Does the 70% rule work everywhere?

Question

I’m in Fredericksburg tx. This is a tourist town with 2million + visitors annually. The real estate here is booming. It has been for years. Everyone here knows there house values appreciate at a much higher rate than most areas in Texas and the u.s.  Austin is even crazier. That said.. is it sensible or not to use 75% as opposed to 70% in an area like this?

Mark Russell · Answer

@Michael Lam that makes perfect sense. Now this concept is not so vague and foggy to me. Thanks!

Mark Russell · Answer

Account Closed

When we use the 70% rule aren’t we really just taking 30% off the ARV? And if we go up to 75% we are just taking 25% off the ARV. And that percentage is really just the investors profit only correct? Then of course you subtract rehab costs and wholesale fee but I really just want to dissect this 70% rule and understand how, why and when it might slide up and down? Hope I made that question understandable lol

Account Closed · Answer

Hey, Atlanta is a pretty hot market too and the rules of thumb depend on your buyers.

I have some buyers who are still looking for 50% or 60%. Admittedly they complain about there not being any deals out there right now. So in a hot market AND the right buyers you can push up past 70%.

Aaron K. · Answer

Short answer is no, many places 70% is not realistic unless you don't also subtract rehab and are willing to settle for an unusual property.

Michael Lam · Answer

haha yes sir. That is correct. The reason for the sliding up and down is the competition in the market. What is perceived as a low risk investment (low days on market, highly desirable area, etc) may drive prices and competition up. Investors are willing to take a lower profit margin for the less risk.