If you’ve been involved in investing for a while – or if you’ve been doing plenty of research on flipping properties to make some cash – you’ve heard of the 70 percent rule.
But what is it, and how do you figure out how much it is?
What is the 70% Rule in Flipping Houses?
The 70 percent rule says that an investor should pay 70 percent of a property’s after-repair value, or ARV, minus the repairs necessary.
70% Rule: Examples
So let’s say a home’s ARV is $200,000 and it needs $50,000 in repairs and upgrades to make it marketable. Using the 70 percent rule, your math looks like this:
$200,000 x 70% = $140,000
$140,000 – $50,000 = $90,000
That means the investor shouldn’t pay more than $90,000 for the property. In a case like this, once all the repairs are complete (and assuming that the investor stays within budget), he or she will still make a decent profit.
Should You Use the 70% Rule in Your Own Transactions?
Only you can decide what’s worthwhile in your own transactions. For some people, the 70 percent rule doesn’t make much sense – such as those who are real estate agents, for example, because they’ll save money on real estate commissions by tackling the job themselves.
However, it can be a great tool to figure out a ballpark price you should pay for a flip. Naturally, if you can get a space for even cheaper, you’ll want to pounce on it – but again, the 70 percent rule is simply a tool you can use to get a ballpark idea. You’ll still have to figure out the exact costs of doing business to make sure you still pull in a profit.
Are You Looking for a Hard Money Loan to Flip a House or Buy a Rental Property?
Paces Funding is a hard money lender offering hard money loans to purchase and renovate non-owner occupied residential and commercial properties throughout the Atlanta, Nashville, Florida, or the North and South Carolina metropolitan areas. Our application process for hard money loans is easy. Just fill out this very simple online form and you will be contacted shortly. Unlike other lenders, the window between applying and funding is very small. We have funded properties in as a little as one day, but typically funding hard money loans takes about 7 to 10 days.
Call us at 404-814-1644 or contact us online to find out whether you might qualify for this type of funding. In the meantime, check to ensure that you meet our loan criteria. Our loan amounts can be up to 65 percent of the after-repaired value of the collateral—and if you use the loan for renovation or construction, the loan amount can be based on the collateral’s improved value.