I could see 65% being a good rule of thumb, but doesn't value of the property come into play as well? If I'm looking at pricier properties (say over 175k ARV), my thought is to allow going up to 75% max acquisition + rehab. Do you consider that too high?
I remember reading an article somewhere about this but unfortunately I can't recall it's whereabouts. Basically what it said though is that the important thing is to run the numbers; if the numbers work at 70%, 75%, 80% or whatever, then go with it. It is all about the numbers. If they work good. If they don't move on and look for the next deal.
If I'm looking at pricier properties (say over 175k ARV), my thought is to allow going up to 75% max acquisition + rehab. Do you consider that too high?
What are your rehab costs? Also does your max acquisition price include the cost of securing a loan (points and closing)? Does it also include your holding costs (mortgage payments, taxes, insurance, utilities, etc)? Also what is your exit strategy? Do you plan on retailing the property? If so did you factor in realtor commissions to sell the property? If your forgoing the realtor did you factor in your marketing costs?
Did you have a particular numbers in mind?
For example I'm making an offer of 84 k on a property with an ARV of 170, my rehab will be about 23k. Thats comfortable on a 65%. But in my own mind I'd like to be able to go to 105 - 110, because there's still almost 40k left. I have about half of the cash in pocket so my holdover isn't too high. I may go with a realtor to market it just so it'll sell faster, and then I spend less on holdover. So 10 k on holdover, 10k on realtors to sell fast...and then I'm down to 20k profit....and guess what? wow - I just talked myself out wanting to go to 75%. Maybe that 65% is pretty reasonable after all.
65% or less Is the rule I go by, Only because theres an abundance in Georgia right now. High ARV gives me more to work with in getting the house in exquisit shape. Curb appeal is what sells. If you know the house will sell fast then 50% of something is better then 100% of nothing I always say. Grab that $20k and get to the next deal. I betcha every deal
wont be $20K.
Go gett'em ct!
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