Hi,
When everyone on here refers to 70% arv, does the 70% include your rehad costs ?
For example, lets say a home is 100k
In order to buy it for 70% arv, and lets say it needs 20k in improvements, I would have to try and but it for 50k ? Is that how it works ?
Thanks
That is correct. Keep in mind that this formula is based on hard money lending. If you had other source of money to finance the deal, then the formula may change since you may not have the same aquisition and holding costs. But, if you are trying to wholesale, or borrow hard money lending, then I would stick with 65% to 70% minus repair costs minus flip fee if wholesaling.
I also use the 70% rule when purchasing rentals. The 30% equity allows you to borrow 100% of the money for the deal (the 30% is the security for the bank). The 30% equity is part of the profit that we make with each deal. Finally, the 30% is your insurance that you can get out if things go wrong. It gives you room to sell well below market without losing money.
Mike
Hi,
Thanks for the replys. I understand.