The 70% Rule explained as it pertains to flippers and wholesalers

As a follow up to my post yesterday concerning the 50% rule and the 2% rule, I felt it necessary to explain the 70% rule since it was mentioned in the comments of the prior post.

70% RULE: The maximum a rehabber will pay for a home is 70% of the After Repair Value of the home minus repair costs.

ARV Explained:

ARV is an acronym stands for After Repair Value. This is the value that a home would be worth in a repaired state similar to other homes in the area. For example, there's no need to put granite countertops in a home where the comps do not have granite. As a wholesaler we're trying to compare apples to apples. It's up to a flipper to decide what upgrades he/she wants to use.

70% Rule explained:

Say you go and look at a house. Before you go to visit the house you do your due diligence and find that similar homes in the area sell for $100,000. Upon visiting you see the home needs approximately $20,000 in repair. Using this knowledge you can calculate:

$100,000 (ARV)
* .07
---------------
$70,000 (70% of ARV)
- $20,000 (Repair Value)
---------------
$50,000 (Maximum amount a rehabber would pay)
- $5,000 (Wholesaler profit margin)
----------
$45,000 (Maximum offer a wholesaler could make on the property)



As a wholesaler, should you consider the 2% rule and the 50% rule when making offers?
Yes, I consider them. But it's important to remember that all markets are different and all investors are different. Everyone has different levels of risk they're willing to assume. The 70% rule is a fantastic rule to follow, if the 2% rule and 50% rule also give a green light than you know you have stumbled upon a fantastic deal!

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