Distressed Property Sale

Mastering the Art of Negotiation: Using the 70% Rule to Land Great Deals on Distressed Properties

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Negotiating in the world of real estate is a blend of art and science as investors must have a grasp on negotiation skills and an in-depth ability of calculation to attain success here. Plus, flipping houses is not quite an easy job as it requires both effort and time. Here the 70% rule comes as a powerful tool for savvy investors to utilize during negotiations.

This rule provides a solid foundation for determining your maximum allowable offer on distressed properties. In this blog, we’re encompassing the intricacies of using the 70% rule to hone your negotiation skills and secure favorable deals on distressed property sales. 

Understanding the 70% rule

The 70% rule is a formula designed to help real estate investors calculate the maximum allowable offer (MAO) for a property they intend to flip. According to this rule, an investor should aim to purchase a property for no more than 70% of its after-repair value (ARV), minus the estimated repair costs. Flipping homes in California appears to be quite challenging and it heightens the degree of complexity for the new or amateur investors as the marketplace is extremely competitive. To dive deep into the nitty-gritty of house flipping, dive into the key ideas of the 70% rule.

  • Accurate ARV Calculation:

The ARV is a critical component of the 70% rule. Ensure you calculate it accurately by examining recent sales of similar properties in the area. This step prevents you from overestimating the property’s value and helps you make an informed initial offer.

  • Thorough Repair Cost Assessment:

Accurately estimating repair costs is another vital aspect of using the 70% rule. Get quotes from contractors and factor in potential hidden costs. Overestimating repair costs is preferable to underestimating, as it ensures you’re prepared for any surprises.

  • Flexibility within the Rule:

While the 70% rule provides a solid foundation, it’s essential to be flexible based on the property’s unique circumstances. A property in an up-and-coming neighborhood might warrant a higher offer, while one in a saturated market might go for something lower.

  • Presenting Your Offer:

When presenting your offer, it’s crucial to communicate your calculations and reasoning. Show the seller that your offer is based on market data and repair estimates, which helps build credibility and fosters a sense of trust. 

A Brief idea on negotiation strategies using the 70% rule

Start with the Rule as a Baseline: Use the 70% rule as a starting point for negotiations. Explain that your offer is calculated to ensure a fair profit margin while accounting for expenses.

  • Research and Due Diligence: Successful negotiations start with meticulous research. Understand the local real estate market, property values, and recent comparable sales. This knowledge empowers you to confidently present your offer and justify it based on facts. To get the details of flipping homes in California, rigorous research is mandatory as it will empower you with the right level of confidence when you’re taking part in the process of negotiation.
  • Highlight Value-Add Opportunities: Emphasise how your plans for renovation and improvement will enhance the property’s value. This can justify a higher offer while showcasing your commitment to the potential of the distressed property for sale.
  • Seller’s Motivation: Understand the seller’s motivation for selling. You may have more wiggle room to bargain for a cheaper price if they’re ready to close right away.
  • Be Willing to Walk Away: One of the most powerful negotiation tools is your willingness to walk away from a deal if the terms don’t align with your calculations and goals. Instead of getting entangled in arguments, have the courage to turn away. 

How to calculate how much you should pay for a distressed property

Calculating the appropriate price for a distressed property involves several factors. Start by assessing the property’s current market value, then consider its condition, location, repair costs, and potential for appreciation. Research recent sales of similar properties in the area and consult with real estate professionals for insights.

To determine your offer, a typical method is to compute the After Repair Value (ARV) and deduct the projected repair costs. However, before making any conclusions, it’s imperative to conduct an extensive study and due diligence. We recommend consulting with the best real estate professionals to derive a road map on how to secure a great deal on distressed property sales. 

Final Words

Mastering the art of negotiation in real estate involves a combination of knowledge, strategy, and effective communication. The 70% rule is a valuable tool that aids you in navigating negotiations with confidence. By conducting thorough research, accurately calculating ARV and repair costs, and remaining flexible within the rule, you position yourself for success.

Remember that negotiation is a skill that improves with practice, so continue honing your abilities to secure profitable deals in the competitive world of real estate. Whether you’re an agile player or an amateur before investing in a distressed property sale, it is essential to reach out to the best professionals in the industry for better insights on current real estate trends and practices.

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