House Flipping Rules Explained
What is the 70 percent 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 Margins in House Flipping
What is a good 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".
Important Considerations for House Flipping
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.
The Rule of 70 Explained
How do you calculate a 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. Though an approximation for rates below 10%, the rule of 70 offers simple exponential growth management. It breaks down complicated formulas into an equation using 70 and the rate of return. With metrics-driven approaches, investors can fine-tune allocations and realize attractive returns.
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.
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.