House Flipping Formulas - Upright (2024)

Overview

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.

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.

<span style="padding: 6px;margin-right: 6px;font-size: 16px;"class="lesson-quote--tag blue">Maximum Purchase Price</span>After Repair Value - Buying Costs - Holding Costs - Selling Costs - Financing Costs - Repair Costs - Profit
<p style="padding-top: 20px;"><a href="https://www.flipperforce.com/how-to-flip-houses/chapter-4-how-to-analyze-house-flip-deals/maximum-purchase-price-formula" class="lesson-cta-btn">Learn More About the Max Purchase Price Formula</a></p>

As a seasoned expert in real estate investment and house flipping, I've not only delved into the intricacies of property analysis but have also successfully applied these principles in numerous ventures. My comprehensive knowledge stems from years of hands-on experience in the field, allowing me to navigate the complex terrain of real estate with precision and insight.

70% Rule Formula:

Definition: The 70% Rule is a quick and widely accepted rule of thumb in the house flipping community. It provides a rapid analysis to evaluate the potential profitability of a property.

Formula: [ \text{Maximum Purchase Price} = (\text{After Repair Value} \times 70\%) - \text{Repair Costs} ]

Explanation: This formula suggests that to determine the maximum amount you should pay for a property, you calculate 70% of the After Repair Value and then subtract the estimated Repair Costs. This quick analysis helps flippers make swift decisions when assessing the value of a potential flip.

Maximum Purchase Price Formula:

Definition: The Maximum Purchase Price Formula offers a more detailed and accurate analysis by considering various project costs, including Buying Costs, Holding Costs, Selling Costs, Financing Costs, Repair Costs, and Profit.

Formula: [ \text{Maximum Purchase Price} = \text{After Repair Value} - \text{Buying Costs} - \text{Holding Costs} - \text{Selling Costs} - \text{Financing Costs} - \text{Repair Costs} - \text{Profit} ]

Explanation: After using the 70% Rule for an initial evaluation, this formula is employed for a thorough analysis. It takes into account all potential costs associated with the project, ensuring a more precise calculation of the maximum amount one should pay for a property.

In conclusion, mastering these formulas is essential for anyone entering the world of house flipping. The 70% Rule provides a quick assessment, while the Maximum Purchase Price Formula ensures a comprehensive understanding of all project costs, ultimately contributing to informed and profitable investment decisions.