For an investor in the Dallas market buying with cash, what is the going percentage of ARV right now when purchasing from a wholesaler? I've read about the 70% rule but does that apply right now in Dallas? If not, then what does? And I know there are many variables but I'm just trying to get a general expectation of what an investor should be looking for right now.
I use the 70% rule wherever I'm looking to invest. Specifically, the maximum purchase price will be (ARV - Rehab Costs) x 70%. I don't like flip in the traditional method because of the hug risk with the ARV being accurate, the rehab project costs being accurate and the market slowing down or turning on you. I'd rather do a Pre-Construction flip (http://www.helpkeepmymoney.com/fms/investments/pc-flip/).
God Bless You!
I don't follow any of "Biggerpockets" rules and have been successful. The key is to have a business plan with your own "rules" and follow it! We follow a very lean model but only invest in certain areas with certain demographics/markets. So we are still very successful using different numbers but are methods wouldn't work every where.
That's a very good starting point, but it's just a starting point.
For starters, different investors will have different formulas. Something as basic as the back end Realtor commissions can change your model. Are you paying out 3% + $500? 5%?? Full 6%???
Another HUGE variable is the scope of rehab and how long will rehab last. A 70% deal that you are in and out of in 60-90 days is a lot different than a massive rehab that is going to "best case" run 9 months. The bigger the project (both in scope of work and time to complete) needs a bigger margin for you
And you will certainly have one set of relatively hard guidelines that you use for flips as opposed to more lax ranges when dealing with buy/hold properties.
You have less room for error on flips, and anything that goes "wrong" impacts your bottom line negatively. If you get too far beyond 70%, you are putting yourself in harm's way. With buy/hold, you can focus more on the property (that you are going to own for 5+ years) as opposed to passing on anything that isn't 70.00000% or better.
In Wholesaler mode, I always use the 70% rule to evaluate the property. Not because it is the end-all-be-all or a hard and fast rule, but because I can't evaluate a deal based up the infinite number of possible criteria my buyers may be using. I need a "rule of thumb" to apply to a potential deal. What I know is that, using the 70% rule, I will have no problem finding a buyer for the deal.
Now, if I switch to Buy & Hold mode, the 70% rule means nothing to me, because I have my own thresholds for Cash Flow on a buy & hold property. If my target is $300/mo cash flow, and I can get that at 80% of ARV, then why would I pass it up, just because it doesn't fit the 70% rule? I wouldn't. It's the same with other investors.
The rule doesn't apply everywhere... I learned that very quickly... In areas where the competition is high the 70% rule goes out the window. I'm in Grand Rapids Michigan and they are saying this place is the next Chicago. Properties are gone in 2 days so you better be ready to move quick. At this point, I'm not comfortable making a quick decion like that so I'm looking at other cities in Michigan to invest. Get to know your market. If you don't like it look else's where. Cash talk but make sure you do your due diligence before any offer. Good luck !
I've been wholesaling in grand rapids for a bit and I can say 70% doesn't really fly, but sometimes it does. It depends on the area.
Thanks for the info everyone.
@Hattie Dizmond When you say you use the 70% rule to evaluate your deals, does this mean you are able to provide your buyers 70% of ARV or that you purchase it at 70% ARV and mark it up from there?
My goal is always to give my buyers a deal that will allow them to get into it at the 70% level, including the wholesale fee. If anyone is going to get squeezed, it will be me, not my buyer.
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