BP Flip Calculator VS MOA caclulation

5 Replies

Hi everyone,

I have been more focused on rental properties vs. flipping but my wife would like to flip and I have a construction background so it make sense for extra money to put into rentals.

The question I have is when do my calculation I am finding the flip calculator gives me one number and the 70% rule a very different number.  I know the 70% rule is a "rule of thumb" but I want to make sure I am not missing anything.

For example:

ARV: 255k

Repairs: 20k

So MOA = 255k x .7 - 20k = MOA of 158,500

However the BP calculator says 195k is the MOA whichlooks like this:

Financial Summary for Flipper

Financial Breakdown

Purchase Costs

Purchase Price:($195,969.00)
Purchase Closing Costs:($2,500.00)

Rehab Costs

Total Rehab Costs:($20,000.00)

Holding Costs

Monthly Holding Costs:($1,276.00)
Total Days Held:180

Sales Costs

Sales Price After Fix Up (ARV):$255,000.00
All Selling Closing Costs:($2,500.00)
Real Estate Agent Fees:($6,375.00)
Total Profit for Flip$20,000.00

Flip Hypothetical Profit If Held For...

45 Days90 Days270 Days

What am I missing?  Why are they different?

Thank you!

The BP calculator bases the MAO solely on the profit you enter. So the higher the ARV, the farther off it will be from the 70% rule

The "70% Rule" is for those who have already decided that they want a 30% spread between what it's worth, and what it costs them. In your example, ARV x 70% gives a difference of $76,500. If you put THAT figure in the "desired profit" column, I reckon you'll find that the numbers will line up both ways.

ie. If you use a DIFFERENT way of coming up with your expected profit, you're NOT going by the 70% Rule. 

(But so what? No-one should be saying the 70% Rule is the be-all and end-all Rule, right?) 

Nonetheless, I do reckon that ONLY expecting a $20k profit means: you're cutting it very fine if something goes wrong!

@Brent Coombs and @Jason D. or any others.  What is a good profit margin I should be aiming for on a 200k property?  I know there are many variables in my question like the size the home other risks, locations, etc.  This one in particular is a rural area.  Meaning the major city is 20 miles from here in the city I live in which is around a 40k population but even this is in rural neighborhood with very spread out lots and 2-3 acre pieces of land.

Hope that helps answer my question.  

Thanks again for the help!

@Jeremy Karja , as I've already suggested, being satisfied with an expected profit of $20k (only) means you'd be anticipating risking NINETY percent of its theoretical value. 

But, I haven't heard any talk of a "90% Rule" being encouraged on BP, and I daresay, neither should it be.

I HAVE recently seen a "Flip or Flop" episode where the fellow paid $900k, and they knew they'd probably have to put $150k extra into it, where the comps were $1.2-1.3M. So MAYBE a 10% spread can work SOMETIMES, but, you'd better have deep pockets to begin with, AND be already very good at flipping! [Yes, they survived the dramas that time].

The main thing about that episode was: the comps were VERY well known and established; a gated community.

Whereas, a "rural neighborhood with very spread out lots and 2-3 acre pieces of land" might be HARD to comp!

My own thoughts about such buys is: what OTHER exit-plan / investment-strategy might work?

eg. If it fails to sell for a profit, would it RENT well? How would THOSE returns look? [Get my drift?] Cheers...

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