Do You Follow These Two House Flipping Rules?

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I got an email yesterday from someone who wanted to know how to flip houses and was paralyzed by fear.

He asked me to email him the two most important rules he needed to know when flipping houses.

I thought about going into the whole overcoming fear thing…but instead of getting into the whole “Secret” thing, I thought I should just give him the block and tackle stuff instead.

I still get calls from previous coaching students on deals they are looking to flip or buy, fix up and hold. And it seems like on every call, they  ask me the same thing:

Hey Mike, in just this one case, can I break the rules?

I end up giving them the same answer over and over again: NO

Nobody really likes to stick to rules. It seems, people would rather break them. Sure, rules are necessary in society and in life, but nobody really likes them – nobody really likes to be told what to do. But when house flipping, these rules will keep you out of trouble. I still stick to them every day because they work – and I’ve used them hundreds of times to analyze hundreds of deals.

Now, let’s be honest here…these rules are not earth-shattering, unlock the secret of the universe kinds of rules. These rules will not help solve the crisis in the Middle East, nor will they help to further unravel the human genome…nor will they help discover other galaxies with distant life forms…

These are just simple rules that I learned  – and always come back to when doing all my flips. And in the case of this emailer, assuming he overcomes the whole fear thing, if he stuck to these two rules and never made the mistake of breaking them, he would always stay in the money with his flips.

And surprise surprise, both of them come back to basic numbers.

House Flipping: Purely a Numbers Game?

When it comes to flipping houses, it’s all about the numbers right?

Yes and no. True, the numbers don’t lie. But numbers become more meaningful with experience. After you’ve been flipping houses for a few years and have dozens of real estate deals under your belt, you’ll start to get a sense as to when you can and when you cannot slightly bend the numbers and slightly bend the rules.

I did say “slightly”…but this is only when you have experience.

But when you are first starting, NEVER deviate from these rules – because when you flip houses by the numbers with no insight and experience, the rules will just plain keep you out of trouble. These rules will both keep you out of the bad deals and keep you in the good deals. So for the record, adhere to two basic rules and NEVER deviate from them.

The Two Rules You Should Never Break When House Flipping

Rule #1: Stick to your ARV

ARV, which stands for After Repair Value is what the house is going to sell for after you fix it up. If you have a good real estate broker that can determine what that house can sell for after it is fixed up, you simply work backwards to determine whether it’s a good deal.

Have the real estate agent perform a market analysis to determine the potential selling price of your property. Although there are many online comp services that can give you an idea as to what the house will sell for – nothing beats the expertise of a good real estate agent.

Things to remember on ARV:

  • Six months: Have the real estate agent to go back on the shortest amount of time, usually no longer than 6 months. The shorter the time period between sales, usually the better so you can eliminate market shifts and changes that may affect price.
  • Compare: Once they determine what other properties have sold for, they will be able to tell you what your property will sell for.
  • No Eraser Math: Don’t “eraser math” your ARV – make sure you stick to the number they give you and don’t deviate from it during the flip. As soon as you start “erasering” the number bigger to suit your needs, you can say goodbye to your profits!

The last point above is the one that most people want to break. If you get an ARV from your broker, don’t massage it until it makes your numbers work. The number they give you is the number (provided the real estate agent is a good one). So trust the number and stick to it…don’t break the ARV Rule.

Rule #2: Always Follow the 70% Rule

Once you have determined the ARV, the next rule in the house flipping process is the 70% Rule. The effectiveness of the 70% Rule all hinges upon your ARV – so you’ll need to determine that first.

The 70% Rule can vary with the market – but only if you really know what you’re doing. But put that thought out of your mind for now, just stick to the 70% Rule and you’ll be in good shape.

You use the 70% Rule to determine:

  1. How much you can spend on your rehab
  2. The maximum allowable offer for the property (known as the MAO)

How to use the 70% Rule:

Say the ARV is $200,000.

You figure out these numbers by using the 70% Rule using this simple math:

  • Take the ARV ($200,000) and multiply it by 70%. This equals $140,000
  • Deduct your repair costs from that $140,000. Let’s say your general contractor told you that rehab will cost $40,000
  • Using the 70% rule, you have now determined that the maximum price you want to pay (or MAO) is $100,000

Using the 70% will give you a healthy profit margin minus finance, carrying costs and unanticipated expenses. Usually 10% is for financing, carrying and other soft costs, while the remaining 20% is for profit.

And if you go over on your expenses or maybe get a slightly lower ARV when you sell, the 70% Rule cushion will make it really hard for you to not be in the money.

