ARV and MPP the same or different?
Hello all, as you can tell by my soon to be question I am new to this game. I have got the book from J. Scott and it is great and I though I had a handle on the ARV and MPP but I just read a post on BP that confused me. When trying to figure out your first flip pricing and to see if it's a good deal do you use the 70% ARV rule or the MPP formula? Or are they the same thing?
Here are the two I'm working with:
MPP=Sales Price-Fixed costs-Rehab Costs-Profit
70% rule= ARV-70%-Rehab Costs
Here is the post I just read:
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!
So do I use the MPP formula or the 70% rule? In the MPP formula do I just use 10% for profit? In the 70% rule do I need to subtract for profit or is that in the 30% extra since I already took that out? Am I just over thinking this now? lol