Thursday, February 18, 2016

Why the 70% Rule is Dead

After moving to Tampa, FL - the real estate guru capital of America - from San Antonio, I keep running into people quoting the 70% rule, I believe coined by Ron Legrand.  But after examination of more than 10,000 transactions our company has conducted nation wide I must say, I think this rule is out of date.

I'm sure this was extremely applicable back in the 80's and 90's before MLS was a thing in the real estate world.  I remember my dad's big binder full of all the active listings and the fax coming in every morning with the listing updates.  He'd spend an hour going through his binder, removing the old listing, and placing the new one in it's place.

You used to really be able to make a killing investing in real estate back then.  Information just wasn't accessible to anyone, even real estate brokers.  In a non disclosure state like Texas where the sales price of real estate is not recorded it must have been absolutely impossible for anyone to conduct any type of real estate business without the consistent help on an agent.  At least the local board of realtors kept records of what houses sold for in their market.

I remember the first iteration of MLS in San Antonio which ran of MS DOS.  With an AOL trial CD and no one picking up the phone in your house you could quickly research what was happening in your area.  Before mapquest (remember that one) you had to have one of the large Mapsco books that gridded the city over and flip between pages trying to find what street you were going to.]

But that's over.  Margins are becoming tighter for real estate investors.  The reason is the ease of access to information.  Moving to Florida is like getting in a DeLorean and shooting thirty years into the future from small town San Anton.  The amount of information available here is staggering - and if you have a real estate license and pay for MLS access you can do some pretty incredible things.

The profits you can make in residential real estate aren't shrinking because the market is hot or cold.  The tools available are making consumers - sellers - more informed than ever before.  It's becoming more difficult to tell someone selling their home to you that you can only pay $50,000 when they know it's worth $120,000.  Of course their are deals out there but because of mass marketing tools such as Zillow, Hubzu, Auction.com, and now even county auction websites, more eyes are on the limited amount of deals out there.

Good ol' Texas... I miss you.  I used to read the actual MLS feed constantly throughout the day and when I saw a deal I'd usually be the first person at the house, the first person with an offer in, and the person who ultimately got the deal.  Tampa seems to have 100 times as many people doing the exact same things I do.  If you think that 70% deals are still out there, I beg to differ.

To the people who tell me, "I only buy houses 70% of value less repairs," I say, "And how many of those deals are you actually doing?"  I can't walk into the grocery store, pick up a sack of potatoes that's advertised for $8.99 and tell them, "I only pay $6 for sacks of potatoes."  The high school cashier is going to look at me like I'm out of my mind.  It just doesn't work like that.

This guy named Adam Smith wrote a book before Legrand called An Inquiry into the Nature and Causes of the Wealth of Nations a few years earlier, 1776 I believe.  What I was beginning to describe earlier was the basis of the efficient-market hypothesis, something most business majors dabble in during college.  To break it down, the more information consumers have in the market place the more efficient the market and thus, the more difficult it is for investors to achieve a sale price of less the actual value (ARV - repairs).

The other factors effecting the market rate for real estate investments are things such as number of competitors, average availability of capital to those parties, the availability of credit, etc.  "The 70% Rule" really has to change depending on what market you're buying in.  Truly buying at 70% of a houses actual value less the repairs will basically always yield you a profit.  Something seriously catastrophic would have to happen for you to lose on that deal.

But the reality is, people aren't paying that.  In super desirable areas such as South Tampa you're paying around 81% of a houses value less repair work.  In wildly undesirable areas such as  South St. Pete, you can't even really get an ARV as all purchases in the area are investor purchases looking to rent the house out to a Section 8 tenant and is focusing more on cap rates than resale values.

In a nation wide study examining our offices in the markets of Atlanta, Austin, Dallas, Denton, Ft. Worth, Houston, Las Angeles, Philadelphia, San Antonio, and Tampa we haven't found a place that's selling a true 70% deal.  Sure, you can inflate the ARV on it ten or twenty thousand dollars, that will get you there.  I love deals where I'm told that a 1,500 sqft house only needs $10,000 in work, something I've never been able to pull off even on my rentals.

