Ask a room of new investors how to calculate a maximum offer and most will recite the same line: take seventy percent of after repair value, subtract repairs, and that is your number. It gets repeated in every course and podcast in the business, which is exactly why it deserves more scrutiny than it usually gets.
The formula is not wrong. It is a heuristic that encodes a set of assumptions, and it stops working the moment those assumptions do not describe your deal. Understanding what it is actually made of is what lets you use it well.
What the Formula Is Actually Doing
Written out, the rule says your maximum allowable offer equals ARV multiplied by seventy percent, minus estimated repairs. On a property worth two hundred thousand restored, needing thirty thousand of work, that is one hundred and ten thousand.
The thirty percent that gets removed is not profit. It is a bundle covering several separate things: the buying costs, the holding costs across the renovation period, the selling costs at the other end, a margin for the repair estimate being wrong, and the actual profit that makes the project worth doing.
That bundling is the formula's strength and its weakness. It is fast, which is what you need when you are triaging a list of a hundred properties. It is also opaque, because every one of those components varies by market, by property, and by month, and the single number hides all of that movement.
Where the Assumptions Break
The rule was built around a fairly specific picture: a moderately priced house, a conventional renovation, a normal holding period, and a resale to a retail buyer. Move away from that picture and the arithmetic misleads you.
Price point is the biggest distortion, because most of the costs inside that thirty percent do not scale with value. On a low-priced property, fixed costs consume a much larger share, and seventy percent can be far too generous. On a high-value property, the same fixed costs are a rounding error, and rigid adherence to seventy percent means you never win a deal that would have been perfectly profitable.
Renovation scope matters just as much. A cosmetic refresh carries far less risk than a full gut with structural work, and the buffer inside the formula does not distinguish between them. Long, complex projects also carry more months of holding cost, which the rule does not see at all.
Market temperature moves it too. Fast-moving markets with short days on market carry less holding risk than slow ones. Interest rates change the cost of capital and therefore the cost of every month you hold.
And the exit strategy changes the whole calculation. The rule is built for a flip. If you are holding a rental, the relevant math is cash flow and debt service rather than resale margin. For seller financing or subject-to deals, terms frequently matter more than price, and a formula that only prices cash offers will tell you to walk away from deals that work beautifully on terms.
Wholesaling Changes the Number
If you are assigning contracts rather than renovating, your buyer is the one who needs the seventy percent margin. Your assignment fee comes out of that same spread, which means the contract price has to sit below what your buyer's own formula produces.
This is the arithmetic that catches new wholesalers. A contract written at exactly seventy percent minus repairs leaves nothing for the assignment, and the deal will not move no matter how good the marketing is. Your number has to be your buyer's number minus your fee, and the only way to know your buyer's number is to know your buyers. Another argument for building the cash buyer list before you need it rather than after.
Build It Up Instead
The alternative to the shortcut is to price the components directly. Start at ARV. Subtract the real selling costs, which are commissions, transfer taxes and concessions. Subtract holding costs, calculated as your actual monthly carry multiplied by a realistic timeline rather than an optimistic one. Subtract closing costs on the purchase. Subtract the repair estimate. Subtract a contingency on that estimate, because repair budgets are systematically optimistic. Then subtract the profit you require for taking the risk.
What remains is your maximum offer, built from numbers you can defend and adjust individually. It takes longer, which is why it belongs at the stage where a property is a real candidate rather than a row on a list.
Used together the two approaches work well. Screen with the rule, underwrite with the buildup. The rule tells you which properties deserve an hour of your attention, and the buildup tells you what to actually offer.
The Input That Decides Everything
Both approaches depend entirely on two estimates, and neither formula can rescue a bad one. If your ARV is wrong, your offer is wrong by the same margin, which is why the comp selection rules behind ARV matter more than the offer formula does. If your repair estimate is low, and first repair estimates usually are, the buffer you thought you had is already spent. That problem is worked through in estimating a rehab you have not walked.
Worth tracking over time: what you offered, what the property actually sold for, and what the work actually cost. A handful of those comparisons will teach you more about your own estimating bias than any formula, and they only exist if the numbers were written down on the deal record rather than in a text thread.
Where the deals this prices actually come from is mapped in motivated seller niches.
Screen with the rule, underwrite with the buildup. The shortcut tells you which properties deserve an hour of attention; only the component math tells you what to actually offer.