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?

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.

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!

@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. 

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