The 70% Rule in McKinney's High-Price Market: Does it Still Apply?

Hey there, real estate enthusiasts and savvy investors! As Brandon Scribner, your top realtor in McKinney, I often get asked some really insightful questions. One that pops up frequently, especially from those looking into real estate investing and fix and flips, is this: "What's the 70% rule, and does it still apply to a high-price market like ours?"

It's a fantastic question, and one that cuts right to the heart of smart property acquisition. So, let's break it down in a casual, friendly way.

The 70% rule is a classic guideline primarily used by real estate investors, particularly house flippers, to quickly calculate a maximum offer price for a property they plan to renovate and resell. The basic formula is: An investor should pay no more than 70% of the After Repair Value (ARV) of a property, minus the cost of repairs.

So, if a house is expected to be worth $500,000 after renovations, and the repairs are estimated at $50,000, the calculation would be: ($500,000 * 0.70) - $50,000 = $350,000. This $350,000 would be the maximum offer price to ensure a healthy profit margin for the investor, covering holding costs, selling costs, and unexpected issues. It’s designed to provide a quick, conservative benchmark.

Now, to the second part of your question: "Does it still apply to a high-price market, like here in McKinney, TX?" And my honest answer, based on years of experience and countless transactions, is: not in its original, rigid form.

McKinney, like much of the Dallas-Fort Worth metroplex, has been experiencing a robust, high-demand market. Property values have appreciated significantly, inventory can be tight, and competition among buyers, including other investors, is fierce. In such an environment, adhering strictly to the 70% rule often means you won't be making any offers at all, or your offers will simply be too low to compete.

Why? Because the profit margins for fix and flips tend to be squeezed in high-appreciation markets. Investors are often willing to accept thinner margins due to the potential for continued appreciation during the holding period, or simply because the sheer volume of available properties at the 70% threshold is non-existent. The costs of labor and materials for renovations have also risen, further impacting the repair cost component of the formula.

Does this mean the 70% rule is useless? Absolutely not! It remains a valuable *starting point* and a mental framework for understanding potential profitability. What I've seen work best for my clients, especially when they’re navigating the McKinney market, is to use it as a guide, then adjust based on current market realities.

Here’s my practical advice: 1. Understand Your Local Market: This is paramount. As a Pricing Strategy Advisor, I can tell you that local comps and trends dictate everything. A property that might be a great deal at 75% or 80% ARV in McKinney might not be elsewhere. 2. Adjust Your Target Margin: Instead of a fixed 30% gross profit (implied by the 70% rule), you might need to target a 15-20% gross profit, especially for less extensive renovations in desirable areas. 3. Factor in Appreciation: In a market like ours, there's often built-in appreciation. While you shouldn't rely solely on it, it can provide a buffer. 4. Know Your Costs Inside Out: Get precise bids for repairs. Don't guess. 5. Focus on Value-Add: Look for properties where specific renovations can significantly boost the ARV without breaking the bank.

My role as a top realtor in McKinney isn't just about showing homes; it's about providing strategic insights and Real Estate Investment Consultation. I leverage my expertise in pricing strategies and listings strategies to help investors find deals that make sense, even when traditional rules need a modern twist. We can analyze deals together, looking beyond just the numbers to the true potential of a property.

Navigating real estate investing in a high-price market requires nuance, local expertise, and a willingness to adapt traditional formulas. If you're looking to dive into fix and flips or explore other real estate investing opportunities in McKinney, let's chat. I offer a Free Consultation to discuss your goals and how we can achieve them in today's market. Don't let outdated rules deter you from making smart, profitable investments. Reach out today – I'm here to help you succeed!