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It means he is looking for two sizes of homes: 3 bedrooms, 2 bathrooms OR 4 bedrooms, 2 bathrooms. The after repaired value (ARV) should be between $270,000 and $310,000. This is the price the house is estimated to sell for to a retail buyer (not an investor) after all repairs / remodeling / fix-up. The most he is willing to pay is 70% of that, so $189,000 to $217,000 – but he would like to pay less. He expects he will have to spend some money fixing up the home and on holding/selling costs, but after all of his costs he needs to make at least $45,000 to $50,000 (or more) on the deal
If he purchases at 70% of ARV and expects a $45k spread, his repair and holding/selling costs should not exceed $36,000 – $48,000 (depending on ARV). The lower his purchase price is, the more money he could consider spending on repairs to meet his goal of a $45k-$50k spread.
Sure, here is how I came up with those numbers:
For a house with a $270,000 ARV the minimum spread he will accept is $45,000. Subtract $45k from $270k and you get $225,000. This is the maximum the investor can have in the property to achieve the spread he wants. $225k has to include the purchase price, repair costs, holding / selling costs, etc.
He said the most he will pay is 70% of ARV. If ARV is $270,000 then his max purchase price is $189,000.
$225k minus $189k = $36k. $36k is what he can spend after purchasing the house to achieve a spread of $45k IF the house sells for $270k. Keep in mind the $36k needs to cover repairs plus any anticipated holding and selling costs.
You can plug numbers into these formulas to get to the same result.
ARV – desiredSpread = entireCost
ARV * maxPurchasePercent = maxPurchasePrice
entireCost – maxPurchasePrice = allowedCostsOverPurchasePrice$270k – $45k = $225k
$270k * 70% = $189k
$225k – $189k = $36k
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