% of ARV on offers for this strategy

This is my first post and I would really appreciate your help.

I’m looking at SFHs in my area (Gwinnett Co., GA) and need some advice on workable formulas for the strategy I have in mind. I want to know what percentage of ARV I should be making offers at for houses I intend to buy, rehab, rent out, refi (at 90% LTV) and repeat I want to make money on the front end while being conservative regarding rehab/holding costs until property is rented out. I’ve read that flippers use 65-67% of ARV to buy & fix up and I’ve also read that buy/hold investors use 70% of ARV. Would you go with a max of 67% of ARV to buy & rehab for this type of strategy?




I know that this is probably not the response that you were hoping for, but really, you have to go with whatever formula that works for you and your market.

The 70% standard is a tried and true formula. In a nutshell, it works (as long as the numbers put into it are accurate, that is).

However, your particular strategy may, or may not, need to be so hard-lined. But that’s up to you to decide, not us.

Two things to consider when developing your strategy.

One, if you want to rehab and then refinance, you’ll want to buy as cheap as possible in order to have any money availabe for a refinance.

Two, you’ll want to make sure that when you refinance, that you can still cashflow on the property. Doesn’t do any good to pull money out if you simply have to use it to pay the bills.

Three (always deliver more than promised), you may want to reconsider a 90% refinance. If you would have to sell, 20% of the value is easily eaten up in a fire sell, so at 90% LTV, you’d be in the hole. Plus at 90%, most lenders will require PMI, which will hit into your cashflow.


Thanks for your comments Raj - your reply is EXACTLY what I needed. :slight_smile:

OK Roger (or whoever else wishes to reply), classic ‘newbie’ question here. I read more and more about REI from as many sources as I can. But everytime I think I’m getting the hang of it, something will come up that reminds me that I still have much learning to do.

About LTV ratios, when investors use the term “what’s your LTV?” I’ve always thought that is the maximum amount a mortgage lender will loan out – in other words, an 80% LTV means that the lender will only loan $80,000 on a $100,000 home. You’ve got to come up with the rest. But now I’m hearing it juxtaposed with language concering offers as well. For instance, using the “70% tried and true formula”, are you referring to making an purchase offer that is 30% less than the asking price?

I hope I’ve illustrated my confusion on the matter clearly enough. As always, thanks for your time.

This might help. 70% is the max a lender will loan. Remember to buy WHOLESALE not retail. most wholesale properties Ive found, the numbers work. and if the wholesaler is flexable on price I can negotiate on the price and come out better on the deal.
2br 1 bath rents in area are 550 -650
Asking price is 14k
Repair is 16k
ARV is 48k

14+16=30k total investment
48-30=18k profit

HML will lend 70% of ARV this = 33,600
well you only need 30k so this will work
term of this loan is for 6months @ 15% payments will be about 375, usually you have to pay 6months of insurance up front. HML will loan you the money for repairs done on a reimburstment and usually has a fee of about 150 each time you request a draw.

If you can get the repais done within 30 days (this would keep you from having to make the first HML payment, ask if their are any pre-payment penalties)and refinance it with a bank they usually will loan you 80% so 80% of 48 is 38400 (if you refinanced before the first HML payment was due then you would still have about 30 days until the first payment of the refi is due thus giving you 60 days no payment, not quite sure if this works but I am going to try it this coming week)

38400 minus HML of 30k you could walk away with 8,400 at closing. mean while you still have 9600 in equity.
New loan based on a 1% of loan, monthly payment of 384 based on 550 monthly rental income this would give you cash flow of 166 a month. this is just an example, hope this helps.

Thanks Islander. I’m looking to put this formula into action on a 2/1 REO I found. My realtor told me that based on the CMA, the property is worth $115K. Even though she knows her stuff, I’d say no more than $95K. So, I would be looking to buy & fix up for no more than $61.75K. I’m going over the repairs estimate with my contractor on Tues. Then I’ll know how much I can offer. Will keep you all posted.