In summary the 70% model of buying houses teaches you something in the end.  You need to be careful that you're building enough room into your offers for profits, holding costs, realtor commissions, and closing costs.  You do need to remain competitive however.  If you're constantly getting beat out in multiple offers the market may be bearing less margin for profit than you're trying to achieve.

https://www.biggerpockets.com/renewsblog/2014/02/14/70-rule-bible/
https://www.biggerpockets.com/renewsblog/2012/11/03/flip-houses-formula-math/
https://www.youtube.com/watch?v=JpfnAMRj-2Y

161 comments:

  1. hay man great post i am searching for Is it true that you are treating Your Real Estate investing As a Business?
    i see your post and i cant stop me to read this post full great work do much batter in future

    ReplyDelete

  2. Hello Sir,
    As a blog reader & writer you shared nice information this is very Usefull to us. Thank you.
    Looking for more best Achhamall deals !! Visit : achhamall (dot) com
    Shop your Online Digital Electronic Products. Invest in a good quality Product & get Best offers. shop now & Enjoy Free Shipping across India. our blog www.achhamall.blogspot.com kindly follow & like the post & comments.

    ReplyDelete


  3. Thank you so much for sharing the article. Really I get many valuable information from the article
    With our Digital Marketing Training, re-discover your creative instinct to design significant
    marketing strategies to promote a product/service related to any organization from any business sector.

    Digital Marketing Course

    ReplyDelete
  4. Digital Marketing can be defined as a unique marketing strategy that is implemented in digital platforms through Internet Medium to reach the target audience. When compared to traditional marketing, search analytics gives you an extra edge in Digital Marketing. Analytics empowers the business to analyse the success in their business strategies and provides the required data to modify the strategies to suit the market requirements and improve ROI.

    Digital Marketing Course
    Digital Marketing Course in Sydney

    ReplyDelete

  5. Best Article buy weed online Excellent post. I appreciate this site. Stick with it! Because the admin of this web page is working, no doubt very quickly it will be well-known, due to its quality contents.This website was how do you say it? Relevant!! Finally, I’ve found something that helped me.

    ReplyDelete
  6. Best Article Buy Pain relief medications online Excellent post. I appreciate this site. Stick with it! This website was how do you say it? Relevant!! Finally, I’ve found something that helped me.

    ReplyDelete
  7. Browse the collection of latest Teenage News, articles and stories related to Business, Education, health and much more. Here at Durrelliott users will be constantly updated with positive and worldwide news that will keep teenagers informed.

    We are a news source for teenagers that will change how you value real life matters. Read out daily updated positive News & current event articles at Durrelliott.

    News source for teenagers
    latest teenage news
    Teenage news stories

    ReplyDelete
  8. very very well written content and information i found on your site.
    Very good real estate property for family resident available then contact kalinga keshari rath
    kalinga keshari rath
    kalinga keshari rath

    ReplyDelete
  9. This article content is really unique and amazing.This article really helpful and explained very well.So i am really thankful to you for sharing keep it up..

    เกมบาคาร่าออนไลน์
    เสือมังกร
    เกมไพ่
    เกมไพ่เสือมังกร

    ReplyDelete
  10. Leedon Green by Yanlord & MCL. Hotline 61008187. Get Discounts, Direct Developer Price, Brochure, Floor Plan, Price List & More. Former Tulip Garden at Farrer.

    ReplyDelete
  11. Ki Residencesby Hoi Hup & Sunway JV. Hotline 61008187. Get Discounts, Direct Developer Price, Brochure, Floor Plan, Price List & More.

    ReplyDelete
  12. They sometimes juggle several sales and several renovations at any given time. It is important to know that there is an art learning how to flip a house and make a profit instead of losing money.Westminster Finance
    Westminster Finance
    Westminster Finance
    Westminster Finance
    Westminster Finance

    ReplyDelete
  13. This is a wonderful article, Given so much info in it, These type of articles keeps the users interest in the website, and keep on sharing more ... good luck Custom Name Patches

    ReplyDelete
  14. Newsone12.com will give you all about skin care tips in urdu/hindi.
    I will provide u skincare remedies that will give u instnat result without any side effects.
    At Newsone12.com i will upload an 100% natural remedies about skin care.
    Everyone like clear skin, flawlwss skin, spotless skin, crystal skin and fresh skin will help u to make your skin younger, glowing and beautiful skin by these natural and effective remdies, tips in urdu/hindi. Beauty Tips in urdu

    ReplyDelete
  15. Newsone12.com will give you all about skin care tips in urdu/hindi.
    I will provide u skincare remedies that will give u instnat result without any side effects.
    At Newsone12.com i will upload an 100% natural remedies about skin care.
    Everyone like clear skin, flawlwss skin, spotless skin, crystal skin and fresh skin will help u to make your skin younger, glowing and beautiful skin by these natural and effective remdies, tips in urdu/hindi. Beauty Tips in urdu

