Here's all you need to know about our purchasing requirements.
Frontdoor uses different ways to invest in real estate. We fix up houses to sell, buy houses to rent out, use short-term rentals like Airbnb, and try other new ideas. We want to be clear and fair with everyone, so we have rules for buying properties.
A: No, Frontdoor is a company that invests in real estate. We buy properties to sell or rent them. We work with real estate agents to do this.
A: Sometimes we assign contracts, but mostly we buy properties to sell or rent. We need to be flexible with our plans. If a deal isn't right for us, we prefer to pass it to a partner instead of canceling the contract. We care about our relationships, and we try not to cancel contracts. Also, we have other companies we work with, so it's easier to assign contracts to them instead of moving property ownership after closing.
At Frontdoor, we collaborate with real estate agents to find the best flip or wholesale deals. Here's how we invest in fixer-uppers and what we're looking for:
Offer Price = (ARV x 0.70) - Repair Costs
We use the "70 Percent Rule" to calculate the right price for old or damaged properties. We start with the After Repair Value (ARV), which is the price the property will likely sell for after we fix it up. Then, we take 70% of the ARV and subtract the repair costs to find our final offer price. Our average repair is $37.24 per square foot, but it can be $10-$50 per square foot depending on the property. We also adjust for other costs. This rule helps us cover two closings, agent fees, holding costs, and all repairs. Our goal is to make a profit of around 10% of the ARV.
As a real estate agent, please keep an eye out for properties that fit our criteria. We're interested in properties that have potential for profit after renovation, are located in desirable areas, and can be acquired at a price that aligns with the "70 Percent Rule."
Sometimes we can make a deal that benefits both parties. For example, we might offer a higher price if the seller helps with financing, lowering our overall costs. In such cases, we can pass on the savings to the seller through a higher asking price.
We might offer less than the 70 Percent Rule if the property has extra risks, such as being in a remote location where it's difficult to find comparable properties.
We usually avoid properties with serious fire damage, major foundation issues, mold, termites, or septic systems. We will inspect these properties carefully and might cancel the contract if they don't meet our criteria.
By understanding our investment strategy and criteria, you can better serve us in finding ideal properties to flip or wholesale. We appreciate your partnership and look forward to working together on successful real estate deals.
Here you can see how purchasing this 1998 property at $250,000 aligns with the "70 Percent Rule"
$475,000 x .70 - $45,000 = $287,500 Max Offer
With a top-of-market price of $475,000, Frontdoor's max offer of $287,500. The asking price of $250,000 is under our max offer so this deal meets the buying criteria.
Buy Today:
$250K
At Frontdoor, we also invest in rental properties by buying move-in ready properties or ones that need only minor updates. Renting has more variables than flipping, such as taxes, utilities, vacancy costs, and management fees. To ensure a property will generate positive cash flow, we use the following test.
Rent ≥ (PITI + Operating Expenses) x 1.2
We use the "120 Rule" to find the right price for rental properties. We assume all rentals are financed with 30-year terms and a 20% down payment. To be profitable, the potential market rent must be at least 120% of the total monthly costs, including principal, interest, taxes, insurance (PITI), and operating expenses. This means the monthly rent must be 20% higher than the monthly expenses. To make sure a rental property meets this cash flow rule, we have to make the right offer. Like with flips, creative deals can lower our costs and let us offer more money to sellers.
As a real estate agent, please search for rental properties that meet our criteria. We're interested in properties that can generate positive cash flow, are located in safe and growing neighborhoods, and can be acquired at a price that aligns with the "120 Rule."
Rentals are long-term investments, so we're careful about where we invest. We usually avoid rental properties in high-crime areas, rural communities, or declining markets to ensure our investments remain valuable in the long run.
By understanding our rental investment strategy and criteria, you can better assist us in finding ideal properties for our buy-and-hold rental portfolio. We value your partnership and look forward to working together on successful real estate deals.
At Frontdoor, we're also interested in investing in short-term rental properties, including Airbnb units. Short-term rentals have unique variables, such as occupancy rates, seasonal fluctuations, and property management fees. To ensure a property will be profitable as a short-term rental, we use the following test.
Average Monthly Income ≥ (PITI + Operating Expenses + Management Fees) x 1.5
We use the "150 Rule" to determine the right price for short-term rental properties. We assume all rentals are financed with 30-year terms and a 20% down payment. To be profitable, the average monthly income from the short-term rental must be at least 150% of the total monthly costs, including principal, interest, taxes, insurance (PITI), operating expenses, and management fees. This means the average monthly income must be 50% higher than the monthly expenses. To ensure a short-term rental property meets this cash flow rule, we have to make the right offer. Creative deals can lower our costs and allow us to offer more money to sellers.
As a real estate agent, please search for properties that would make great short-term rentals or Airbnb units. We're interested in properties that can generate positive cash flow, are located in desirable areas for tourists or business travelers, and can be acquired at a price that aligns with the "150 Rule."
For short-term rentals, location, local regulations, and property condition play significant roles. We typically avoid properties in high-crime areas, remote locations, or those that would require extensive renovations to make them suitable for short-term rental guests. Additionally, we consider local laws and regulations regarding short-term rentals to ensure compliance and long-term profitability.
By familiarizing yourself with our short-term rental investment strategy and criteria, you can effectively help us find suitable properties for our STR or Airbnb portfolio. We appreciate your collaboration and are eager to work together on fruitful real estate ventures.
Step 2
Send your Frontdoor Buyer a short video walkthrough and photos.
Step 3
We will send you a cash and creative offer so your client can pick what works best for them.
With Frontdoor, you don't need to market, show, or list difficult properties. We'll buy them, so you can focus on other deals.
