For instance, in California you may need to adjust the 70% figure to go as high as 80 or 85%. The project is 70% finished? If wholesaling is your exit this will show you how much of a discount you need to buy etc. You simply have to follow the flipping formula in detail. The % of ARV you can pay, minus repairs, will  vary based on: local markets, exit strategy and housing type. The 70% rule is a smart strategic tool, but it’s more than that. The 70% rule is a basic quick calculation to determine what the maximum price you should offer on a property should be. The 70 percent rule is a good place to start when evaluating a potential purchase and flip. I have flipped over 209 homes in my career and you can see my current flips here: Fix and Flip Scoreboard. Even more important is the hyper local factors based on the subject property itself. (100,000 x .7) – 20,000 = 50,000. This rule will fluctuate based on the exit strategy as well. All rights reserved. Eg 2: 70 / 10% interest rate = 7 Years. All Rights Reserved. The 70% rule will help guarantee you make a profit even in the worst possible case. NOTE: I go into more detail about the wholesaler’s formula on page 73 and 74 of my book, “Real Estate Investing Secrets”. Rule of 70 Calculator is an online personal finance assessment tool in the investment category to measure the time period at which an investment gets doubled based on the Rule 70 method. A similar problem with the 70% rule exists for more expensive properties. Major Market Area: On the surface, the 70% rule may sound bulletproof. In fact it is not really a rule at all, but rather a guideline. MAO or the 70% Rule – The House Flipping Formula Used by house flippers, The “Maximum Allowable Offer” (MAO) formula for flipping is based on the 70% rule. Why? Differentiate between the rehab estimator, ARV, and MAO calculator worksheets. But we are often asked by new and experienced real estate investors. The 70% Rule is a formula and it serves to know how many years it takes to double your variable (money). This “rule” (read guideline) is critical, because as we all know, you make money in real estate when you buy. The most important part about the 70% rule is not about what you do, whether you succeed or fail. Other Models: The 70% rule would dictate that a home with an ARV of $700,000 that needs $50,000 worth of work should produce a maximum allowable offer of $440,000. The 70% rule is an essential part of the wholesaler’s formula, which first requires you to arrive at an accurate market value or after repair value (ARV) for the property in question. An investor flipping houses at this level might require far less than 70%—perhaps 50% or even lower. For instance land lords will be able to pay more typically than someone who intends to flip the house. This calculation can be done if, for example, you have your money deposited in a fund in a bank. The 70 percent rule calculation requires that you have already found the after repair value (ARV) of your property. In contrast, a landlord will be able to pay more because their strategy is completely different, often trying to gain short term cash flow and long term appreciation. If you are purchasing subject 2 , you may be able to buy at 101% ARV if the financing is favorable and the area is desirable. A Brief Foray into Standard Deviations “If everything seems under control, you’re just not going fast enough” – Mario Andretti Now, we are not sure how the 70% rule came about. Name the formula used to calculate the MAO from the AVR. Because if the money is not reinvested and the interest rate varies, the final calculation will not be reliable. In this case we will use the traditional 70% rule, so we will plug in .7. It is critical to realize the  70% “rule” is not a one size fits all model that can be applied universally to all situations, markets or exit strategies. And so on, according to the annual growth rate of the variable, which in this case is money. All real estate is local, and major market areas influence the formula. You become more fully you. Please refer to the chart below that illustrates the calculation. Describe the factors in an AVR estimate. The 70 percent rule is a way to determine … The 70% of ARV (after repair value) "rule" is a formula commonly referred to by real estate investors, and used as a barometer when purchasing distressed real estate for a profit. The rehabber will have a higher level of finish out, thus their repair costs will be higher, plus they need to factor in realtor commissions and other expenses. The flipping formula illustrates how many years it will take you to double your money. You grow. The 70% rule can adjust depending on the price point of the housing inventory. This way you can know how much time you need for your money to double. By taking on a challenge that you are not sure you can complete, you stretch yourself. So, if you have $1,000 today and want to know how long it will take you to get $2,000, this is the rule you should apply. In the same way, if the annual growth percentage is 8%, to mention an example, the variable “money” will take 8.75 years to double. After all, if you pay $70,000 all-in for a property and sell it for $100,000, that's a pretty good profit margin. Because when you open it, they tell you what the annual growth rate will be. In finance, the rule of 72, the rule of 70 and the rule of 69 are methods for estimating an investment's doubling time. For instance if you are intending to make a buy and make a long term hold play, betting on appreciation, you may very well be able to afford to pay more. This is important, that the money we are talking about is reinvested in the same vehicle and that the growth rate is constant. Explain the difference between recently sold comps and rental comps. DOWNLOAD PDF [The Stupid Simple Flipping Formula: The 70 Rule], Your email address will not be published.

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