Fix n Flip 70% rule

[Shayan Sameer]

Hello Everyone,

I have a few questions for all the fix/flip investors.  I did 2 fix flips last year.  One, I made a profit; other one, I kinda even out.  I learned a lot from both projects and hope to learn more.  I wanted to know what are your thoughts on the 70% rule.  Do you guys still apply that rule?  For all the deals here in South Florida, I'm not able to do 70%, and it seems like the profit margin is really small.  What dollar amount or percentage do you guys usually look for in fix/flip properties? 

My 70 % rule...

ARVx70% - rehab cost = purchase price.  

2nd question.... I know with a hard money lender, you lost good amount of profit.  Do you guys use hard money lender for a rehab or use your own cash?  

[Jonathan Chan]

Quote from @Bryan Hartlen:

We use private investors and offer them 20% APR, with 10% return guaranteed, paid as a balloon.

 any points up front?

[Bob Stevens]

Quote from @Shayan Sameer:

Hello Everyone,

I have a few questions for all the fix/flip investors.  I did 2 fix flips last year.  One, I made a profit; other one, I kinda even out.  I learned a lot from both projects and hope to learn more.  I wanted to know what are your thoughts on the 70% rule.  Do you guys still apply that rule?  For all the deals here in South Florida, I'm not able to do 70%, and it seems like the profit margin is really small.  What dollar amount or percentage do you guys usually look for in fix/flip properties? 

My 70 % rule...

ARVx70% - rehab cost = purchase price.  

2nd question.... I know with a hard money lender, you lost good amount of profit.  Do you guys use hard money lender for a rehab or use your own cash?  

 I have NEVER used a rule. I as long as I have not less than 35- 45% profit I'm good. 

[Jacob Sherman]

the best place to be is 65% 

[Shannon Mogilinski]

Hi Shayan--Here is the thing...when flipping for me, the class of neighborhood, location of property in that neighborhood, and amount of renovations really matters.  I'm in Chicago burbs.  I only flip in A class hoods--low crime, great schools, desireable properties.  I do not buy the bi-level house on a busy street facing a factory!  I design the homes and build my budget with that in mind.  My ARVs are also reflective of those factors.  If you have not yet, try building your financial model with this in mind.  

Play with your numbers and see what a deal that works for you looks like. Worry less about the "rules" and the financing right now, and try running models that meet YOUR financial goal. It is ok to make $30K on a deal--just watch your risk. Have an exit strategy on the property--I sometimes do not because of the price of the project--but it pays to consider this for sure. Do the homework on a DSCR option as part of your original analysis.

Thats the other thing--yes you may carry more in costs, but your risk profile on an A class hood is much lower.  If you already do this, than like me, it is a lot of screening properties (40-65 per month at about 3-4 offers from that) and patience.

Watch the ARVs right now as a lot of us are in a declining market--do not rely on anyone else but yourself to really provide the ARV. If you can't see the ARVs--took me a year to really see--do more homework and watch the area you want to be in very closely. Track other flips in that area if there are any. My biggest two cents is no one should flip unless they are the best at estimating ARV in their room--better than the appraiser, agent, lender--when that happens, your deals will fall into line. Best of luck!!!

[Freddy Alban]

Hey, awesome job building equity and renovating your place! Since you’ve already put in the work, if you don’t need the cash for a down payment on your next home, I’d lean towards keeping it as a rental. 

With a $950 mortgage and rental rates around $1,500, you’d have strong cash flow and continue growing your wealth. Plus, you’re close to paying it off, and owning it free and clear in a few years would only boost your returns. The big question is: do you need to sell to buy your next place? It might be worth chatting with a lender to see your options. Just my two cents!

[Drago Stanimirovic]

The 70% rule is a solid guideline, but in competitive and higher-priced markets like South Florida, sticking rigidly to it can be challenging. Many experienced investors adapt by targeting deals with slightly higher percentages up to 75-80% while carefully analyzing potential risks and margins. The key is ensuring that even with a slight deviation, there’s still enough room for a healthy profit after costs.

