Question about the 70% rule

3 Replies

Sorry if someone else already asked this question. I often hear on the BP podcast that the 70% percent rule states that you should purchase a potential flip at 70% of ARV minus the repair cost.

My question is this: well, 3 questions

Where does the acquisition cost fit in?(all the misc. closing cost of the loan)

The holding time cost fit in?(mortage and taxes, potential past HOA fees, etc)

and selling cost fit in? (3% buyers agent commission, closing cost on the sellers end, etc)

Sorry if this isn't clear!

All of those "soft costs" are part of the 30%.  The 30% covers those costs and what is left is your profit. 

The 70% rule is a quick crude generalization. It will work on most deals and generally keep you out of trouble. However @J Scott is a big proponent of figuring your actual real costs and adding in how much you want for profit to calculate your offer. 

Like @Ned Carey  said, the 70% rule is a rough estimate to help you account for those "soft costs" that so many overlook. It is certainly better to get to an exact estimate, but you will have to gain experience before you are able to do that probably.

Thanks for the response guys. That makes sense. I really appreciate it!

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