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Where The Seventy Percent Rule Comes From

The rule says pay no more than seventy percent of after repair value minus the rehab budget. The missing thirty percent is not profit. It is closing costs on both ends, financing, holding costs, agent commission and the margin that makes the risk worth taking.

It is a screening heuristic, not a law. In hot markets with thin inventory, disciplined operators sometimes work at seventy five percent because their rehab costs are predictable and their sale is fast. In slow markets, sixty five is closer to safe. What matters is that you know which number you are using and why.

The rule protects you from the most common failure mode, which is not overspending on the rehab. It is overpaying at purchase and then hoping the finishes rescue the deal. They never do.

Estimating ARV Without Fooling Yourself

Use closed sales, not active listings. An asking price is an opinion and a closed sale is a fact. Stay within a tight radius, ideally the same neighborhood and the same school attendance area, and stay recent, ideally within the last six months.

Compare like for like on size, bed and bath count, lot, garage and above all condition. A renovated comparable is the only honest reference for a renovated subject, because the discount for dated finishes is exactly what you are trying to capture.

Then be pessimistic on purpose. Take the middle of the comparable range rather than the top. The one comparable that sold high probably had something yours does not, and building your model on the best sale in the neighborhood is how a thin deal becomes a loss.

• Closed sales only, within roughly half a mile where possible
• Last six months, adjusted if the market has clearly moved
• Match condition, not just square footage
• Use the middle of the range, never the outlier

The Costs People Forget

Holding cost is the quiet killer. Interest on hard money, property taxes, insurance, utilities and lawn care run every single day the property is not sold, and they run at full rate during the two weeks you spend waiting for an inspection to be scheduled.

Selling costs are the other omission. Commission, transfer taxes, title, and the concessions a buyer will ask for after their inspection. Assuming a clean sale at list price with no concessions is optimism disguised as arithmetic.

A deal that only works if nothing goes wrong is not a deal. Run the model with an extra sixty days of holding and a modest price reduction, and see whether you would still do it.

How Design Choices Move ARV

Not every dollar of rehab returns a dollar of value. Kitchens, primary bathrooms, curb appeal and flooring consistently move buyer perception. Bespoke choices, unusual layouts and finishes far above the neighborhood standard usually do not, because the appraiser and the buyer both compare you to the street.

The most reliable rule is to renovate to the top of the neighborhood and stop. Over improving relative to the comparables means you are funding a value the market will not pay you for, and you find out at the appraisal.

Deciding this before you buy, rather than while you are standing in a tile aisle, is the whole reason to run the design and the budget together instead of in sequence.