Purchase price and ARV on million dollar homes

[Ben Johnstone]

Does the 70% rule still apply when dealing with million dollar homes? Or as the price gets higher can your MPP as a percentage of the ARV increase?

In most markets, when the price goes up, so does the rehab budget, therefore percentages should stay the same, as any surprise major work like a new roof is going to be more expensive on a more expensive house.

But in the market where I live million dollar houses can be small 2 bedroom bungalows that needs the same amount of work as a $200,000 house a couple of hours away. The location is the biggest influence on the price.

So for example, if the house has a n ARV of 1.5m and needs a rehab of $100,000 the 70% rule would make your MPP = 950,000. This would give the investor a profit of 550,000! Say the ARV is 200,000 off and rehab ends up being double - thats still $250,000. Even if it sits for 6 months one would still make a decent profit. I find it hard to see where using the 70% on a house win this price range could still result in a loss.

Especially in a market where its hard to find a deal would 80% be more approbate. With the same example, 75% would make your MPP = 1.025m.

This would still seem like a safe even once you account for, fees, holding costs, surpasses etc.

P.S Im a newbie so still just trying to wrap my head around everything!