The 70% rule in real estate flipping is a guideline used by investors to determine the maximum purchase price they should pay for a property in order to achieve a desirable profit margin. According to the 70% rule, an investor should not pay more than 70% of the after-repair value (ARV) of a property, minus the repair costs (often abbreviated as ARV x 0.7 - Repair Costs). Here's how it works: 1. Calculate the After-Repair Value (ARV) of the property. This is the estimated value of the property after all repairs and renovations have been completed. 2. Multiply the ARV by 0.7 (70%). This represents the maximum amount an investor should pay for the property to ensure a profitable flip. 3. Subtract the estimated repair costs from the result Following the 70% rule helps investors ensure they're buying properties at a low enough price to cover repair costs, holding costs, selling costs, and still achieve a desirable profit margin when they sell the property after renovation. However, it's important to note that the 70% rule is just a guideline and should be adjusted based on specific market conditions, the level of renovation needed, and individual investment goals. Let's say you find a property that you believe will have an After- Repair Value (ARV) of $300,000 once it's fully renovated. You estimate that the property will need $50,000 in repairs and renovations to bring it up to its full potential. obtained in step 2. This will give the maximum purchase price the investor should offer for the property.
According to the 70% rule: Maximum Purchase Price = ARV x 0.7 - Repair Costs Maximum Purchase Price = $300,000 x 0.7 - $50,000 Maximum Purchase Price = $210,000 - $50,000
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