Ever wondered how to calculate the perfect offer for a flip? Let me introduce you to the 70% Rule—the ultimate shortcut for real estate investors!”
The 70% Rule helps you determine the Maximum Allowable Offer (MAO) on a property while ensuring you leave room for profit. Here’s how it works:
Start with the ARV: The After Repair Value is what the property will be worth after all renovations. Let’s say it’s $300,000.
Multiply by 70%: This accounts for your profit margin and the cost of the flip. So, $300,000 × 0.7 = $210,000.
Subtract Repair Costs: If repairs cost $50,000, subtract that from $210,000. Your Maximum Allowable Offer is $160,000.
Simple, right? This formula ensures you don’t overpay and keeps your profit margins intact. Pro Tip: Adjust the percentage based on your market. In competitive areas, you might use 75-80%, but always leave room for profit!”
The information in this article are of the opinion and experience of the author. Due diligence should always be done before venturing into real estate.
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