Question: “What is the 70% RULE In House Flipping?”
You want to go to a free tool that I put together for you all, it’s called DealEstimator.com,
It will forward you to the tool on our website MyEmpirePro.com.
What is ARV?
It means After Repair Value.
If you are asking the question What is the 70% rule in house flipping?
It simply means that your cost of the acquisition of the property cannot be more than 70%.
It’s not 70% everywhere in the world, in some locations it’s 65% meaning all the investors in that area on an average,
…they suggest that your cost of acquisition and the cost of repairing the property all together can not be more than 70%.
Because that’s why you’re in business, you wanna make money.
So you wanna leave some room to make money or profit because there’s gonna be other costs.
There’s gonna be Closing Cost, Holding Cost, Money Cost, Business Cost aka Profit.
All those other fees somehow need to be paid for because you’ve got to feed your family right?
That’s where the 70% rule comes from.
It could be 65% or 50% it depends,
…it just means the cost of acquisition and the cost of construction or repair of the property can not be more than 70% of the After Repair Value of the property.
After Repair Value of the property is essentially how much that property after all is fixed up, after rehab or after repair.
That’s why they call it After Repair Value or After Rehab Value.
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That can not be more than 70%.
If it’s more than 70%, you just decreased the chances of you doing a profitable business.
So there is the calculator right there called ARV Calculator,
…but the best tool for this honestly is at EmpireBigData.com.
You have all the tools you need to do it.
Basically, it’s a tool that I use personally but if you wanna support us here, you just use our link EmpireBigData.com but it’s Propstream.
You sign up for a free account with a 7 days trial and try it out and it works.
But if you are going to build a business, this is the tool that you’ll need all the time.
Why do you need the ARV?
It’s because you need to know what the property is worth after repair.
You need to basically know the weighted average of 3 to 5 comparable properties within the area, one mile radius that’s sold within the last 6 months to a year.
That’s what you want depending on the location.
We also have the Maximum Allowable Offer.
It means the maximum that you can pay for the property, that’s where the 70% rule comes from.
There’s a 65% Rule, 70% Rule and in a very busy market where houses flip very quickly, they can even go up to 80% Rule.
Meaning they can pay up to 80% of what the property is actually worth on a good day.
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So let’s say for example this property is worth $250,000,
… and let’s say the rehab on a scale of 1 to 10 is 3, so we just say “Low”, it’s a small rehab until you do a proper estimate.
If you are going to be a Fix and Flipper, you want to fix it yourself, you wanna make sure you do a proper estimate and not use this,
…but this is good enough to put an offer if you are a wholesaler because you can always renegotiate.
If you ask the homeowner and say “Hey what is the property worth? How much repair does it need on a scale of 1 to 10 what do you think?”
Maybe 1 or 2 repairs that they need then you just use that one.
Then the offer spit out this number to you based on how much you would like to make, which is probably $10,000 on this type of deal and the rule that you set here.
If you use 65%, you’ll see that that number will change.
That means you gotta pay a little bit less than that.
So this is a really cool tool that you may find useful.