As long as you stick to the rules!

House Flipping Rules Conclusion

Flipping houses can be a very lucrative way to make money investing in real estate. We all see the headlines and the reality TV shows that glorify it to a certain extent.

While all that publicity is great for house flipping awareness, it’s the Rules that keep you profitable. In a rapidly appreciating market, the appreciation will sometimes help you make the profit, but never count on it. The truth of the matter is that you can be successful flipping houses or investing in real estate whether prices are appreciating or whether they’re depreciating.

But only if you stick to the rules…

If you made it this far, please leave me a comment below! I’d love to hear about what you think about these two rules or any other rules you have that you stick to keep your real estate investing profitable!

Photo: David Curran

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About Author

Michael LaCava is a full time real estate investor, house flipping coach and the President of Hold Em Realty located in Wareham, MA. He runs the website House Flipping School to teach new real estate investors how to flip houses and is the author of "How to Flip a House in 5 Simple Steps".

59 Comments

  1. Great article Mike!

    I find that the longer I look at numbers the more I attempt to squeeze profit out of them. I always end up following the rules though. Just for kicks I also like to do what if scenarios and go 10%, 15%, even 20% positive/negative from my true numbers.

    Just don’t let that nice +20% number get in your head. ;)

    Glenn

    • Good point Glenn. Always run different scenario’s as you suggested. Even run them out for 12 months and have an exit strategy on everything.

      Thanks for your comments

  2. Mike, great post. The deals I’ve lost the most money on were the ones I started “fudging” on ARV. In the investment world it would be called “speculating”. I started thinking to myself “yeah, that other house like mine sold for 200K last month, but mine will be much nicer and there’s no other homes like it in the area so I’m sure I can get 210K.”

    As for the 70% rule, if I used that here in Phoenix I’d never acquire a house. I’ve paid between 51-81% of ARV and made money. I’m happy with 10% of the ARV in profit (200K ARV = 20K in profit).

    • Good Point Marty. Every market is different & if you are experienced like yourself you can make those adjustments with caution. At least you know you will sell quickly because of the heated up market which lower your carrying costs.
      Thanks for you comments and sharing your strategy.
      Always good to here from other investor’s in different area’s of the country.

  3. Its great to stay in the 70% area but those deals can be tough to find. I know I have about an 85%er all in but its not an extensive rehab and in a great neighborhood. If you know your numbers and you know the house will move quickly you can move that 70% but only if you are very careful. Wouldn’t recommend it for someones first rehab.

  4. Mike:

    You nailed it that general rules are 100% critical to help eliminate variables in flip analysis. Risk is risk, it’s never gone, the key is to minimize it with experience. This is what pilots and doctors do with procedures and checklists.
    One tip: real estate agents are sales people, first and foremost. Two, they will do almost anything for a listing. Make friends with an appraiser who can give you am unbiased opinion for $50, or the cost of a lunch. Rules work.

    • Good point Nathan. Everyone is selling in one way or another and Real Estate Agents are no different than any other profession. You must build quality relationship’s & get more than one opinion especially if you just getting started. A bad CMA can really mess you up.
      I like your idea about using an appraiser. Where are you from because appraisers cost a lot more money in my area. Regardless if you don’t have the confidence in your research and your Real Estate agent’s CMA then you should hire an appraiser. It is the cost of doing business.

      Thank you for an excellent point!

    • Nathan, Your “tip” on REALTORS is an offensive (and misinformed) generalization. Real Estate Agents are NOT first and foremost salespeople; they are first and foremost consultants and marketing professionals. I am a professional investor agent and I don’t sell anything but service. By providing high quality, ethical service, most of my clients are repeat investors who feel that I am a valued team member in achieving their Real Estate Investment goals.
      I consult with them about their goals, research properties that meet their criteria, provide accurate and supportable As-Is, ARV and listing valuations and repair cost estimates, negotiate sales price and conditions, write contracts that get accepted because they are correctly written and have all of the supporting documents attached, minimize holding costs by turning properties with minimal time on the market, coordinate contract to close timelines and activities, and so much more.
      If you are having the kind of experience you describe, I suggest you look for a certified Investor agent (CIAS). A knowledgable REALTOR will mean better deals, less stress, faster turnover, and higher returns for you.

