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What is the 70% Rule?

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The 70% rule is used by investors to quickly determine the maximum price one should pay for a property based on the after repair value (ARV). Though most often used by house flippers, the 70% rule can actually be used for any strategy when you want to find a good deal. The 70% rule says that you should only pay 70% of what the after repair value is, minus the repair costs.

For example: A home which, after being fixed up, should sell for approximately $200,000, needs approximately $35,000 worth of work. Using the 70% rule, a person should multiply $200,000 by 70% to get $140,000 – and then subtract the $35,000 in repairs. The most a person should pay for this property, therefore, should be $105,000.

Keep in mind that this is merely a rule of thumb and shouldn’t replace your actual financial analysis. The 70% rule is simply a way of quickly filtering through properties to identify the ones that show immediate potential.

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