Rental Property Vs. Flip buyer

[Eric NA]

What's the difference between getting a property under contract with the intent to market to flippers vs landlords?

Obviously if the price is right, both will be interested. Should I stick with my formula (ARV * .70 - repair costs (including fudge factor) - my profit) to come up with what I want to get the property under contract for at all times or should I run it from a landlords perspective as well?

When marketing the property, should I market it as what the potential flipper can make and let the landlord figure out the numbers for himself, or should I market it was both perspectives?

[Ryan Webber]

I think it absolutely makes a difference.

The 70% formula is a rehabber formula. It is designed to quickly figure holding costs, resell costs, and profit margin.

When I first started I used to figure all my numbers and percentages every time I looked at a potential rehab. When I came across the 70% formula I noticed it came out roughly with the same number that took me 20 minutes to figure but instead it took me about 10 seconds.

Again the 70% of ARV minus repairs formula (or one of its cousins) is an easy shortcut for rehabbers to figure out their maximum offer to make 15-20% profit, which I've found to be roughly industry standard.

If you are looking to sell a property as a rental, a 70% discount might not be enough for it to cash flow OR it might cash flow adequately at 80% or even 100% of ARV.

I just had this conversation in another thread, but one of my best rental properties I bought for full retail value. It was a fourplex and because of the seller's financing terms, it netted me $200 per door per month the first year. With the property rented out and in good condition, my measly $5,000 down payment seemed magical. It was well over a 100% ROI.

Point being, landlords priority is not equity. It's cash flow. If you want to market to landlords then learn what they are looking for. Learn their cash flow numbers. 70% of ARV might be a good rental or it might not. You need to learn when it is and when its not if you are going to market to landlords.