I know the 70% rule is 70% of arv minus construction costs. However, do you factor in holding costs, closing costs, prop taxes, and realtor fees when reselling and subtract that from the 70% too?
My partner and I are looking at a property listed at 167,000. It needs about 65k-70k in rennovations.
We figured we would offer 140k, however if we have to subtract closing, taxes and realtor fees my calculations show that I should offer no more than 107k roughly… am i calculationg all this right?
Arv will be 300-315, depending on how many “extras” we can put in.
And our costs incurred during rennovations will be as follws
Closing Costs (Buying) 7,000
Property Tax (Mo. Held) x (.0233 tax rate xPurchase Price) / 12 1631
Holding Costs (Months x PMT) 6 1000 6000
Realtor Fee (6% of Selling Price) 17100
Total: 31,700
im no guru, on my third flip now, but I analyze the deal a little differently. might help you.
I want to make 15-30% on my money. so in your case, just say you got the house for140k did 70k in renovations and holding,buying and selling costs were 30k. total of 240k. If you sell for 300k you gross 60k or 25% on your money.
so for me it would be a deal at 140k. maybe that that help
Figure out your own “rules”. Forget about letting somene else’s guidelines guide you. No one starts their own business to obey someone elses rules.
What kind of financing are you going for? That will play the biggest part on setting your own guidelines. Depending on the complexity of a project, I don’t let my total costs exceed 50%-80% of the ARV. For me (paying with almost all cash) it’s about an adequte return for the amount of work considering an appropriate amount of room for error.
“Purchase price + Renovation” is just short-hand for “EVERY COST YOU WILL HAVE”.
FYI, you forgot utilities, financing, and insurance in the holding costs.