Should I use the 70% Rule on houses with ARV under 50k

Question

I'm investing in an area in southwest Georgia were a lot of the distressed properties have an ARV ranging from 50 and below. From my experience(which is not that detailed) making offers using the 70% rule (70%ARV- repairs - fee) is difficult. Most sellers that I have interacted with have said that the offer is to low.

Example: ARV=50k

70% of ARV=35k

Repair is 20k= 15k

Assignment fee=5k

MAO= 10k I will give an initial offer at 8k yo give a cushion for negotiating room.

This offer does not get accepted 😪. Is there a better way than the 70% rule?

Alec Granger · Answer

Emmanuel,

The 70% rule is a standard that a lot of people use but it doesn't apply to all markets/situations. On the deals that you are getting beat out on, try to find out what offer is being accepted. If there is someone buying at a higher price than you, they most likely are still making a profit. If it is just the seller that is refusing your offer but no one else is offering higher, then you have to explain to the seller that your price is what will work, they can sit around and wait for a higher offer for months, or take yours now.

I hope this helped! Feel free to reach out with any questions you have!

Barry Pekin · Answer

@Emmanuel C Thompson

Network with local investors and find out what they need to make the deal work.  70% is a general standard.  Some areas and situations might warrant higher, and others lower.  Get to know your buyers to understand their needs.