Determining a good deal . . . two different methods?

[Mark Robinson]

Great forum, glad I found it.

My question is as follows. The fule of thumb when determing a potentially good rehab deal is to use the 70% of ARV (After Repaired Value) less repairs method. However, can you use the cents on the dollar/equity method as explained by thedfwmentor in the following thread: http://forums.biggerpockets.com/viewtopic.php?t=5707 It is as follows:

Drop the zero's or the last three numbers (000) off and take YOUR purchase price and DIVIDE it by the ARV/Retail price. This is the breakdown:

65 DIVIDED by
100 =
.65 (cents on the dollar)
So you now know it is 65 cents on the dollar but what is the percentage of equity?
Take the maximum amount of equity you can have, which is 100% and minus the cents on the dollar figure you just got.
100 percent equity MINUS
65 = 35% equity.

The number I have to be at or below for me to consider a deal (unless there are other factors brought to my attention) is .70 cents on the dollar or LESS. OR in percentages, 30% equity.

Using an example that I am currentlylooking at the numbers work using the cents on the dollar/equity method but don't look particular good using the traditional 70% of ARV (After Repaired Value) less repairs method.

For example:

Purchase price: 150,000
ARV: 220,000
Repair Cost: 30,000

150/220=.68 cents on the dollar
100-68=32% equity

OR

70% of 220,000= 154,000 less $30,000 = $124,000

Based on the first method, the deal doesn't look bad, no?

Based on the second method, the purchase price is to high based on the other numbers, correct?

Comments, advice greatly appreciated.

Thanks,

Mark