When it comes to flipping – like all things in life – there are a few good rules of thumb. One is THE 30% RULE.
THE 30% RULE IS RELATED TO EXPECTED PROFITS OF A FLIP. YOU SHOULD ONLY IMPROVE A PROPERTY, IN TERMS OF FUNDS INVESTED, TO 70% AFTER-REPAIR VALUE.
Doing so leaves 30% for closing costs to sell and profits. With this rule, you’ll net about 20% of the sale price as true profits (less taxes). Many investors find deals netting far greater than 20% in profits, and therefore blow the 30% rule out of the water. However, it is a great MINIMUM to look for when analyzing a fix and flip.
When we flipped a home in Montesano, WA, we purchased for $55,000 and sold for $152,500. We ended up with a total of $105,000 into the deal, which is just under 70% after-repair value. After all costs to sell considered, we pocketed about $35,000.1