The 70% Rule...does it still work in this market?

Question

Greetings! I wanted to know what you all think about the 70% rule as it pertains to flipping houses.

How do you feel about it in this current market? I live in Atlanta Georgia where the market feels a bit saturated and it’s pretty hard to find deals using the 70% rule. I find myself looking for subcontractors that do very good work, but for cheaper prices, which requires more management from me.

I personally feel like there’s a lot of money being left on the table when you pass up an investment opportunity because it falls slightly below the 70% rule.

Now if you’re getting construction bids done at $12 - $20 per square feet like J and others do, then I’m sure you can go below the 70% rule (by the way how in the world can I get to those numbers for rehab bids!?!? Lol).

Rashad S. · Answer

@Jaron Walling

Lol. I’ve actually went through both of those scenarios this past week. Trying to lure contractors (that I know personally) out to jobs. It’s like pulling teeth. But it’s get a little better.

I’m also in the process of countering with a bank and we are about $100k off! Lol. But now there’s a bidding war and they are looking for highest and best offer. But to me there’s no way the project can be successful if it’s bought above my bottom line number, unless folks have $15/sqft - $20/sqft construction budgets.

Jeff Copeland · Answer

This is very location-specific. But in most markets, the 70% "rule" went extinct years ago.

And it's more of a guideline that a hard and fast rule. If you are leaving money on the table "because it falls slightly below the 70% rule", then you missed the point.

Ultimately, it depends on what the opportunity cost is:

• If you flip a house bought at 80% of ARV, that's great if your alternative (the opportunity you're giving up) is doing nothing. 
• On the other hand, if you're buying 80% houses instead of 70% houses, then you're not doing it right.

Rashad S. · Answer

@Jeff Copeland

Thanks Jeff! Yes I was explaining that to one of my partners. That rule kind of became extinct a few years ago in the Atlant Georgia market. He’s in the Bay Area (California). I’m quite sure it’s a bit out dated there as well.

Brian Garrett · Answer

Definitely doesn't work here in my market. It's way too expensive and competitive.

Jaron Walling · Answer

@Rashad S. In some markets the 70% rule doesn't work. The properties are priced to high from the start. Once you factor in rehab it won't work. Getting a good deal with contractors is a who know's who game. Example: My friends recommended a GC for me to call about roofing. He does great work for a great price. I've called twice with no response. He must be pretty busy, lazy as hell, or ignoring me!

I went back & forth on a REO property and didn't get it under contract. My offer was closer to 80%. The bank's first counter offer was terrible! Right then I knew my agent wasn't going to get it done. Maybe it will sit on the market for another 30 days and I'll toss a lower offer at it.

The 70% Rule...does it still work in this market?

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