The 70% Rule, Explained
The 70% rule is the oldest piece of arithmetic in the flipping business, and it survives because it works. The idea is simple: never pay more than 70% of a property's after-repair value, minus what the renovation will cost. The formula this calculator runs is exactly that:
The 30% that the rule holds back is not profit — it is the buffer that has to absorb everything the headline numbers ignore: the agent commissions and closing costs on the sale, the property taxes and insurance and utilities you pay while you hold it, the cost of the money you borrowed, and the near-certainty that some part of the renovation runs over. Take those out and a genuine profit is what remains. Pay above the ceiling and you are eating into the buffer before you have swung a hammer.
The percentage is adjustable in the calculator for a reason. A fast-moving, low-cost market with reliable comps might support 72% or 75%. A slower market, a heavier or riskier rehab, or thin comparable data argues for 65% or lower. Lowering the percentage widens your safety margin; raising it makes your offer more competitive but leaves less room for error. The number you choose is a statement about how much risk the specific deal and market can carry.
How MAO Connects to 100% Purchase-and-Rehab Funding
This is where the arithmetic becomes more than a rule of thumb. RECR's purchase-and-rehab structure can fund up to 100% of purchase, rehab, and closing costs on qualifying joint-venture transactions — but only when total project cost is within 70% of the after-repair value. Read those two sentences together and the 70% rule stops being a tradition and becomes a gate. If your purchase price plus rehab plus closing lands inside 70% of a defensible ARV, the deal fits the window where a zero-cash structure is possible. If it lands above, it does not, at any price.
That is why MAO is the first calculation to run on a potential rehab. It tells you, before you negotiate, whether the price the seller wants can coexist with the structure you want. If the seller is at $210,000 and your MAO at 70% is $179,000, you have learned in thirty seconds that the deal as priced will not clear the gate — and you can either negotiate toward the ceiling, adjust the scope, or walk, rather than discovering the gap three weeks into a file. When the numbers do line up, the 100% purchase & rehab program explains exactly how the structure works and what it requires.
A Worked Example
Start with the defaults. A property will be worth $320,000 after a $45,000 renovation, and you are working at the standard 70%. Seventy percent of $320,000 is $224,000. Subtract the $45,000 rehab and the maximum allowable offer is $179,000. At that purchase price, total project cost before closing is $224,000 — exactly 70% of ARV — which is precisely the ceiling the RECR structure is built around. Push your offer to $195,000 and total project cost climbs to $240,000, or 75% of ARV, and the deal no longer fits the 100% window. The calculator makes that boundary visible before you commit to it.
One caution the arithmetic cannot supply: the answer is only as good as the two numbers you feed it. An inflated ARV or an optimistic rehab budget produces a confident, precise, and wrong maximum offer. Ground the ARV in genuine comparable sales, and build the rehab number line by line rather than rounding.
Build the Rest of the File
MAO sets the ceiling; two other tools fill in the numbers around it. The rehab budget worksheet turns the renovation figure into the line-item scope underwriting expects, so the number you subtract here is defensible rather than guessed. The deal analyzer then runs purchase, rehab, ARV, and exit through one summary so you can see the whole project the way a reviewer will. For a straight resale strategy, the fix & flip financing path covers acquisition and renovation for a planned sale. When your offer, budget, and value support each other, a preliminary review can give you a real read.