Rehabs and 70% rule in a hot market (Houston, TX)

[Kenneth Sok]

I've been in discussions lately with various investors and found that some seem to be going in on numbers that are much thinner than what I would imagine.

Being in Houston, deals around 70% are harder to come by. I've talked to some rehabbers that are going as high as 75-80% of ARV minus repairs. This makes your profit margin super thin, in my opinion, and one bad error could sink you. The guys who do this though are operating on larger scale houses ( > 300K) so there's still room to make a decent profit. In addition, most of the deals I see flying around are all in that upper echelon of 75-80% as well.

As a wholesaler, I don't always get every deal, given that I'm very conservative on my own numbers and generally try to get 70-75% at the very most minus repairs minus fee. Many of my deals tend to fly quick off the shelf but I've seen many also linger on for a while and not close at all.

I'm wondering, am I being too conservative on my end and letting too many deals go? Rehabbers, would you take on a deal between 75-80% if you can still walk away with a decent amount or is that too risky?

[Trey Watson]

I think focusing on the % of arv is given too much emphasis and the investors that I know who make the most money focus on roi. How much cash am I in, and how much cash will I get back? Thats what the money makers ask.

However, the average investor uses the % of arv method, so I am guilty of using this when trying to buy a house for our investors because I need to make sure I am in line with what our investors want. I know for a fact that most deals are selling off to investors at around 80%. No matter what wholesaler is selling the deal, the market pretty much commands around 80. on and off the mls

Although it is still rare, off the MLS is where people stumble upon true 70% deals. If you're scalping MLS for 70% you're wasting time in my opinion.

Margins will eventually open back up but the market is still hot, so I dont imagine we'll deviate too far from 80 any time in the very near future.