    ReplyDelete
  16. This is very amazing post. Its very helpful for us.Thanks to Admin for shearing with us.Gear is a mechanical device to transmit rotational motion or to change the speed. Gears find a great use in any mechanical device. In olden days gears were made with wooden wheels.Custom Gear Manufacturing

    ReplyDelete
  17. Javelin Male Enhancement overall good health is important to good healthy sexual living. Review your current health and medications with your doctor, eat right and get plenty of exercise, then consider natural male enhancement products if needed.Female sexual enhancement pills, female libido enhancers and other similar products will be the subject of a future article.Disclaimer: The Erectile Dysfunction (ED), Male Impotence and male enhancement pill

    ReplyDelete
  18. Dear Admin!

    I want to tell you. I am new on your website. You are an extremely hardworking person. I have never seen every person is a hardworking man. But you’re doing the best job on this article. I have collected much information through your article. So I appreciate your effort.

    Thanks

    ReplyDelete
  19. Nice story. It's good that they have made something like these. This looks a whole lot better to me.
    Click
    here for
    more
    info

    ReplyDelete
  20. Thank you for taking the time to publish this information very useful!
    Click
    here for
    more
    info

    ReplyDelete
  21. I am a new user of this site so here i saw multiple articles and posts posted by this site, I curious more interest in some of them hope you will give more information on this topics in your next articles
    Click
    here for
    more
    info

    ReplyDelete
  22. This is such a great resource that you are providing and you give it away for free. I love seeing blog that understand the value of providing a quality resource for free
    Click
    here for
    more
    info

    ReplyDelete
  23. Nice story. It's good that they have made something like these. This looks a whole lot better to me.
    Click
    here for
    more
    info

    ReplyDelete
  24. This is such a great resource that you are providing and you give it away for free. I love seeing blog that understand the value of providing a quality resource for free resource for free
    Click
    here for
    more
    info

    ReplyDelete
  25. Vitrexotin RXblood clotting) that have been related to the development of a number of cardiovascular,

    ReplyDelete
  26. Vigrafirmt Male Enhancement
    ion or Male Impotence treatment you choose, prescription drugs or a natural male enhancem

    ReplyDelete
  27. facilities. If you have a health care facility to manage, make sure you get the best air purifiers to meet your needs on a regular basis.Keto Plus Pro

    ReplyDelete
  28. a professional. Make sure that you install air purification units that are easy to install, inspect, monitor and repair. Before you get one, it is important that you consult a good professional.Flexuline

    ReplyDelete
  29. Nutrapharmex Keto
    shedding off excess pounds and which is gaining popularity these days is the detox weight

    ReplyDelete
  30. Ciagra Male Enhancement Ginkgo (Ginkgo biloba) is a unique tree with no close living relatives. Ginkgo extract treats circulation problems of impotence and increases blood flow to most tissues and organs,

    ReplyDelete
  31. about what you put Exceptional Keto into your body, and not base your decision upon taste alone. Unfortunately, the majority of people base their beverage choices on taste and usually upon

    ReplyDelete
  32. Cartel Health a large number at the same time. By analyzing the data, the operational costs can be cut down and better healthcare opportunities can be available for the patients in need of it.

    ReplyDelete
  33. Thanks For Sharing The Amazing content. I Will also share with my friends. Great Content thanks a lot.

    No more waste time to searching #HDimages, #PCwallpaper, #smartphone_wallpaper, #socialmedia_banner, #socialmedia_image_post, #natureHDimages, and many more awesome pictures. Just visit All Awesome Pictures Only For Love Hearts and choose your best choice.
    All Awesome Pictures Only For Love Hearts
    All Awesome Pictures Only For Love Hearts
    All Awesome Pictures Only For Love Hearts

    ReplyDelete
  34. Exceptional Keto and philosophical approach employs their proprietary Adaptive Coaching Process. The organization's

    ReplyDelete

  35. I wanted to thank you for this very good read!! I definitely enjoyed every bit of it. I have got you bookmarked to look at new stuff you post…learn quran online

    ReplyDelete
  36. Everyone loves it when individuals get together and share thoughts. Great blog, continue the good work!
    viablequran.com

    ReplyDelete
  37. Grana Padano The fish heart, dried and salted, is a forte of Sicilian and Sardinian food, like bottarga and increased in value by admirers of fish. The preparing of the core of fish is like that of fish roe. The heart is salted and put between two tables under a press. Following 20 days it is set to dry in the shade, in a ventilated region. The relieved fish heart has a solid taste, thusly it doesn't need exceptional flavoring. It is utilized in hors d'oeuvres, simply prepared with additional virgin olive oil, in plates of mixed greens or ground chips on pasta.

