How Realistic is the 70% Rule?

2 Replies

I've decided to revisit flipping homes and I'm curious how realistic do you think the 70% Rule is?

My wife questions whether it's easy to find properties at that type of discount. 

I do agree it sounds like a lot, but I think I would get a sense of what you generally find. Are all markets the same with that rule?

First, all markets are not the same.  Therefor, all markets are not "the same with that rule".

Second, it's not a rule...it's a suggestion (as I've been told).  To me, that tells me it's a "guess" based on "fudge factors" which are based on "nothing" because of the lack of actual facts within the "fudge factors", and lack of any true analysis within the "rule".

Third, if the rule has no real basis of facts, or analysis, and is not really a rule in the first place (or the 2nd place, in my order), then I'd say the 70% Rule is about 0% realistic...give or take 70%.

I will say @Joe Villeneuve isn't wrong. 

One "piece of the 70% rule" is repair estimates. I have people that run it down to lightbulbs, each light switch and outlet cover is counted and figured in to their analysis. 17 pages of SKU numbers from Home Depot or Lowes, who they are having lay carpet and the cost they are paying.

I also have people that walk in and go.... "Ya know I can do this for 8K for the kitchen and 6K for a roof, throw in 10K for some misc.....Bah Lets call it 30K in repairs." That is your "special sauce" the numbers are yours and nobody can tell you what those numbers are or should be. 

If you are a certified HVAC person you are saving money there.... I'm not. If you are an agent you have some savings you can do on both sides (Pay your broker their split), but why get income tax on it? I know people think you can "streamline it into a number". I disagree. Each investor has different numbers and should calculate on them. If you are looking for a spitball off the cuff number it's a fast and easy way, leaving some room. 

However another piece of that calculation is "ARV" which changes. I can run comps today and comps when it's done and they will be different. Maybe by a decent percentage. Another piece of that 30% is used to cover taxes. Those vary big time within 10 minutes of the office I work out of.