Explore an alternative to the 70% rule that is more difficult to use, yet more accurate.
- Hey guys, welcome back. … We went over the 70% rule … and why fix and flip investors use it … in the previous lecture, … but we also saw that it has its disadvantages … because it assumes all markets are created equal. … In this lecture, … we're going to be looking at an alternative method, … one that you're going to be able to use to factor … in more market-specific assumptions. … The difference is that instead of using a broad stroke … that lumps the investor's holding costs … as well as their desired profit margins … into an arbitrary figure, like 30% of the ARV … in the 70% rule, … we're going to break it out a little bit more. … Specifically, we're going to break it out … into two main categories. … The first one is the investor buyer's desired profit. … And this one is going to be pretty easy, right? … Once you start working with investors in your area, … all you need to do is ask a few of those investors … what kind of profit margins they're expecting to make … on their deals and you'll be able to factor that in. …
- 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.