    ReplyDelete
  38. Great article, very inspiring. decorating the house as you wish is everyone's dream.
    automotive marketing

    ReplyDelete
  39. Parmigiano Reggiano One conventional utilization of an entire Parmigiano Reggiano head is to utilize it as a serving pot. On uncommon events, when one has many visitors to serve (culinary fairs, feasts, huge parties) the entire head is spent and altogether burrowed out so the exposed outside layer stays, steaming pasta would then be able to be poured in it and served from in that.

    ReplyDelete
  40. Parmigiano Reggiano One conventional utilization of an entire Parmigiano Reggiano head is to utilize it as a serving pot. On uncommon events, when one has many visitors to serve (culinary fairs, feasts, huge parties) the entire head is spent and altogether burrowed out so the exposed outside layer stays, steaming pasta would then be able to be poured in it and served from in that.

    ReplyDelete
  41. Parmigiano Reggiano One conventional utilization of an entire Parmigiano Reggiano head is to utilize it as a serving pot. On uncommon events, when one has many visitors to serve (culinary fairs, feasts, huge parties) the entire head is spent and altogether burrowed out so the exposed outside layer stays, steaming pasta would then be able to be poured in it and served from in that.

    ReplyDelete
  42. Grana Padano The watchword is "value", and Americans are quite conscious of the relationship between quality and price. The price difference between organic and non-organic food has been reduced considerably, and now it is around 15%. According to the Organic Trade Association, the sales of organic foods in the United States have long passed those in Europe. The US is now the world's largest consumer of natural and organic food.

    ReplyDelete
  43. Thanks for mentioning the reason of why the 70% Rule is Dead.

    ReplyDelete
  44. Thanks for right unique information about this topic.My all curiosity on this topic now cleared.I am waiting for your next valuable contain informative post.You can checkout anytime our website at mobile price in bd

    ReplyDelete
  45. I am very impressed with your post because this post is very beneficial for me and provide a new knowledge to me mobile price in bd

    ReplyDelete
  46. This article content is really unique and amazing.This article really helpful and explained very well.So i am really thankful to you for sharing keep it up.Clik Here For More Information...mobile price in bd

    ReplyDelete
  47. Thanks for sharing such an nice article.
    https://crackvip.com/winzip-pro-crack/

    ReplyDelete
  48. Howdy! This post couldn’t be written much better! Reading through this article reminds me of my previous roommate! He constantly kept talking about this. I will forward this article to him. Pretty sure he will have a great read. Thanks for sharing!
    language-courses

    ReplyDelete
  49. You have a nice blog. If you are interested to know
    How To Lose Fat Around Private Area then check out my blog post. Here I have shared everything about weight lose and fat loose.

    ReplyDelete
  50. When I originally commented I clicked the “Notify me when new comments are added” checkbox
    and now each time a comment is added I get several
    emails with the same comment. Is there any way you can remove me from that service?
    Many thanks!

    Here is my web-site.. Runtime GetDataBack Pro Crack

    ReplyDelete
  51. I have benefited a lot from reading your article. Thanks, for providing important information. If you want to know about the importance of the relationship, you can see it
    Relationship Tips

    ReplyDelete
  52. Your blog really nice. Its sound really good. Thanks for the sharing this blog with us. Fashion is synonymous with comfort and style. Here anyone who in interested can check latest Eastern clothing fashion & buy on cheapest rates.
    Springtok - Stitched Clothes - Unstitched Clothes - Ready to Wear - Bottoms

    ReplyDelete
  53. Nice Post Here I Found A Great Site that Shares Pets Rising information such as how often to change cat litter and other things about raising a pet and taking care of it. i hope you find it useful if you have pets or you want to have pets in future.

    ReplyDelete
  54. I was more than happy to uncover this great site. I need to thank you for your time due to this fantastic read!! I definitely enjoyed every bit of it and I have you bookmarked to see new information on your blog.
    ttd online booking
    best dash cam
    patta chitta
    mini coffee makers

    ReplyDelete
  55. Cheris
    Thanks for this helpful article. If anyone wants to transfer playlists/songs between spotify/apple music and more. Then you can use MusConv.com. MusConv – the easiest way to transfer your music data!

