Formula that people use to evalute deals for flipping?

[Nolan Bohler]

Hey there! I heard on a podcast. I'm not sure which one that's my problem. Anyway, I'm trying to find out the formula that people use in evaluating deals. I heard it on a podcast many months ago. I'm not sure who it was. Or again what podcast it was. He went through what he did step by step. When his numbers fell in a certain parameter. It helped determine if the deal was worth pursuing or not. I've been trying to find this to no avail. I'm sure someone here has an answer or maybe heard this podcast. Or could help me out here. I would sure appreciate it. Thank you! Nolan

[Ned Carey]

@Nolan Bohler  this is  more commonly called the 70% rule.   

( ARV X 70% ) - repairs = MAO

ARV is the After repair value

MAO is maximum allowable offer. Note the work Maximum. Ideally your cost should be less.

Note the subtle difference between the 70% rule and what @Arlan Potter posted above. In Arlan's example the 65% was calculated after subtracting out the repairs. In the 70% rule, the 70% is calculated from the ARV then the repairs are subtracted.

Some people use 70% some use 65%. Each investor may choose a different percentage but 70% is common.  This formula may not be the best in very low priced area or very high priced areas. It is a crude rule of thumb but good enough by itself for many investors.  

This formula does not mean you will make 30% on the deal. The 30% covers your soft costs and your profit. Soft costs are the hidden costs like cost to purchase, cost to hold, and cost to resell.

J Scott who wrote the book on Flipping published by BP prefers to use actual numbers for purchase holding and reselling and then add his expected profit in to come up with his offer price.