      • Nathan – great comments by Denise. I tell my investors/flip clients that if I wouldn’t buy this property for myself, I wouldn’t have suggested it for you. No BS…that’s the way I do business. It has built me the trust and respect of of a nice number of investors. Just like there are bad doctors, lawyers, etc., there are bad realtors. It’s about building a relationship. Please don’t generalize that we are all just in it for the $$$ and ourselves.

        • Joshua – Wow. I was shocked to discover how few CIAS Agents there are in the country – only 4,000!

        • The simple fact is that most agents aren’t knowledgeable about investing or trained to handle investors. Those that are prepared can profit immensely from it. Just think about how much business an active real estate investor could send an agent? FAR more than any single retail buyer would . . .

          I’ve been screaming from the tops of my lungs to agents about investors, but must just shrug their shoulders — “it’s too much work!”

        • From an agent’s point of view, working with investors can be rewarding or frustrating. It’s all about the relationship you have with the investor. Ultimately, what you want is a relationship of trust and cooperation. It never starts out that way. You have to build it.

          One thing I’ve discovered is that investors don’t like to sign exclusive contracts. I’m good with that. I do not even mention the word contract until my investors are ready to make an offer on a property. I submit my rep agreement on that property only with a 6 month termination date and get it signed along with the contract offer. If the offer isn’t accepted or we make additional offers, I write a one page amendment adding each new property only. When the termination date is reached, I write an amendment to that date. This gives my investors peace of mind that I’m not trapping them into an exclusive relationship; they’re with me by choice. I do this even with investors who have worked with me for years and work with me exclusively.

          Another thing I’ve discovered is that investors (and many REALTORs) don’t understand the contract offer-to-close process. In the Short Sale and REO world, REALTORs are performance graded by lenders and servicers. We are scrutinized for correctness of contract, completeness of offer package, on-time contract-to-closing activities, list price to sales price ratio, communication protocol and response time, etc. Putting together an offer package is a time consuming, pain staking process. It’s not just fill-in-the-blank; those blanks mean something in the contract world. Not understanding those blanks can cost thousands of dollars at closing.

          As a REALTOR, the last things I want are to write a dozen nuisance contract offers a day, to fight with clients to get needed documents-signatures-feedback-etc, to have rouge clients calling asset managers directly, to miss deadlines unnecessarily because I’m not kept in the loop by my client or their lender. Investors in turn should expect accurate valuations and repair estimates, thorough explanation of the contract and all addenda, a breakdown of important deadlines and any penalties associated with them, and rapid communication response time.

          I’m curious, would a discussion about investor’s and REALTOR’s challenges working with each other with solutions input from investor’s and REALTOR’s with experience in that area be of interest to anyone?

        • That is a great idea in reference to your last statement Denise.
          I just commented on Josh’s comments how I have done that in my area in front of a group of realtors. (copy) I have experienced this so I have taken a proactive stance to educate the realtors on how investor’s work and what we expect and in return how that will benefit them with more business and money. I recently did a power point presentation in front of a group of realtors as part of their education credits. Some were very eager to learn where others I could tell were just there to obtain the credits. Happy to keep the dialogue going. Maybe you could write something about what a professional CIAS agent qualification’s are and what they may be looking for in a professional real estate investor.

        • I agree. Most real estate agents I deal with like the idea of working with house flippers and RE investors but have no clue what we do. As frustrating as it is, they’d rather sell you something than really help. Maybe I’ve just had a bad luck string of realtors but that’s what I’ve seen. If they would understand that we as investors can make them more money on both the buy and sell side, we’d be set.

        • Hey Jerry – Try creating a document or a Power Point and sit with who you feel is a good Realtor but may be in need of assistance on how to work worth investors. If you feel they are willing to learn and work with you then it is worth the time to educate them.

        • Good point Josh. I have experienced this so I have taken a proactive stance to educate the realtors on how investor’s work and what we expect and in return how that will benefit them with more business and money. I recently did a power point presentation in front of a group of realtors as part of their education credits. Some were very eager to learn where others I could tell were just there to obtain the credits.

      • Hello Denise –
        Thank you for pointing out all the great things qualified Agents do. It is a tremendous value & one that I believe is crucial to the success of real estate investing. You are the exact type of person I like to do business with. What area do you cover?

        • Michael – I did a search for you for a CIAS in your area. I found 6 in Boston and 2 in Cambridge. If you go to http://www.cias.com and use the search tool, try putting in your address and search in a 100 mi radius. The agents are listed by the zip code for their office address rather that by the areas they work. Also, the first agent on the list may not be the closest.

