1. What is the 70 Percent Rule?

The 70 Percent Rule is a real estate investing guideline that helps determine the maximum purchase price for a property that needs repairs. It ensures investors leave enough margin for profit, holding costs, and unexpected expenses after renovations.

2. How Does the Calculator Work?

The calculator uses the 70 Percent Rule formula:

Where:

• \( \text{ARV} \) — After Repair Value (estimated property value after renovations)
• \( \text{Repair Costs} \) — Total estimated cost of repairs and renovations
• \( 0.7 \) — The 70% multiplier that accounts for profit margin and holding costs

Explanation: This rule ensures that the purchase price plus repair costs don't exceed 70% of the property's after-repair value, leaving 30% for profit, closing costs, and other expenses.

3. Importance of the 70% Rule

Details: Following the 70% rule helps real estate investors maintain proper profit margins, account for unexpected costs, and minimize financial risk when flipping properties or purchasing rental properties that need rehabilitation.

4. Using the Calculator

Tips: Enter accurate ARV estimates based on comparable properties in the area. Include all repair costs (materials, labor, permits). All values must be non-negative numbers in USD.

5. Frequently Asked Questions (FAQ)

Q1: Why 70% and not another percentage?
A: 70% is a conservative industry standard that typically leaves enough room for profit, holding costs, closing costs, and unexpected expenses.

Q2: When should I use a different percentage?
A: In competitive markets, investors might use 75-80%, while in riskier markets or for inexperienced investors, 65% might be more appropriate.

Q3: What costs should be included in repair costs?
A: Include all material, labor, permit costs, and any professional fees (inspections, architects). Also consider carrying costs during renovation.

Q4: How accurate should my ARV estimate be?
A: ARV should be based on recent comparable sales of similar properties in the same area that have been fully renovated.

Q5: Does this rule work for all types of properties?
A: It works best for single-family homes and small multi-family properties. Commercial properties and luxury homes may require different calculations.