Flipping houses can be a great career. But one must know how to accurately calculate the numbers associated with their properties in order to see a significant profit. This is where the 70% rule comes in. Let’s discuss what the 70% rule is in fix and flip investing and how you can benefit from it on your next project.
Doing the Calculations
The 70% rule is essentially this calculation:
- ARV (after repair value) x 70
- Subtract the cost of repairs from the number you got
- Total is the suggested offer price
Let’s use a specific example like a $200,000 property ARV. If the property requires around $70,000 in repairs, the maximum amount you should pay is $70,000. So, how does this rule benefit investors?
Benefits of the 70% Rule
The 70% rule is a solid calculation to use when determining general numbers, and it can help you determine whether to flip a specific property or not.
The 70% rule is great for helping you save money on a property and not spending more than you should. When investors flip properties, they should not spend more than the property’s ARV; If they do, they’re just losing money. However, this rule may not always apply in every situation.
When You Should Adjust
Although it’s called the “70% rule,” the percentage you use can be adjusted for different properties. For example, if you’re looking to invest in a lower-end market, you might consider changing the calculation to 65% instead of 70%.
When looking at different properties to invest in, the calculation you use may adjust each time. Use your best judgment and tailor the numbers to properly match the ARV to your offer price to ensure a decent profit at the end.
At Hard Money Partner, we look out for our fix and flip investors and ensure they receive the best services we can offer. If you’re considering becoming an investor, your business will benefit from working with our hard money lenders in Tulsa.
So, what is the 70% rule in fix and flip investing? By understanding the calculations, adjustments, and benefits of the rule, you will succeed in the real estate industry and master the fix and flip market.