1. What is the 70 Percent Rule?

The 70 Percent Rule is a real estate investing guideline used by house flippers to determine the maximum price they should pay for a property. It helps ensure there's enough profit margin after accounting for repair costs and other expenses.

2. How Does the Calculator Work?

The calculator uses the 70 Percent Rule formula:

Where:

• \( MAO \) — Maximum Allowable Offer ($)
• \( ARV \) — After Repair Value ($)
• \( RC \) — Repair Costs ($)

Explanation: The rule accounts for purchase costs, holding costs, selling costs, and profit margin by limiting the offer to 70% of ARV minus repair costs.

3. Importance of MAO Calculation

Details: Calculating the maximum allowable offer is crucial for real estate investors to ensure profitability, manage risk, and avoid overpaying for investment properties.

4. Using the Calculator

Tips: Enter accurate ARV (based on comparable sales) and realistic repair costs. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Why 70% and not another percentage?
A: The 70% rule accounts for approximately 30% in purchase costs, holding costs, selling costs, and profit margin, though this can vary by market.

Q2: What if my repair costs are very high?
A: If the calculated MAO is too low to acquire the property, it may not be a viable flip project unless you can reduce repair costs.

Q3: How accurate is the ARV estimate?
A: ARV should be based on recent comparable sales of similar renovated properties in the same area for maximum accuracy.

Q4: Does this rule work in all markets?
A: The 70% rule is a guideline that may need adjustment for different markets, property types, and investment strategies.

Q5: What other costs should I consider?
A: Besides repair costs, consider closing costs, holding costs, financing costs, and selling commissions in your overall budget.