How I Project Profit in Flip Underwriting

TLDR
Ross does not use one percent for every deal. His rule of thumb was at least $30,000 or 10% of the money in the job, whichever was higher, then raised for risk. He also keeps flip profit apart from pay for lending or building work.

Table of Contents

Start With the Profit Formula

Ross framed the math this way: buy cost, rehab, other costs, and profit must fit under the ARV. His simple case had a $200,000 buy and $50,000 rehab against a $300,000 net sale. That left $50,000, or 20% of the $250,000 put into the deal.

That percentage looked reasonable until he compared very different projects.

Why One Percentage Breaks

Ross bought Parkview for $21,000 and had about $51,000 in it after a light cleanup and rehab. A 20% goal would leave only about $10,000. That was too little for him, even on a strong deal.

His Pontiac case had about $600,000 in it after the roof came off and a second floor went on. A 20% return there was $120,000. Ross said he would have taken that return because he actually lost money on the deal.

His personal minimum was therefore $30,000 or 10%, whichever was greater, before adjusting for the risk profile. He explicitly called it a rule of thumb.

Risk Changes the Required Profit

Ross used the scale of livability to explain downside. A dirty but working house could be sold or rented sooner than a major job that was far from safe to live in. The more work it needed to reach that line, the more profit Ross wanted for the risk.

Separate the Businesses

Ross used a six-month loan at 12% on $250,000. That made about $15,000 of interest. He said an owner who uses personal cash should still track that lending return apart from flip profit.

He used the same rule for build and deal-sourcing work in his own firm. One company may earn a build margin or wholesale fee on a real deal. That pay should not hide whether the flip itself met its profit goal.

Examples, Not Market Quotes
The source used a 12% loan illustration and hypothetical $10,000 construction and wholesale amounts. It did not establish current lender points, standard wholesaler fees, or agent commissions.

FAQ

Did Ross say 20% is always a home run?

No. His two project examples showed why 20% could be too little on a small project and attractive on a large one.

What was his rule of thumb?

At least $30,000 or 10% of the project investment, whichever was higher, then adjust for risk.

Should owner financing be treated as free?

Not in Ross’s framework. He separated the return for supplying capital from the profit earned by the real-estate investment.