    ReplyDelete
  56. Thanks for sharing this article. This was truly helpful.

    Buy Custom Website

    ReplyDelete
  57. Thank you so much for the information that you have shared here with all of us. You have made it easier for us...

    digital marketing agency in usa

    ReplyDelete
  58. Do you want a perfect logo design?
    Buy logo with 60% off. Custom Logo

    ReplyDelete
  59. Join yu sma Link Terbaik di Indonesia
    rumah mpo

    ReplyDelete
  60. i see your post and i cant stop me to read this post full great work do much batter in future.your post is very helpfuly contentmobile price in bd

    ReplyDelete
  61. mati gak nya gak ada yang tau bos
    sama kek gw mati mlu maen judi
    Slot Online indonesia
    Situs Judi Mpo Online

    ReplyDelete
  62. Thank you for sharing this wonderful information with us. This article is written really well. Have a nice day and keep sharing such informative posts.y2mate

    ReplyDelete
  63. "Awesome post. I’m a normal visitor of your website and appreciate you taking the time to maintain the nice site. I’ll be a frequent visitor for a long time. I am going to bookmark this website to read more articles in the future.

    Thanks"

    ReplyDelete
  64. Thanks for giving interesting and informational ideas.

    Sukh100 is our site that provide business opportunities to millions of peoples in all over pakistan.

    Check our site here,

    https://www.sukh100.com/

    ReplyDelete
  65. Hello visitor's do you know what?
    We are giving you the best offer buy beautiful
    Platinum Package Logo with us get 75% off.

    ReplyDelete
  66. Thanks for giving interesting and informational post.

    Sukh100 is our site that provide business opportunities to millions of peoples in all over pakistan.

    Check our site here,

    https://www.sukh100.com/

    ReplyDelete
  67. That is a very good tip especially to those fresh to the blogosphere, your blog have Ideias Criativas
    Thanks

    ReplyDelete
  68. iam really glad to visit this helpful site thanks for sharing it with us,
    we design the best websites & logos with a discount also with a guarantee thanks for sharing it with us...
    Logo Designers

    ReplyDelete
  69. Such an very helpful post thanks for sharing with us.
    Buy Business Logo

    ReplyDelete
  70. India's No. 1 Academy for Dance classes, Fashion Photography, Music Production, VFX Course and many more...

    ReplyDelete
  71. Delhi School of Music is a Delhi based professional Best Online Guitar Classes in Delhi institute that provides music performance course for students who aim to be India's next generation superstars.

    ReplyDelete
  72. I feel good about your share.
    It's very helpful for me and I am so happy to see your blog.
    Thank you for sharing it with us.
    law dissertation help

    ReplyDelete
  73. I really loved reading your blog. It was very well authored and easy to understand. Unlike other blogs I have read which are really not that good. Thanks a lot!

    bukubaca.com

    ReplyDelete
  74. plz visit our site and watch real porn videos: xnxx
    Thank you
    Kassouni Law

    ReplyDelete
  75. If you want to watch more sex videos then visit our website: xvideos
    Thank you
    Tim Kassouni

    ReplyDelete
  76. To watch and download free child sex vedios, Lesbian sex vedios and new adult movies visit Watch and download free porn videos
    Tim Kassouni
    Thank You So Much

    ReplyDelete
  77. crackdady.com/chief-architect-premier-crack-free-download/”>chief architect premier crack download
    crackdady.com/dgflick-album-xpress-pro-12-for-lifetime/”>dgflick album express pro crack free download
    crackdady.com/autocad-2016-crack/”>autocad crack free downlaod
    cracksz.com/windows-server-2016-activation-key/”>windows server activation key downlaod
    cracksz.com/amibroker-6-30-crack-free-download-2/”>amibroker crack free download
    cracksz.com/pluraleyes-4-1-10-serial-number/”>pluraleyes serial number crack downnload

    ReplyDelete
  78. very helpful in assisting with any type of writing help Law Coursework Help

    ReplyDelete
  79. Situs 918kiss Welcome Bonus 100 Trusted yaitu salah satu penyedia games slot online yang memiliki tambahan 100 persen memiliki kali awal kali berpadu.

    ReplyDelete