First step: is to Drive for Dollars and enjoy the ride.
The secret is to locate abandon looking homes sometimes they have residents which make this a easier find.
Second step: Letters with substance about why you would be interested in buying this home. Write possibly five times.
Third: See property tax records and look for delinquent tax properties, “right” properties in distress…
Fourth: Look for listings over 100 days old this means property is ready for a deal!
Last: When it is time to negotiate: Praise the seller for the location and thank them for giving me an opportunity to buy and
fix their home..
Next rule on on buying flips.
The 70 percent rule is a common term used among many real estate investors when flipping houses. The 70 percent rule is a way to determine what price to pay for a fix and flip to make money.
What is the 70 percent rule when applied to fix and flipping houses?
The 70 percent rule state that an investor should pay 70 percent of the ARV (After Repair Value) of a property minus the repairs needed. The ARV is the after repaired value and is what a home is worth after it is fully repaired.
If a home’s ARV is $150,000 and it needs $25,000 in repairs, then the 70 percent rule states an investor should pay $80,000 for the home. $150,000 x 70% = 105,000 – $25,000 = $80,000. Buying a house for $80,000 that will be worth $150,000 may seem like an awesome deal, but you have to remember all the costs involved in a fix and flip.
I do use this 70 percent rule and others use 65%. Listed homes may also price a home wrong a mistake a house worth $300K selling for $220 worth $400K in this case move quick make your full price offer and move forward.
I use the 70 percent rule when deciding on a fix and flip. I like to write out all the numbers and decide if my finale totals fall in place and look at my profit margin potential. On the above deal I would write all my costs and see if the profit potential and location is worth the risk. Occasionally I will use the 65% rule to see how my numbers match up, and if my timeline would have to be extended and the cost to carry, due to the location. I am usually very close to what the 70% rule estimates are after expense.
How close would my purchase price be compared to the 70 percent rule?
$150,000 is the value of the home after the repairs and $25,000 in repairs are needed. I always add at least $5,000 in unknown costs to my known costs on a fix and flip. Selling the house would cost me a 3% commission plus title insurance and other closing fees; approximately $6,500. I will have insurance, utilities, and lawn maintenance while owning the house; I estimate those costs at $2,500. My financing costs will be about $3,500 with my financing terms and loan costs. My selling costs are going to be lower than most people, because I am a real estate agent and do not have to pay a listing agent.
After Repair Value $150,000
Unknown costs -$5,000
Commission/Title Insurance/other closing fees -$6,500
Temporary ownership expenses -$2,500
Financing terms and loan cost -$3,500
Break-even point $107,500
As you can see when I subtract all my costs I have a break-even point of $107,500. I usually want at least a $25,000 profit on my low-end fix and flips (under $125,000 purchase price). If I figure in a $25,000 profit, I should buy the property for $82,500. An investor who is not a real estate agent would be right at that $80,000 number or even a little under it, because they would have to pay another 3% commission on the sales price.
How accurate is the 70 percent rule when flipping?
As you can see the 70 percent rule was extremely close to what I would pay based on my own calculations. If I can get houses cheaper that is great, but difficult in this market. For beginner investors I think the 70 percent rule is a great way to get an idea of what to pay for a flip. You have to make sure your repair estimates are accurate for the rule to work.
Should you pay more than the 70 percent rule states in an appreciating market?
Many investors try to stretch the 70 percent rule or whatever rule they use when the market is appreciating and it is tougher to find deals. I think this is a huge mistake, because no one knows if the markets will continue to increase, stay stable or even decrease. Most flippers got into trouble during the housing crisis, because they assumed the markets would always go up and they didn’t have to get as good of a deal. Even in an increasing market you should stick to your rules and guidelines, because it is better to have fewer deals that make money than a lot of deals that lose money.
The 70% rule is one of the real estate investing rules that I think is a great tool for investors. The rule gives a pretty accurate price for investors to pay for fix and flips given the repairs and (ARV) After Repair Value. So stay up to date every month the market could have gone up or down.
I hope this helps.