Would a rehabber buy this?

[Cheryl C.]

Many of you will hate these numbers (rent), but here in Northern Virginia they seem pretty decent. I'm closing Wednesday on a 2/2 condo. Recent comps are 215K. My price is 154K. It is fairly new (less than 10yrs old) and needs light rehab of about 6-9K (paint, carpet, light fixtures, maybe appliances). I'm thinking of selling it at 175K to a LL or rehabber. My alternative is to fix and sell to a LL or end user. Anything under 200K here is flying off the shelves. Rents are $1,500 to $1,600. Nice area, good commuter location.

[J Scott]

Originally posted by Jackeline Petrucci:

The rule of 70% of ARV is not follow by a lot of investors that do volume.

I'm not at all a fan of the 70% rule for flipping. It's based on too many assumptions that may or may not be true, and can lead to both overpaying on a property (to the point of not being able to generate a profit) or under-bidding
on a property (to the point of not being competitive and not getting any deals).

I much prefer to use analysis techniques that take into account the actual cost of capital for the individual investor (are you using your own cash, borrowing hard money or something in-between), the actual cost of commissions and closing in a given demographic (sometimes the seller will pay buyer closing costs, sometimes not), the actual time you expect a rehab to take (a six month project has vastly different holding costs than a two month project), and the risk on the project (is 15% return enough or do you want 20-25% returns on more risky/costly projects), etc.

70% rule is lazy (IMO) and while it's fine for a first-pass analysis, if you use it to make buying decisions, you may find it impeding your success.