  5. Thanks Mike for the article. I am a new investor in SoCal and it’s really difficult to find deals at 70% – repairs. Typically our market here has 10-20 cash offers on every property and the 95% of them are selling at 20% of ARV which is only about 2-3% less from list. There is a lot of competition here in my market.
    I’m finding that in order to get deals at 70%, I need to have good contacts for off-market deals. Anything on the MLS is just too competitive.But nonetheless, when crunching the numbers I always start with the 70% and see how close I am to the list knowing that I can offer 2-3% less than that. The market it very competitive right now.

    • Can’t agree with this more. It’s so tempting to break the rules sometimes, but DON’T! The one time I did, I lost. Flipping is only for the tough at heart! :) But profitable and fun.

    • Hi Chris –

      I understand your frustration in a heated market & you have to adjust accordingly but with great caution. The bottom line is if you can make it work by lowering the #’s then you have to make a decision to proceed or work a different market. If it is a seller’s market at least you will move the houses quickly lowering your cost of money and time. Run your #’s for different situations and have an exit strategy for every deal you get into.
      Thanks for sharing your concerns and keep them coming. BP is here to help!

  6. The 10% allowable in your example for financing, carrying cost and other soft cost can only be accurate if you can get bank financing. Hard money lenders rates are usually in the 12-15% finance range with 3-5 points. How would that fit with your example when it comes to making a profit.

    Also in acquiring a bank loan in many cases require you to put 20-30% down payment. Is that not true?

    • Hi Kevin –

      The 10% is not a rate I am referring to. It is based on the ARV value for budgeting purposes.
      So if your ARV is 200,000 then the budget for that is $20,000 for the soft cost’s mentioned.
      I have done this many times & that is a good average for quick analysis. Time and cost of money will make this vary. Hope that answer’s your question.

  7. Hey Mike, Great article! This is my first post. I am new to house flipping, so I got myself a coach. I learned about ARV and MAO, but I wasn’t given the strategy of the 70% rule, which I now see is critical to my success. This strategy will be implemented ASAP! One Question, being that I am new, how do you know when you find a good broker? Thanks for sharing!

    • Hello Cedric – This is a great question and this is where you have to take responsibility and be the captain of your ship.
      Ask for a referral of a good broker in your networking group or if you are working with a local coach he or she might know one. Try to find one that has worked with investor’s and understand’s how you work. You can also work with someone that is motivated & looking to for more business by training them to understand your model. After you get a CMA from them do everything you can to validate the #’s of the ARV and if your still not comfortable then maybe pay for an appraisal until you get to the point where you understand the market and believe the ARV is correct or as close as one can project.

      Thanks for the question & good luck with your investing & let me know how you do!

  8. The devil is in the details. When arrlving at the $200,000 number, how can that be determined when square footage, conditions, age of the house and other factors are variable. If we are tatking about an exisitng property, how can you obtain a house for $100,000 if with $40,000 you can sell it for $200,000?

    • I have explained that in other blogs Jim and that is exactly what you HAVE to do. If you can not determine an ARV then you should never put and offer in to purchase property because you would just be guessing and hoping and that is not a good recipe for real estate investing. You can determine this by working closely with a qualified real estate agent and your contractor if you don’t have the experience to explain what your plans are to restore the property. Based on the information provided to the Agent, he or she is able to determine a potential sale price based on other similar properties that have sold in the area over the last 3-6 months. We obtain properties like this at the prices projected in the example based on the repairs needed to create a value play for profit.

      Thank you for your comments. Please let me know how you are doing it as I always like to hear from other investors or new investors !

  9. Yep…couldn’t agree more. Follow the rules. Simply keep in mind that….IT’S A BUSINESS. And all about the numbers. The minute you let your emotions become involved (gosh, I love this house, etc….) you’re going to lose. It a battle sometimes, but one you will win. Good luck to all fellow flippers out there!

    • You are right on Rita
      I made that mistake early on in my investing when I wanted deals so bad I “didn’t” even see the sinking boat in the neighbor’s front yard and trailer with power connected across the street.
      Held that one 6 more months than I wanted to.

      Thanks for the comments

  10. EXCELLENT advice and comments here for newbies! Wish I had this resource when starting out 15 years ago!

    Denise: Sorry, I have to agree with Nathan on most RE agents. Many newbies get in trouble by trusting young or commission-hungry agents who will give a very optimistic CMA value just to get a future listing. Getting your ARV from a proven, seasoned, conservative RE agent is key in a market you are learning.

