Do you always use the 70% rule when buying a flip?

12 Replies

I would like to get some insight from experienced investors on if you use the 70% rule for ALL your flips? Could someone explain a little bit more in depth what the 70% rule really means and why they suggest you buy a house with this rule minus your repairs?

ALWAYS make sure to buy a property below what it is worth. Especially where the market stands today you have to make sure that you buy right. 

The idea is to use 70% of ARV minus repairs. But I never bought like that. I didn’t hear of it until finding BP. I took ARV and subtracted what I wanted to make and then all costs including a safety factor for having to sell it low or running into extra repair costs.

I think 70% minus repairs is pretty solid though. That leaves about 20% for profit depending on how it’s financed.

@Shawn Clark thanks for the response back! The situation I am in, is that there is a wholesale deal that was brought to me. They are trying to wholesale it at $390,635. The ARV is $520,000. Repairs are roughly $35,000. Does this seem like a good deal to you? This is in a great neighborhood and would sell within a few months. With this being my first fix n flip, I am not really looking for a 20% profit for my first deal. I would be fine with less to get the experience and knowledge I need to get my portfolio going and start building it. What type of profit did you make your first deal? I am planning on doing all the rehab myself along with my business partner that has a ton of experience in construction.

@Antoine Martel this wholesale deal is certainly below what it is worth, at least 10% below market as it sits right now. 

Are you doing the rehab yourself or selling to an investor? Keep in mind there can be $30,000 in hard money costs on one like that. Plus $20,000 in commissions to sell it. Etc.

That still leaves roughly $50,000 profit IF your other numbers are correct. I would be fine with that myself. But I don’t use percentages. And I usually deal in lower priced properties. My minimum is $20,000 for profit but that equates to about 15%.

Keep in mind on the higher price properties the mistakes can be bigger too. So that’s why $50,000 might seem large for profit but what if the real ARV is $480k or the rehab is $45k or the sale takes longer? Or all of the above?

Not trying to scare you away. Just trying to give you some perspective. Sounds like a great deal to me. I would do it in my area.

@Shawn Clark yes my business partner and I will be doing the rehab ourselves, he has alot of experience in constructions, so he knows how to do 90% of the rehab (minus electrical work), I am a licensed agent, so we will just have to pay the buyer's agent which will be $14,560 and our money "lender" is a good friend of my business partner and they are not asking for any cost to upfront the money, they are just asking for 40% of the equity we make off the deal. 

Oh no I really appreciate your side of thinking! Like I said this will be the first fix n flip for my business partner, so I want to make sure that we are buying it right. I have been an agent for 4.5 years and so I kind of know when a good deal is in front of me and I really feel like this is a good one but I want to hear from experienced investors and see what they see and if they would buy it. I am glad to hear that you would do the deal!

Originally posted by @Melissa Harris :

@Antoine Martel this wholesale deal is certainly below what it is worth, at least 10% below market as it sits right now. 

 10% below market isn't enough though. That is pretty tight. 

Originally posted by @Melissa Harris :

@Antoine Martel what is a good % to buy at below market in your opinion? 

 80% max

@Antoine Martel so since this is a whole sale deal and they are offering it at $390,635, is there any room for negotiating with a wholesaler? I have never bought from a wholesaler but I would assume not since they need to make money on the deal too. 

Originally posted by @Melissa Harris :

@Antoine Martel so since this is a whole sale deal and they are offering it at $390,635, is there any room for negotiating with a wholesaler? I have never bought from a wholesaler but I would assume not since they need to make money on the deal too. 

 Most wholesalers are pretty strict with their numbers already. But its worth a shot. You can always try. 

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here