70% rule?

6 Replies

hi BP

I've been trying to wholesale homes in the state of NJ (not as easy it looks but I knew that, nothing is easy when it comes to make a life for yourself.) I was wondering do you guys use the 70% rule for every time you get a house to flip? or its just to give you a idea on how much you should offer.

There is wiggle room in every rule. The 70% rule is just a guideline or a target price for flipping. What you should do is look at the recent cash sale prices in the area that you are buying; if cash buyers (investors) are buying at 80% ARV on a regular basis than 70% might not be realistic in your market.

If you sold properties at the 70% rule, you would likely be the top wholesaler in your area.

I would go the on MLS and look for flip properties in you area and see what discount they are buying at right now. I'm guessing its much higher than the 70% rule. It is market dependant though, but investors in my market buy as high as 85%.

"70% - repairs" is what your customer is looking to pay in most markets for an average amount of risk. So your deals need to come in at a better price or at a lower risk to justify your margin as a wholesaler. For instance, if you manage to land a relatively new home that just needs basic landscaping, paint and carpet to sell, then maybe you could justify offering it at 80% minus repairs assuming you can buy it at better than that and keep the difference. You'd have to be very confident that your buyers are willing to pay that much though or you might get stuck putting the lipstick on yourself.

Another thing to keep I mind is that the buyers that purchase from wholesalers are typically advanced investors with better than average capital costs, economies of scale for rehabs and possibly the ability to list the property themselves... all these advantages reduce their costs and thus allow them to take on deals with tighter margins.

From what I've read, 70% is a good rule of thumb for bread and butter SFR in the 100-200k price range. Lower than 100k probably need margins greater than 70% and greater than 200k can probably justify margins smaller than 70%. Consider the cost of a fixed price job like an HVAC install relative to the price of the house to understand the relationship. If you're buying a cheap house and it needs a new furnace, that could eat up all your profit right there while a larger home is less likely to wipe out your margins with one missed repair (holding costs seem to work the other way around.)

My plan is to solicit buying criteria from the people I want on my list if buyers and then match the deals I dig up to those criteria when choosing who to approach first.

@Walter Thompson ..Every market is different. Attend local RE meeting and find out what buyers are looking for..(location, price, etc) then find some deals. If it's a DEAL, a buyer will not be an issue..

thanks for all the help guy's. Really appreciate it.

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