    I fudge my 70% rule to as high as 80% only when I pay all cash for a property (no financing costs) and when properties are less than 25yrs old. Old houses ALWAYS have surprises and they are never good!

    My last 3 flips were in San Diego:
    House 1 – projected NET: $65K, Actual NET: 81K, 5 months from close to close.
    House 2 – projected NET: 70K, Actual Net: 105K, 5 months from close to close.
    House 3 – projected NET: 60K, Actual Net: 28K, 7 months from close to close.

    It’s easy to see that if I had used Hard Money and discovered a major unseen problem I could have lost money on House #3. Stick to the formulas and do the math well because its real dollars!

    • Thanks for sharing those #’s Lucky & emphasizing on the 80% deals that you use your money so there is no interest your paying. This is exactly why a new investor needs to be very cautions and why I recommend they don’t do deals at 80%. The cost of money especially if it is hard money with rates as high 15% and 5 points will not allow the model to work with the downside protection you need at 80%. New investor’s just need to work harder or move on to a different market where they can work in the 70% rule.

  11. Hi Mike
    I have just started and flpped one house .It is hard to get good deal in my market becuase of fierce competition.Can you suggest any other way to get houses ?
    Thank you
    pravin

    • Hi Pravin – Your not alone. It is getting harder & I have been hearing that in different markets.
      Where are you flipping? How did you make out on your first flip. Would love to hear your results and experience good or bad. Try calling REO broker’s directly and establish good relationship’s.
      Start looking at short sales as well as banks are starting to be more active on those because of some of the new foreclosure laws especially in Mass. Seek out the good qualified wholesalers in your area as well.

  12. Mike,
    I agree with every single word you say.
    Having done that for more than 20 years but more on the buy-fix-rent side rather than plain flipping, I would just add one criteria, i.e. the intrinsic quality of what you are buying.
    I would accept a lower return on a higher quality property. As I usually keep them between 5 and 10 years, capital gain is usually higher than on lower-quality properties. The same applies for flipping. If quality is better, you sell faster and get your money back.
    Apart from that, I know a lot of people who would not have gotten burnt, had they followed these simple rules.

    • Great points Vincent. If you know your market and feel something can sell quick then you cost of money becomes lower so you can adjust accordingly but of course with caution.
      I also buy and hold for passive income and long term wealth & will pay more for a hold if the cash flow is good and I like the area.
      Thanks for sharing your comments & bringing up some good points.

  13. Great article. I have 40+ years residential construction, design and inspection experience. Do have any thoughts about where I can find an investment team that could utilize my experience in the Riverside / San Diego county area of southern California?

    • Hey Roger – Lucky offered you some great tips and suggestions. One thing you might want to consider is to find a local person with money and offer a partnership where you will do all the work at cost & he or she put up the money and split the profits 50/50. With your experience and project management skills this is a great way to get started and you both can make some good money.
      I just did this with a contractor on a smaller project with a sale price of$185,000 and we made $21,000 each. Good luck and I hope this helped you get you thinking about all the possibilities to make things happen.

  14. Roger,
    I’ve done several flips in San Diego and Maui, which are generally more expensive markets and harder for beginners to get started. In the last 6 months, inventory has dropped in a big way and bargains are getting tough to find! Riverside County is still a market with possibilities but you have to be careful with some of the rough areas. Again, the investing rules above are an excellent guideline.

    I think you are also asking about how to get involved with an established investing team, so you can learn the ropes while also making some money renovating. Flippers of high-end properties would love to find an affordable, trustworthy contractor to manage projects and do the dirty jobs. Flippers of cheaper, abandoned, inland foreclosures probably can’t afford to pay you much for your 40 years of experience. My flips have all been between 350K and 650K. I have found contractors for windows, roofing, tile and landscaping on Craigslist and I always call references and check out former projects if possible. A high-end flipper who just bought a 850K fixer in LaJolla probably won’t be looking for someone like you on Craigslist. A good color flyer or 4×6 card explaining your skills, attached to the door of that home might get you a phone call though. You can use RedFin.com to locate upscale fixer homes just sold and under contract.

    Hope that helps.

    • Hey Lucky – Thank you for your comments towards Roger & this is what I love about Bigger Pockets when other investor’s offer great advice but to be able to talk specific to your local market from a request is “Priceless”.I have been hearing what your saying in different markets that are heating up. I have talked to a few new investors looking to go as high as 80% and higher in some cases. I am glad you agree with me that newbies just have to stay away from these because the slightest miscalculation on ARV or construction cost and time of project will cause them more harm than good.

