What this calculator does
Flippers buy a house that needs work, fix it and sell it. The 70% rule is a quick screen: pay no more than 70% of the after-repair value (ARV) minus the repairs. The 30% gap is meant to cover holding, financing, buying and selling costs and leave a profit. Because it's only a rule of thumb, the calculator also runs a full profit estimate.
How it's calculated
Financing = loan × rate ÷ 12 × months + loan × points%
Profit = ARV − purchase − repairs − holding × months − financing − buying costs − selling costs
Cash invested = purchase − loan + repairs + holding + financing + buying costs
ROI = profit ÷ cash invested
Selling costs come out of the sale proceeds, so they reduce profit but aren't cash you put in. The loan is treated as interest-only, as short-term rehab loans often are.
Worked example
ARV is $300,000 and repairs are $40,000, so the MAO is 300,000 × 0.70 − 40,000 = $170,000. You buy for $165,000 with an 80% loan ($132,000) at 10% and 2 points: 6 months of interest is $6,600 and points are $2,640. Holding is $1,500 × 6 = $9,000, buying costs $3,300 (2%) and selling costs $24,000 (8% of ARV).
Cash invested = 33,000 + 40,000 + 9,000 + 9,240 + 3,300 = $94,540 → ROI 52.32%
MAO at 70% and 75%
| ARV | Repairs | MAO at 70% | MAO at 75% |
|---|---|---|---|
| $200,000 | $30,000 | $110,000 | $120,000 |
| $300,000 | $40,000 | $170,000 | $185,000 |
| $400,000 | $60,000 | $220,000 | $240,000 |
| $500,000 | $75,000 | $275,000 | $300,000 |
Limitations
- The 70% rule is an investor rule of thumb, not a standard. Investors adjust the percent for the market and the risk.
- Profit is before income tax. The IRS taxes net short-term gains, on assets held one year or less, as ordinary income.
- Resale buyer pool: federal FHA rules generally make a home resold 90 days or less after the seller bought it ineligible for an FHA-insured mortgage, and resales within 91 to 180 days at a big markup need extra documentation.
- ARV and repair estimates are the biggest risk. Add a contingency to repairs.