Flipping Houses – Proper Inventory Turnover Rate
Minimum Bottom Line Profit Should Average 9.4%!
For Trades & Subcontractors, at Least 11%
After Income Taxes Are Paid!
With a typical business operation, turning the inventory over as often as possible has several benefits. First, it generally reduces overall costs, secondly, it generates greater profits and third, by increasing the profitability, the company has a greater return on equity. As a basic business principle, this seems all well and good, but does turning the inventory over in the house flipping business as fast as possible generate the same benefits?
Immediately, every reader will say, well yes, it should. I’m going to say, NO. Here is why:
First, this particular industry isn’t about increasing the speed of selling product. This isn’t production and sale of a homogeneous product like consumer goods. There isn’t a large market of buyers with very little price differential like in selling gasoline. Face it, you can indeed sell the real estate faster, but you pay a significant price to reduce the selling time period by 30 days and a huge price reduction to sell it 60 days sooner. The buyers are trying to find a product that can meet their particular needs.
Secondly, the cost to get the product to market increases per unit at a much faster rate than standard homogeneous products or services. You and I both know that if you expedite the renovation process, the subcontractors charge more money per function because of the emergency request.