Regarding hard money lenders, many investors use them to leverage their capital and scale up projects, even if it means accepting reduced profit margins due to interest and fees. Using your own cash preserves more profit but limits your deal flow. The decision depends on your access to capital and the level of risk you're comfortable with.

If you need support or financing for your future projects, I'm here to help.

Best,
Drago.

[Mike Klarman]

It is a misinformation to believe HML steals all your profit. When these projects go south and you lose money, it is not the lending. Even if you pay 3 points and your rate is 12%. A project with a 75% cost to ARV will still turn a profit.

This thing goes wrong when the GC arm of the process fails, neglects, steals, becomes unresponsive, misappropriate funds, does a poor job.  That's where this fails.  Whether you pay 2 points or 3 or your rate is 10.5% or 12% will be neither here no there by the time you exit.  If your GC runs a tight ship and does a really good job with the finishes, and it is a quick exit just like the agent promises then you'll make money.

What good is it to pay 1 point at 9.99% if the GC messes up the entire job?

The GC arm of your RE business will make you or break you.  If you spent time playing a big part in 40+ projects then you'd see the same thing.

[Jennie Berger]

@Mike Klarman 100% agree with this. As a builder and developer in Chicago, I've been on both sides of the 'GC equation' - working with GCs and being the GC ourselves. Even with my former partner (who was our 'PM / GC' on site for our projects), it was sometimes tough navigating the process, managing budgets and costs, and keeping everyone in line, including him. 

@Shayan Sameer As @Drago Stanimirovic mentioned - many rehabbers are gong with 75-80% just to do a project. I have even run my numbers using anywhere from 65%-80%, depending on the scope of work, timeline, neighborhood, and ARV. If you have a solid ARV AND a great GC / team that you trust to do good work, consistently, and can stick to the timeline planned, even with hard money you will still make money at 75 or 80%, albeit a little less than at 70%. 

Hard money lenders have been some of our BEST teammates over the last 4 years. We've done more than 20 projects, many of which were funded (at least in part) by hard money lenders. A private lender is optimal (so you don't have to use all of your cash and can scale easier if desired) because you may not have to jump through as many hoops. But if you haven't established those relationships yet, good hard money lenders are some of the most honest and reliable capital partners available.

Jennie Berger

[Shayan Sameer]

@Jennie Berger Thanks for all the information.  Any recommendation on good hard money lenders that you share, please?  You can DM if you would like.  Thank You

[Jennie Berger]

Quote from @Shayan Sameer:

@Jennie Berger Thanks for all the information.  Any recommendation on good hard money lenders that you share, please?  You can DM if you would like.  Thank You

 Sending you a message now! :) Happy to help.

[Shayan Sameer]

Thank You @Jennie Berger

[Zachary Deal]

Yes, being below 70% is generally much better. Typically hard money lenders will lend a maximum of 70% of the ARV so if you are below you will have more flexibility on the initial loan and the refinance (better terms or higher cash out) and of course more profit if you sell

[Adam Bartomeo]

I never bought into the 70% rule... There are way too many variables to even use that as a rule of thumb. I have bought properties that needed to be at 40% and I have bought properties at 90%. I look at every deal individually. BTW, I have never lost money on a flip.

[Tanarat Bunchom]

Hey Shayan! The 70% rule is a solid guide, but in competitive markets like South Florida, it’s tough to stick to—many investors adjust based on their target profit margin or risk tolerance. As for hard money, it’s great for scaling quickly, but if you have the cash, using it can definitely save on interest and fees, boosting your profit.

[Stevan Stojakovic]

While it's a useful guide, flexibility is key adjusting to 75-80% ARV minus rehab costs might make deals work without sacrificing profitability. Focus on setting a clear minimum profit threshold (e.g., $20K-$30K or 10-15% of ARV) to ensure your efforts are worthwhile. Let mw know if you need help with financing. Thanks, Stevan

[Shayan Sameer]

@Stevan Stojakovic thanks for feedback. I'm looking at a few properties and will need some help with financing.  I'll PM you shortly.