1. What is the 70% Rule?

The 70% Rule is a guideline used by real estate investors to determine the maximum price they should pay for a fixer-upper property. It helps ensure there's enough profit margin after accounting for renovation costs and holding expenses.

2. How Does the Calculator Work?

The calculator uses the 70% Rule formula:

Where:

• \( \text{ARV} \) — After Repair Value (estimated property value after renovations)
• \( \text{Repair Costs} \) — Total cost of repairs and renovations

Explanation: The 70% factor accounts for profit margin, closing costs, holding costs, and other expenses. The remaining 30% is typically allocated to these costs and the investor's profit.

3. Importance of the 70% Rule

Details: Following the 70% Rule helps real estate investors avoid overpaying for properties, ensures adequate profit margins, and minimizes financial risk in house flipping projects.

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 in USD and non-negative.

5. Frequently Asked Questions (FAQ)

Q1: Why 70% and not another percentage?
A: 70% is a industry standard that typically accounts for profit, closing costs, holding costs, and unexpected expenses. Some investors may use 65% in competitive markets.

Q2: What if my calculated Max Offer is negative?
A: A negative result indicates the repair costs are too high relative to the ARV. You should either negotiate a lower purchase price, reduce repair costs, or reconsider the investment.

Q3: Does this rule work in all markets?
A: The 70% Rule is a guideline that may need adjustment based on local market conditions, property type, and your specific investment strategy.

Q4: What expenses are included in the 30%?
A: The 30% typically covers profit margin, closing costs, holding costs (taxes, insurance, utilities), financing costs, and contingency for unexpected expenses.

Q5: Should I always stick to the 70% Rule?
A: While it's a good guideline, experienced investors may deviate based on market conditions, property potential, and their risk tolerance. Always conduct thorough due diligence.