Learn 9 Ways to Start Flipping Houses With No Money

What Is The 70% Rule In House Flipping?

Home flippers follow a simple business model: they purchase a house for a low price, repair it, and then resell it for a higher price. The purpose of a flipper is to buy low and sell high in order to maximize their earnings. When browsing real estate listings, the 70 percent rule can be useful.

It basically stipulates that investors should not pay more than 70% of a property’s after-repair worth minus the cost of the repairs needed to renovate it.

The after-repair value, or ARV, of a property, is the price a home could sell for after being repaired by a flipper. When purchasing a home to flip, investors must estimate how much the property will sell after renovations.

The value can then be multiplied by 70% and subtracted from the projected cost of renovating the home. As a result, the most that flippers should be willing to spend for that home or property is determined. The 70% rule is calculated as follows:

 After-repair value (ARV) ✕ .70 − Estimated repair costs = Maximum buying price

The key point to remember is that the 70% rule is only a guideline. Before purchasing a home, undertake market research, consult with real estate professionals for a more accurate resale estimate, and meet with contractors to establish how much repairs will cost and which upgrades are required. 

The Distinction Between Hard Money and Conventional Loans

Conventional lenders, such as large banks, make loan decisions based on the borrower’s credentials, such as credit score and debt-to-income ratio. Hard money lenders assess the borrower’s credit score and income, although not as much as banks do.

These lenders might be individuals or small enterprises, and each has its own set of borrowing requirements. Hard money loans are often made depending on the value of the investment property and the strength of the proposal presented to them.

Before making the loan, they will assess the property’s after-repair value (ARV) and the rehabber’s dependability. Hard money lenders will fund properties that require repairs that most standard lenders will not, but they will charge higher interest rates and have less favorable terms.