Does the 70% rule apply when buying with cash?

Question

Brent Coombs · Answer

Account Closed's post above, you can see that when "you include your Rehab cost into your 70%", that's the SAME as saying "ARV*70%-Rehab=PP". Cheers...

Brie Schmidt · Answer

Account Closed - Say the ARV is $100k

Your max all in should be $70k so if holding costs are $5k and the rehab would be $15k you need to buy it for $50k

Keep in mind this is just a "rule of thumb" so in some markets it would not apply.  My market is "hot" too and I can't imagine flippers getting anything less than a 80% ARV but they can still make $100k profit

Brie Schmidt · Answer

Account Closed - the 70% rule is that your "all in costs" should be 70% of the total ARV.

All in costs should include acquisition, rehab, closing costs, debt service, and agent fees.  But it is just a rule of thumb, not the end all be all when determining if a property is a good deal

Percy N. · Answer

Account Closed, I was referring to something you would hold on to for a year or more.

Less important for a quick fix and flip, but I have seen major rehab projects go on for 5-6 months.

Account Closed · Answer

@Percy N. When you say "appreciation potential", do you take that into accounts on your flips or were you referring to buy and hold?

I guess I should have clarified that I am talking about fix and flips.

Account Closed · Answer

@Brie Schmidt So you include your Rehab cost into your 70%?  I always thought it was ARV*70%-Rehab=PP.

I can't imagine getting a house for 70% in the hot markets I am in such as Denver.  I shoot for 80% but I think that is offset by the fact that I am able to get really cheap financing.

Am I way off?

Does the 70% rule apply when buying with cash?

Most Popular Reply