When you buy a rehab property that you plan to retail,
Do you always use a formula such as: 70% ARV - repair costs = Max Offer?
Or do you figure a dollar number that you are looking for as profit, like say 20k mininum profit? So you back out the numbers and as longs as there is enough room to make the 20k (plus wiggle room), you buy it.
If I buy a flip for $35,000 with an ARV of $75,000 I don’t expect a $20,000 profit, I shoot for $12-15,000 and am okay if I end up making $10,000. If I buy a flip for $120,000, with an ARV of $180,000, I shoot for $20,000 +. I would say the 70% rule applies, just make sure that the ARV you are using IS CORRECT!!
The only thing I think was left out is an estimate of how long the house should take to sell. I would look at sold comps for house just like your in the same neighborhood and see average days on the market at what average price. I would assume that my house will take a bit more time and factor that in as holding cost. If I sell it early then I am ok, if not then I have built the holding time in. In other words if the average house like yours is on the market 2 months, don’t factor in $1000/month holding, factor in the $1000 times the 3 months it will take or $3000. Add that in just like it is a cost for sheetrock or carpet.
Yeah I should have explained that a bit more, in Holding costs, I do include the time it takes to sell and multiply that with 1.25 (i.e. it will take 25% longer time to sell my property then I expect.)