Learn about the 70% rule and why it matters for wholesaling.
- Now for some of you with some background … or if you've been studying wholesaling, … you might have come across something called the 70% rule. … This rule is a very simple rule … that flip investors tend to follow. … This is a rule that they use … to account for holding costs like taxes, utilities, … marketing costs, local commissions, et cetera. … Basically, as a flip investor, … they want to try to acquire their property … at no more than 70% of the after repair value … minus the cost of repairs. … So let's say there's a house with an ARV of 100,000. … 70% would make it 70,000. … But let's say there's another 10,000 in repairs … that's needed so the flip investor following this rule … would want to pay no more than $60,000 for. … So why does it matter to you? … Well, if you wanted to sell to this potential buyer … and you know what they're expecting, … then that means you need to factor that in, alright. … So for this home, if you wanted to make a $5,000 profit … on this property and you know that at most …
- Name the formula used to calculate the MAO from the AVR.
- Summarize the 70% rule.
- Differentiate between the rehab estimator, ARV, and MAO calculator worksheets.
- Describe the factors in an AVR estimate.
- Cite the formulas that are helpful when pitching to a flip investor buyer.
- Explain the difference between recently sold comps and rental comps.