"The Rules" of Investment Property

6 Replies

Clarity please! When calculating a potential deal, is the "Rule of Thumb" 70% or 75% (i.e. ARV x 70% - Rehab = Max Offer)? Also, any recommendations for estimating rehab cost (i.e. ARV x 10% + $10k = Rehab Budget)? I'm seeing various % for both and would like to ensure the math is correct. Thank you!

@Lisa T. , that's like asking, "How long is a piece of string"?.  The factors are relative; not absolute.  It's whatever you, as an investor, are comfortable with.  As you newbie, you'd be best to err on the side of caution and go with the more conservative numbers, i.e. lower percentages to give yourself some leeway should something go wrong.  Watch @Brandon Turner podcast on his BRRRR method. That will give you some very good insights. Also read this article: https://www.biggerpockets.com/renewsblog/brrrr-buyrehabrentrefinancerepeatprimer/ Best of luck to you.

Welcome, Lisa! I second David's perspective - it varies by investor and deal. But definitely review the podcast and article above. 

Also, on your first few deals, it would only benefit you to have a contractor you trust walk through the property with you and develop a scope of work and estimate. Certainly those numbers can change as you get into a project and find unexpected issues, but it's a good place to start and should help you develop per sq ft pricing for flooring, paint, roofing, etc - all the most common components of a renovation. 

Connecting with folks at your local Real Estate Investors Association (REIA) can help you find a good contractor, and colleagues there may also be able to help with rule of thumb costs on some of these common jobs.

Good luck to you on your journey!

I’m gearing up for my first (hopefully of many) investment properties. Eliminating as much risk as I can by learning is invaluable as is the help offered in these forums. Thank you to all the experienced investors willing to offer free advice to us. I would someday love to pay it forward!

You can have a house , its rough  , 2 investors are looking at it . They both run their numbers .  One thinks its a home run , the other thinks its a turd . 

Which one would be right ? 

Both   ,   And you are thinking how and why ?    Each investor has different criteria . the one who thinks its a turd sees all the work it needs , the one who thinks its a home run knows the zoning allows multi family housing and will tear it down and build a quad . 

Different rules for different people

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