Lots of questions and factors there, and in the end every potential deal is different, so it’s hard to say that A is always more profitable and smarter than B, which is better than C, etc.

Using the details you provided, if I were in your spot I’d be looking for something under $100k, that was habitable from Day 1. Some investors don’t recommend what I’m about to, err, recommend, but if you or your friend (or both of you) can live in the property as you rehab it, you’ll save a ton of money and buy yourself a little leeway in regards to the learning curve, from a profitability standpoint.

The hardest thing for me to learn is that everything (and I mean EVERYTHING) takes longer than you think it will when you’re first starting out. Especially the small odds and ends, like caulking new trim, replacing outlets, hanging new doors, and so on. You can plan and budget and try to account for everything but in the end, shit inevitably happens, contractors disappear, materials are late, you name it, and projects always take longer than you think they will.

That starts eating into your bottom line pretty quickly, especially if you’re financing it, as you’re typically losing $20-$50 per day, each and every day, to all the assorted holding costs. If you’re single and can deal with the headaches of living in a work zone, you can make up a lot of that cost.

A similar option is to look for a duplex to buy, bust your butt to get one side finished, then live it in as you rehab the other side. Another potential plus of that approach (and this depends greatly on the neighborhood/local market) is that it’s actually sometimes easier to sell a duplex these days than a SFR, as long as its priced at a point where it’ll cash-flow for a landlord/investor. Tons of SFRs on the market these days, not as many duplexes. but you’d have to buy it right to make that work, as investors are looking closely at the bottom line, just like you are.

In general, you’ll make less money if you’re looking to buy and rehab a house under $100K, but you’re also taking on less risk. I wouldn’t recommend trying to hit a home run the first time at the plate, as far as spending $200K on a house that needs $75K in repairs that you hope to sell for $375K.

Sure, on paper a potential $100K profit looks much sexier than a potential $25K profit on a house you buy and renovate for $75K and hope to sell for $100K, but the second option carries much, much less risk for you.

It’s also typically easier to rent a cheaper house if you can’t sell it, as far as covering most of your mortgage payment (if not producing a bit of cash flow). You’ll never be able to rent a $300K house for anywhere near the monthly mortgage payment, so if you can’t sell it you just have to eat the difference. Not so with a $75K house, as you can typically rent it for $700-$800 and pretty much break even as far as the monthly nut to the lender.

As far as financing, it’d be hard to find 100% financing for an investment property these days. Most lenders require 5-10% down unless you go the hard money route, which is risky for your first project, as the jacked up interest can eat you alive when the project inevitably drags on and on and on.

If you don’t have the cash to put 10% down (as well as the money you’ll need for the rehab costs), then it honestly might be too soon to be thinking about leaping into the world of flipping. It eats up a lot of money. The stress of the rehab itself (plus selling it in a tough market) is going to be more than enough for you to handle, much less stressing about money if you’re undercapitalized and being “creative” as far as finding funds, such as credit cards, etc.

Hope that helps some and, obviously, just my two cents.

“if you specialize in a smaller market you also have less competition in general from other investors”

This is certainly possible, but perhaps you meant “less number of competitors in a smaller market”? Because it could be the case that there are three primary competitors, with similar competence and market share, in a given market. If so, high competition among the three would be possible. Unless, of course, there was an abundance of market demand. :-)

I can tell you’re persistent and passionate by reading your posts. I’m sure you know these are two important factors for success. I hope you continue to work in this spirit and wish you success!