Dropmodel Release: An Inside Look at Our Max Offer - 70% Rule Calculator

Dropmodel Release: An Inside Look at Our Max Offer - 70% Rule Calculator

After many requests from our users, we’re happy to introduce our newest quick calculator: the Max Offer - 70% Rule Calculator.

The 70% rule is an indispensable formula for wholesalers, brokers, and investors in the single-family real estate investment space. The rule uses a percentage to produce a margin or “spread” between ARV minus renovation/repairs and purchase price. That spread approximates project performance and acts as an early indicator of whether a project is likely to meet investor goals.

A pro tip here is that 70 percent isn’t a static number to be used across all investments. Every investment opportunity is different, with markets in constantly shifting conditions. As a result, investment return goals are all over the place. Plugging the right percentage into this formula is key to getting results that accurately reflect a project’s potential.

Our newest quick calculator lets you do exactly that. 

Here’s How It Works

The Max Offer - 70% Rule Calculator plugs the investor’s target percentage into the formula:

Offer or purchase price = X% of After renovation/repair value (ARV), less renovation/repairs

To generate the offer amount, enter a target percentage, renovation/repair costs (including contractor markup and contingency, if applicable), and ARV. You can even include a minimum gross profit hurdle (gross profit = ARV, less offer/purchase price and renovation/repair costs). If this results in a lower offer than the one produced using the 70% percent rule, this might impact the offer amount. Optional inputs for wholesalers are included. 

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How to Use the Sensitivity Sliders

Another cool element of this calculator? Our sensitivity sliders. In the results section, you’ll see a group of interactive sliders. Move these around to adjust key assumptions in the equation, and see how those adjustments impact the maximum offer, as well as other performance metrics that might be relevant to an investor. 

Compare and contrast real estate investments—whether real or hypothetical—in real time, any time. It might just open your eyes to possibilities you never imagined before.

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How to Make the Most of the Max Offer - 70% Rule Calculator

Once you’ve generated your results, compare the potential offer price with recent sales or on-market deals that share location, physical, or other characteristics using our Sales Comparables Tool.

If an opportunity results in an offer that you believe could be accepted, explore the next steps using the Flip Probability Model. It will give you a more detailed project overview, including the impact of financing, and additional relevant cost details.

Tips For Developers/Rehabbers

You’ll benefit from determining a range of target percentages to use in the formula depending on all of the factors that might swing your desired investment returns. You can reverse-engineer your way to a range of target percentages by entering the stats of projects you’ve completed into the Flip Profitability Model. The model will generate data on that project’s investment performance. 

If you were happy with the returns on those projects, use that data as a starting point for your range of target percentages for a comparable new project. If the investment performance of a certain project wasn’t adequate, apply that insight to your Max Offer - 70% Rule Calculator inputs by adjusting your target percentages accordingly. 

Tips For Wholesalers

Try to collect as much information as you can about your buyers—not only the types of projects and locations they’ll accept, but details around their target percentages and what they’ll settle for in certain cases. If they don’t know, or you’re having to complete projections without that information, see the tip for developers/rehabbers above.

Once you know what investors will accept, you can adjust offer pricing to increase your chances of maximizing profit and achieving a quick sale to the end-buyer.

The 70% Rule Explained: A Fast and Flexible Formula for Real Estate Investing

The 70% Rule Explained: A Fast and Flexible Formula for Real Estate Investing

Dropmodel Release: An Inside Look at Our Real Estate Rental Comparables Tool

Dropmodel Release: An Inside Look at Our Real Estate Rental Comparables Tool