One of the most important things you should learn before you purchase your first house flip is how to analyze the Maximum Purchase Price that you should offer for a property. In this lesson, we are going to learn the math and formulas behind analyzing the Maximum Purchase Price you should offer for a property.
There are two different formulas used for calculating the Maximum Purchase Price that you should offer for a property:
- 70% Rule Formula (quick analysis)
- Maximum Purchase Price Formula (detailed analysis)
70% Rule Formula
Based upon years of experience, flippers developed a quick rule of thumb called the 70% Rule to help them quickly evaluate the value of a potential flip property.
The 70% Rule states that you should buy a property at 70% of the After Repair Value minus the repair costs.
Maximum Purchase Price = (After Repair Value * 70%) - Repair CostsLEARN MORE ABOUT THE 70% RULE FORMULA
Maximum Purchase Price Formula
Once you use the 70% Rule to initially evaluate the validity of a deal, you should use the Maximum Purchase Price formula to perform a detailed analysis of all of the project costs including the Buying Costs, Holding Costs, Selling Costs, Financing Costs and Repair Costs.
The Maximum Purchase Price formula is the most accurate calculation, because it requires you to think about, consider & calculate every single project cost on the project.
Maximum Purchase Price = After Repair Value - Buying Costs - Holding Costs - Selling Costs - Financing Costs - Repair Costs - ProfitLEARN MORE ABOUT THE MAX PURCHASE PRICE FORMULA