  15. I’m really enjoying this conversation and great points are being made on the many “sides” of investor purchases and flips. As a realtor myself, and having flipped many properties for myself and clients, here’s a couple of things I’ve learned:

    — the importance of realistic expectations. I do my best to explain the possible pitfalls (without being totally negative and scaring them to death) both financially and for actual construction aspects of each home. And sometimes, no matter how thorough I am, the unseasoned investor just doesn’t get it.
    Let’s face it, not everyone will. In time, most come to see the financial rewards and become satisfied repeat clients. But not everyone is cut out for this type of investment, even though they may think they are. My best example would be an out of state client (we have many of these, so that wasn’t the problem), who I flipped three homes for. The third was a lengthy short sale. As the process went on, the home deteriorated more than most, and was broken into and items stolen. He was livid. Even though I had walked him through the entire situation in every possible way, it ended the relationship and cost me money as he refused to make some final payments on repairs. And this fella owned a commercial construction company. He came to find out that’s a whole different ball game.

    — run while the running’s good….and you’re still ahead. To be truthful, my instincts had told me all along that the relationship with the investor mentioned above would end like that. But I didn’t listen to that little voice. So just as clients fire realtors, realtors should remember the importance of firing the occasional client. Easier said than done in a tough economy, yes, but still valid.

    — communicate often, especially with the remote client. What seems like a “normal” problem to you, may blow up in your face later if the owner is not at least aware of it. In time, most will grow to trust your knowledge/experience and give you more flexibility at decision making on even the toughest situations.

    — with your more seasoned investor, and only one whose trust you have earned, have an established file with all current documentation you will need to place an offer. In Phoenix, the best properties go fast. I send the client a reminder first of each month to send me a current proof of funds. I’m not taking a chance on loosing a great opportunity for them because of an outdated POF. Most will appreciate your being that proactive & prepared.

    DENISE – EXCELLENT insight above. The investor and realtor conversation mentioned above is a terrific idea…I’m in!

    AND JERRY – you are totally right. Why a realtor wouldn’t see the win/win in a relationship that gives them both sides of the situation, and loyal, happy clients I cannot imagine! Hang in there. There’s definitely someone who understands your needs out there. If you’d like to let me know your location, I’d be happy to see if I can find you proper representation in your area.

    • Rita – Thanks for pointing out the other side. You are correct that as a professional you have to deal with educated investor’s that are great to work with or the not so good investor that you may actually have to fire. Sometimes you just have to fire the customer. I think the golden 80/20 rule applies here where 20% of customer’s may be bringing in 80% of the income. Thanks for sharing your experience and willingness to offer assistance to other’s here at BP. It is a great community.

  16. Mike, I’m pretty new to this site… You’ve got a great post here and the comments are refreshingly engaging and insightful (compared to, oh, just about every other site out there!)

    Setting rules and sticking to them is key… and that doesn’t just apply to flipping but it’s true for any real estate investing (and actually for any business at all, now that I think of it). Sticking to the rules builds the investor’s business on numbers that make sense and are more likely to provide the hoped-for ROI.

    But there’s another benefit I would add as well, and it’s a benefit that people don’t really realize they need until they don’t have it (this is something I learned way back in the day when I was a stockbroker): Your investment needs to give you enough peace of mind that you can sleep at night. A deal that is built around the rules you’ve provided is more likely to provide peace of mind while a deal that isn’t built around those rules is likely to keep an investor awake at night.

    • Your are so right Aaron. Peace of Mind so you can sleep at night. Exactly. I can tell you this that early on I got into some of those “deals” so I thought & found out sleeping at night was a luxury. LOL. Needless to say you learn not to repeat.

      Thanks for your comments & keep them coming!

  17. These are two great rules! The idea of making 20% profit sure does sound cushy. However, I’m wondering how to make an “offer” on a property. If you have determined that your MAO is $100,000, what percentage of that do you offer when starting the negotiating process?
    From my experience on Craigslist buying cars, you usually try to pay only 60-70% of what they’re asking, but often end up paying 75-85% when all is said and done. Can the same be said here?

  18. I’m looking for help estimating repairs.

    If I look at a property and know it needs a new roof, how do I figure out how much that will cost?

    Same with new kitchen, carpeting, windows, etc.?

    Thanks, Janine

  19. Great article.. Is there a methodology for adding a contingency number for unknowns or unforeseen surprises. Ie.. AC theft? Am I correct that if I did this I would adjust my formula down from 70% to 60% or 65%?

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