The Home Stretch: From Deal Math to Closing

TLDR
The 70 percent rule is a shortcut. The full math includes the price, rehab, loan costs, hold costs, sale costs, and your profit. Use the result to set your offer, but do not start so low that you destroy trust.

Table of Contents

Where the 70 Percent Rule Comes From

Most people make offers with the 70 percent rule. If the ARV is $300,000, 70 percent is $210,000. Subtract a $50,000 rehab and the shortcut says to pay $160,000.

That shortcut landed close to the long-form math in the example I discussed, but I still want to know what creates the number.

The long-form math includes:

  • Start with the purchase price.
  • Add the full rehab cost.
  • Add loan points and other lender fees.
  • Use interest for the actual hold.
  • Include buyer-side closing costs.
  • Include utilities and other hold costs.
  • Add sales fees and seller-side closing costs.
  • Set the profit or return you need.

If a loan charges 12 percent annual interest and you hold the property for six months, the source uses 6 percent as simple interest math. That is an illustration. Use the lender’s actual balance, draw, accrual, fee, and payoff terms for the deal.

Use the Calculator to Change the Assumptions

The Flippin' Calculator solves for the purchase price. It also shows the cash needed, profit, and yearly return.

The advanced inputs let you change the target return. A higher target lowers the maximum purchase price. In the lesson, changing the target from 15 percent to 20 percent changed the projected profit and offer ceiling.

Anchor Without Destroying Trust

A lower offer can become the opening anchor. Starting at $150,000 instead of $159,000 may pull the seller’s counter lower.

There is a limit. An extreme lowball can destroy the trust you need to finish the deal. The calculator gives you the math. You still need judgment.

The Actual Home Stretch

Once the seller and buyer sign, send the contract to the title company or closing professional named for the deal. The source treats that as the handoff into closing. It is not a sure close. Title defects, liens, loan issues, contract terms, or other needs can delay or stop the deal. Protect the relationship. Respond to real closing requests.