David “Dave” Leonti, a real estate broker and house-flipper based in Kirkland, Washington, divides his time between leading Casa Dolce Homes as owner and working with homebuyers and sellers at Keller Williams Realty. Using a combination of his own experience and timeline software, Dave Leonti keeps track of ways to maximize profits in house-flipping.
Among house-flippers, there is a basic guideline that dictates how much investors should purchase properties for. Known as the 70 percent rule, this guideline prevents investors from overpaying, particularly when they are new to house-flipping. The guideline is not a hard-and-fast rule; in fact, many experienced flippers prefer doing the calculations themselves when looking at potential deals.
Still, the guideline is helpful for investors who are struggling to figure out whether a property is worth purchasing. According to this rule, investors should pay 70 percent of the home’s after-repair value, minus the cost of repairs. For instance, if investors believe they can get $150,000 for a home after it’s fully repaired for $25,000, the maximum price they should pay for the property is $80,000. This is determined by getting 70 percent of $150,000, which is $105,000, and subtracting the estimated repair costs of $25,000.
It’s believed that this rule works because it leaves at least 30 percent of the after-repair value to cover unexpected expenses and still allow profits associated with a building sale .However, the numbers used when completing 70-percent calculations must be accurate. Otherwise, investors may still end up overpaying for a property or losing out on a profitable opportunity.
