different than a lot of the other advice you’ll find out there.

Where You Need to Aim

When searching for fix and flip properties, you want to focus your attention on properties that meet both of these criteria:

  • Properties between $50,000 and $200,000 ARV
  • Deals with a profit margin of about $15,000 and/or 10% of ARV

Venn Diagram to Find Real Estate Property

Now it’s time for me to explain why the sweet spot is the sweet spot …

“Going for Broke” Usually Delivers Exactly That

Shooting for just a few deals with big payoffs — for most REIs — will lead to disaster.

This is partly because there just aren’t enough of those kinds of deals out there for every REI to have equal access to them. You would be lucky if you got one or two big ones in your entire investing career.

Lots of REI gurus and coaches out there lure potential new REIs into the game with promises of HUGE profits on individual deals, usually deals targeted well above the $200,000 ARV range. Profit margins for deals like these can be 20% or higher and can reach up into the $50K+ net range.Chess Game Representing Bad Odds

I have actually shared a few similar success stories in the case studies section of my site. They certainly inspire me!

But I try to report on both sides of this truth. Yes, deals like these exist, but your best chance to make money in real estate means consistently aiming for deals in the sweet spot.

And then if a huge deal happens to come your way, you can jump on it (and you certainly should).

The Sweet Spot is More Predictable

Predictability is the other reason that makes the sweet spot the sweet spot.North Star House Representing the Sweet Spot

Homes above the $200k range are statistically more likely to experience drastic fluctuations in value. This is particularly true of any home in the $200,000 – $5,000,000 range.

Homes in this range are more susceptible to all kinds of depreciation, including local area depreciation and overall market depreciation, while homes in the $50,000 – $200,000 remain much more resilient to these influences.

With this strategy, the chances of getting into a high-dollar deal only to lose equity in the property before you have the time to flip it are much higher than with sweet spot properties.

If REI Were Golf …

If REI were golf, only going for the big deals would be like only driving for a hole-in-one on every hole.

Sure, you might eventually get that hole-in-one, but at what cost? And what would your overall score look like at the end of the game (or season for that matter) compared to the scores of all the other players who were consistently making moderate drives right up the middle of the fairway?Golf Ball in the Rough

Trust me on this one. If you want your investing to build you the wealth that you’re hoping it will, aim for the sweet spot every time.

If you’re looking for a rush, you’ll get that rush a few deals down the road when you take inventory and realize that consistently following solid, moderate deals has helped you amass a pile of capital.

If you’re STILL such a big thrill-seeker that you just can’t wait until that happens, I’d suggest — for the sake of your finances — taking up squirrel diving or something like that in the meantime.

To the Sweet Spot!

Ryan

Patrner With Me

12 thoughts on “The Price/Profit Sweet Spot of Real Estate Properties”

  1. There’s nothing wrong with eating salisbury steak until the porterhouse arrives! Besides, pigs get fed while hogs get slaughtered. Good advise.

  2. Ok – so 15k profit +15K fix-up + commission to sell+ closing cost+utilities to hold+interest on the money = 50 cents on the ARV. Or maybe 65% of ARV – fix-up = Offer Price? Do you agree?

    If so, I use to agree. I am feeling different about it now. I am thinking maybe the other end is gonna crash down to reality numbers. Maybe the high end stuff will get to be the best thing to flip. If you do it right, with deep pockets like you have. What ya think?

    1. @Ken. You are right on the numbers. Simply go off the conservative ARV and work backwards, taking out all the costs and expenses associated with the deal. What’s left over should be your estimated profit. I am not sure about your statement, “I am thinking maybe the other end is gonna crash down to reality numbers.” Can you clarify that?

      Remember, when looking at high end deals, depending on the state your in, our max loan amount is $250k.

  3. RYAN;
    you have a great e-mail marketing program, which you’ve obviously
    put a lot of time into, but you’re “targeting” first timer’s. Too much effort
    for probably lots of “can I ask you a question, etc.”
    CALL ME, I HAVE 2 GOOD DEALS PENDING, I NEED MORE FINANCING.
    ERIC- 772-345-9681

  4. But there are some great deals in the 250 to 500 range, It seems to me that it depends on the area. Phoenix is the first place where there were columns of homes 1 mill plus in the newspaper…Where did all the money come from???

    1. I agree, David. It definitely depends on the area. The target price range I’m talking about here all comes from statistical correlations related to profitable deals. Yes, good deals outside this range certainly exist, but if you’re looking for targeting where the highest statistical likelyhood for finding good deals is, the sweet spot is where it’s at.

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