flipping houses

[Maher Bateh]

The formula:

ARV - rehab costs X 65-70%= purchase price is hard to attain in the current market. I think as of RIGHT NOW, its more like:

ARV - rehab X 75% = purchase price (too really have a chance at getting the property). AGREE or DISAGREE??

[Jon Holdman]

You have your formula a little off. It should be:

purchase price = (70 % * ARV) - rehab costs.

Perhaps that's what you mean.

That 70% rule of thumb has a bunch of assumptions built into it:

1) You will hit your repair budget
2) You will sell for ARV
3) You can be in and out in six months
4) You're using an agent to sell (6% commissions paid by you)
5) You're using hard money

If all those assumptions hold up, you'll make a profit of about 15% of ARV. If you bump the 70% up to 75%, your profit falls to 10%. And since some of those assumptions usually fail (especially the first two), your 10% profit can turn into 5% or 0%.

But, yes, it may well be that 75% is the best you can do. As with many businesses, there may come a point where the business is no longer profitable and no longer worth doing.