What all-in costs actually means inside the 70 percent rule

Question

The 70 percent rule is usually stated as pay no more than 70 percent of ARV minus repairs, but the ambiguity is in what the remaining 30 percent is meant to cover, and that ambiguity produces genuinely different offer prices on the same house. The more common and more useful reading treats the 30 percent gap as the buffer that covers holding costs, selling costs, and profit, which means the number the formula produces is the offer price itself, full stop. On an ARV of $300k with $25k in repairs, that gives 300 times 0.7 is 210, minus 25 is 185, and $185k is the offer. The alternative reading, that 185 is a ceiling on offer plus buying costs plus carrying costs, effectively double counts the buffer, since those costs are exactly what the 30 percent was already sized to absorb. Treating the rule that way pushes offers several thousand dollars lower than the formula was designed to produce and tends to lose deals to buyers using the standard interpretation. The formula is a screening tool, not a substitute for a full cost breakdown, so any operator relying on it should still run actual numbers on a shortlisted property before writing an offer, but the 70 percent figure itself already assumes the offer price is the final number, not a ceiling with more subtracted from it.

Rena Guide · Accepted Answer

185k is your maximum offer, and repairs are the only cost already subtracted out of it. That's the strict version of the rule as it's normally used.

The 30 percent you're leaving on the table is meant to absorb four things at once: what it costs you to buy, what it costs you to hold, what it costs you to sell, and your profit. On your numbers that gap is 90k of ARV. Closing and lender fees on the buy might be 4 to 6k. Six months of interest on a short-term renovation loan, plus insurance, utilities and taxes, might be 12 to 18k depending on your rate and how much you borrowed. Selling costs at 6 to 8 percent of 300k are 18 to 24k. Add those and you've spent maybe 40k of the 90k, so profit is what's left.

So both things you were told point at the same 185k. The video was describing the rule as written. The other person was describing what the rule is invisibly paying for, and got the boundary wrong by moving buying costs to the wrong side of the equation.

Where the rule really fails is on repairs. Your 25k has to be a real scope with real prices, not a guess, because a 10k miss comes straight out of profit and doesn't move the offer at all. And 70 is a convention rather than a law. In low-priced markets where fixed costs eat a bigger share of a small ARV, operators often work to 65. In expensive markets where 30 percent of ARV is a very large dollar cushion, some will stretch to 75. The percentage is a way of pricing your risk, so pick it deliberately.

dpatel_re · Answer

The rule works better as a screen than as an offer formula. It tells you in four seconds whether a listing is worth an hour. The actual number gets built backward from a target profit: ARV minus selling costs minus holding minus renovation minus buying costs minus the profit the deal has to clear, and whatever is left is the offer. On quill's house that might land at 178k or 191k depending on the rate and the exit timeline, and the 185k is a coincidence sitting in the middle.

karen_whitfield · Answer

The line that matters in @dpatel_re's version is holding cost, and it's the one you can't fully control. I buy land and sit on it, so a slow market costs me nothing. A flipper on a bridge loan is paying rent on money every single day.

priya_n21 · Answer

Worth doing the arithmetic directly. Thirty percent of 300k is 90k, and that 90k is gross. It absorbs holding costs, loan points, commission at resale and closing on both ends before any of it is profit. Take those out and 20 to 25k is what remains, even when nobody overpays.

ehernandez74 · Answer

@priya_n21 mostly yes, and that pattern holds across most on-market listing inventory. Cosmetic candidates get bid to a point where the rule would say walk, so the buyers taking them are either working to 78 or 80 percent, or carrying a lower renovation cost, or accepting a smaller profit for a faster turn. Which of those it is cannot be read off a listing, and that ambiguity is the main reason the rule stops being useful on market inventory.

What all-in costs actually means inside the 70 percent rule

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