How Much Money Did You Make?

The #1 question everyone wants to ask? How much? How much? How much?

And my answer is always the same…… I don’t remember and I don’t care!

“Wait, hold on there Michael, what did you just say?†Oh yes, you heard me.
One thing that you simply can’t think about in starting out your flipping
business is how much money you will make.

Let me put it this way. Say I purchase a property for $200,000, and make
$50,000 in six months, then I do the same for a second property of same
numbers. I made $100,000 that year, great. OR, I purchase a $2,000,000
property and make $100,000 in same period of 12 months. Same amount of
profit, so it’s cool, correct?

WRONG!!

On the first two-property example, I made 25% profit. On the second example,
I made 5%. Oooooooooh, think about that, because this is what the banks
want to see. They like hearing that you made money, but they go by
percentage, not by amount. This is called the Net Profit Margin (NPM).

If you look on my Resources page, you will see a Microsoft Excel spreadsheet.
I live by that sheet and am constantly improving on it. I have a golden rule for
purchasing properties, that when I do a sample budget, if my NPM is not at a
minimum of 20%, I walk away. That’s the earthly religion that you have to
worship. Don’t overestimate, don’t think “Oh, 16%, that’s fine, why not?â€.
That’s where you get in trouble. On my Oakland Park property, my problem
child, I originally had 45%, and am now down to 12%. Now, if I started at 16%,
I would be all down and out!

I can’t emphasize enough about how to budget for your jobs, and I’ll write
articles on this. I’m certainly no accountant, and I now let my accountant run
the numbers for me, but you have to start the process, and you better know at
least a little bit.

So if you are flipping, get money out of your head. Don’t even take a paycheck
for the first 5 years, roll that money up to more and more projects. Focus
solely on NPM, and never waiver!