Module 5: Comping & Valuation

Applying the 70% Rule

Convert your ARV into Maximum Allowable Offer using the industry standard formula

The 70% Rule Formula

Maximum Allowable Offer (MAO) =

(ARV × 70%) - Repair Costs

ARV

After Repair Value

70%

Industry Standard

Repairs

Estimated Costs

Step-by-Step Application

1

Determine Your ARV from Comps

Use the comping process to calculate after-repair value. This is what the property will be worth after renovations.

Example: ARV = $250,000

2

Multiply ARV by 70%

The 70% accounts for buyer profit, closing costs, holding costs, and unexpected expenses.

$250,000 × 0.70 = $175,000

3

Estimate Repair Costs

Use the smart MAO calculator or estimate based on scope of work: cosmetic, moderate, or heavy rehab.

Example: Moderate rehab = $40,000

4

Subtract Repairs from 70% ARV

This is your Maximum Allowable Offer - the highest you should pay to make a deal work.

$175,000 - $40,000 =

$135,000 MAO

This is the maximum offer you should make to ensure buyer profit and safety margin.

Why 70%?

Buyer Profit (15-20%)

Investors need profit to make deals worthwhile. Flippers expect $25K-$40K minimum.

Closing Costs (2-3%)

Title fees, escrow, recording, buyer closing costs on the sale.

Holding Costs (3-5%)

Mortgage payments, insurance, utilities, taxes while renovating and listing.

Safety Buffer (5-7%)

Unexpected repair overruns, market fluctuations, longer sale times.

When to Adjust the 70% Rule

  • Use 65-68% in slower markets, higher-priced homes ($400K+ ARV), or if you're new and want extra safety
  • Use 72-75% in hot markets with lots of buyer competition, or for landlord buyers who accept lower profit margins
  • Always check with your buyer list - some buyers have specific formulas they use