What is the 70% Rule in House Flipping?
The 70 percent rule states that an investor should pay 70 percent of the after repair value (ARV) of a property minus the repairs needed. The ARV is what a home is worth after repairs.
Profit Margin on Flipping a House
On average, experienced flippers target 10 to 20 percent profit of the ARV. A 10 percent profit is low and 20 percent is considered a "home run".
Flipping Houses Earnings and Tips
In 2021, flipped homes sold for a median price of $267,000 with a gross profit of almost $67,000. Profits can vary depending on price range.
Banks usually require a 620 credit score for loans. Credit score is less important for house flipping loans which are different than regular loans. While profits can vary, most flippers target $25,000 profit per flip or more.
It’s recommended to have at least 20 percent cash on hand of the purchase price plus repairs before starting a flip. This helps cover unexpected repairs and ensures profit. Staying on budget helps reach anticipated ROI. Careful repair and flip planning can lead to a lucrative project.
How to Calculate the 70% Rule
The rule of 70 is a calculation to estimate the years to double an investment growing at a constant rate. By dividing 70 by the annual growth rate, investors determine the time for their money to double.
By projecting savings doubling times, the rule of 70 also aids retirement planning. Investors can determine if they are on target for their goals. It calculates debt pay-off schedules and projects savings growth over time.
Overall, the rule of 70 allows quick, useful calculations and projections, despite limitations in precision. With an easy method to compare returns, investors can make informed portfolio decisions.
What is the 30% and the 70% Rule in Real Estate?
In real estate, the 70% rule guides investors on purchase prices to profit from fix-and-flips. If a fixed property’s resale value is $100,000 and repairs cost $20,000, the rule states the maximum offer is $70,000 minus $20,000, or $50,000. Still, it does not guarantee profits.
Though an approximation for rates below 10%, the rule of 70 offers simple exponential growth management. It calculates debt pay-off schedules and projects savings growth over time.