All Forum Posts by: Richard Warren

That book just takes the standard rehabber’s formula and dresses it up a bit to make them sound smart.

The standard formula is as follows:
(ARV x 70%) – repairs = Maximum Purchase Price

Contingency is built into the repair cost. I generally assume 15% of my repairs as a contingency amount. If it is an older house or I expect I may run into a lot of problems I’ll pad that amount. Following that formula should net you a profit of at least 10% if your ARV and repair estimates are correct. To me ARV is the price a house can really be sold for within 30 days.

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The "IE with Repair Escrow" refers to FHA financing so that would be owner occupant.

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This is what it means:

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Using your numbers and the comps as the ARV (after repair value), this does not look like a good deal.

This is the standard rehab formula for determining maximum purchase price. Deviate from this at your own financial risk.

(ARV x 70%) – repairs = Maximum Price

(100,000 x 70%) – 17,000 = Maximum Price
70,000 – 17,000 = Maximum Price
$53,000 = Maximum Price

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To an investor what you are looking for means absolutely nothing. A real investor will look at expected income and base his price accordingly. On a flip he would be looking for a certain amount of profit. If he can’t get it at his price he goes on to the next deal. On the other hand, novice investors get burned because they base their offer on what a seller is asking not what a property is really worth.

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I see you’re fairly new here. The so-called “1 % rule†is made up by realtors and sellers who want people to believe that getting 1% of the purchase price in rent is a good deal. The “1% rule†is pretty much a guarantee that you’ll lose money. Around here people are well aware of the 50% rule and 2% rule. You can search the rental property forums using those terms and you’ll get plenty of posts based on reality, not the 1% fantasy.

I’ve been dealing with rental properties for 18+ years and would pass on the 1% “deals†every time.

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Check out the Meet the Investor section:

http://www.biggerpockets.com/meet-the-investor.html

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The post that Bryan replied to was from 2007 – 3 years old. That resurrected an old thread.

Banking rules have changed significantly since then.

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If you are truly an experienced contractor the best way to start may be to partner with an investor. Start by going to your local real estate investment club and let it be known that you wish to partner with an investor. If you use your work as your equity contribution you can create a win-win situation for you and the investor.

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In Las Vegas you are looking at $1.75-$2.50 for basic work. Premium work will generally be around $3-$3.50.

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