Good luck!!!

A common standard formula for determining your max offer is 70% of the After Repair Value (ARV) of the property minus the costs of those repairs. Some even go so far as to include ALL possible costs in this formula as well.

Example: Property’s after repair value is $100K. It will take $10K to fix up to that value. Using 70% rule, that’s $70K - $10K = $60K max offer.

Do you offer 30% less than the asking price? Answer: No. You offer 30% less than the actual after repair value of the property. That may be 50-75% of asking price or it may be 20% higher than asking price (but you don’t have to go higher unless you really want to :))

Asking price doesn’t matter. What matters is what you can sell it for after you get it.

70% is the max that most Hard Money Lenders (HMLs) will loan. Many banks will lend 90-100% of your purchase price, depending on the property and your credit score.


Definitely better to play it cautious as opposed to not, but I’d have to reconsider an agent that overprices a property $20K (if she actually did). That’s NOT knowing your stuff.


65% ARV is the highest available with the best terms.


I was told the 70% ARV thing started with Legrand (I could be wrong). Basically, the philosophy behind it goes something like this:

30% = 8% Sell Costs + 5% Hold Costs + 2% Buy Costs + 15% Profit

As you can see, repair costs are not included, so you would have to include that in your offer as well (as Raj explained above).

As other have said, though, it is a guage, but not a perfect science. For example, the formula suggests 8% for selling costs, which usually includes 5-7% for real estate commission fees. But what if you plan on selling it yourself and offer a 3% buyer’s agent commission? What if you sell it yourself on the owner finance market? What formula do you use then? Just some things to think about.

Just to update everyone, someone beat me to the punch on the house I was looking at.

The ARV on the house was $114K. The list price was $87.9K. My estimate of repairs was $15.5K. I was planning on offering $59.3K for it.

By my own estimation, it took me too long to get all my numbers together - have to be faster on the draw next time. On the plus side, I know I have a good realtor and an excellent contractor on my team. I can definitely see myself buying at least two houses wholesale this year, rehabbing them, renting them out & refinancing.

Thanks to everyone who took the time to respond.


Here in San Antonio, the market is RED HOT. Rehabbers and REOs here last a matter of DAYS before going under contract!

Joel - investor:

Really, even with the nationwide market starting to sag?

Baltimore, was that way last 3 years. Be careful, I am seeing lots of great rehabs that are top notch SIT on the market because people paid 04-05 prices for a shell and now 06’ is a different market…

Good luck tho!

edit- Ray, also what did the person who got it from you get it for?

I’ve seen the exact same story as Phatman. Since I got interested in rehabbing, I’ve watched closely what other investors are doing. There’s many NICE rehabs sitting on the market for a LONG time. I thought the investors were pricing their properties very well too.

Rehab a few doors up from me was bought for 220k, fixed up real nice. Has off street parking. all new interior. Huge house. and has been sitting on the market for months.

They have come down on the price once, ill be amazed at this point if anyone buys it for that price. Brand new 4 story (incl basement) houses are selling for 600k right down the street that are off the charts!


They did do a nice job on the rehab tho’. That beam ceiling in the LR is stunning! Cheap taxes! I pay $1000 more for a house 1/3 the price here in Central WI.

I’ve noticed that , straightup…what’s the deal with the taxes in WI? They are REALLY high up there! Must be for new snowplows or something!


Baltimore city taxes are the highest in the state 2.4%!!! of the city assessed value of the house. So the real taxes on that house would be about $6,000 per year cause the house is only assesed at 300k

Btw. I see the 70% rule posted all over, but what is the cashflow rule for rentals/apartment buildings… I dont think ive seen that pusted in my purisings of this board.

Yeah, WI is a resident member of the top 5 states with the highest tax rates in the nation. The sickening part of the whole equation is that we have a ridiculous amount of tourism and out of state land ownership, yet us residents foot the bill for everything… ::slight_smile: ::slight_smile: Sorry for the rant…