What Is The 70% Rule In House Flipping And How Can It Help Me Decide How Much To Pay For A Distressed Property?

What’s the key to flipping houses successfully? Buying homes at a low enough price so that when you sell them you make a large profit. Overspending on the front end of a home purchase will make it much more difficult to earn those big dollars.

But how do you determine when a home’s sales price is right? The 70% rule can help.

It’s important to remember, though, that this rule is just a general guideline and won’t replace the long hours of research you’ll still need to do to make sure you’re not overpaying for a home you want to flip.

What Is The 70% Rule In House Flipping?

Home flippers have a simple plan for earning money: They buy a home cheap, fix it up, and then sell it at a higher price. The goal for flippers is to buy low and then sell high to boost their profits.

The 70% rule can help flippers when they’re scouring real estate listings. Basically, it says that investors should pay no more than 70% of the after-repair value of a property minus the cost of the repairs necessary to renovate the home.

What does this mean? The after-repair value, or ARV, of a property is the amount that a home could sell for after flippers renovate it. When buying a home to flip, investors need to estimate how much they think the property could sell for after it’s been renovated. They can then multiply that amount by 70% and subtract it from the estimated cost of renovating the property.

The resulting figure is the highest price that flippers should consider paying for that property.

The key here, though, is to realize that the 70% rule is just a general rule of thumb. Before buying any home, you need to study market conditions, work with real estate professionals to get a more accurate resale estimate and meet with contractors to determine how much repairs will cost and which renovations are needed.