The formula to calculate the Maximum Purchase Price (MPP) is:
\[ MPP = ARV \times 0.7 - RC \]
Where:
The 70 percent rule is a common term used among real estate investors when flipping houses. It states that an investor should pay no more than 70% of the after-repair value (ARV) of a property minus the repairs needed. The ARV is what a home is worth after it is fully repaired. This rule is a guideline that investors use to determine how much to pay for a property to make a profit after it’s renovated and resold.
Let's assume the following values:
Using the formula to calculate the Maximum Purchase Price (MPP):
\[ MPP = ARV \times 0.7 - RC = 300,000 \times 0.7 - 50,000 = 210,000 - 50,000 = 160,000 \text{ dollars} \]
The Maximum Purchase Price (MPP) is $160,000.
