Term 01
ARV
After Repair Value — what the home will sell for after renovations are complete. Estimated from recent comparable sales, not the listing price.
Source: Avg $/sqft of comps × your sqft
Term 02
Renovation Cost
Total estimated cost to bring the property to market-ready condition. Most beginners underestimate this by 20–30%. Always add a 10% contingency.
Tip: Get a contractor walk before finalizing
Term 03
MAO
Maximum Allowable Offer — the most you should pay. Derived from the 70% Rule, which preserves margin for costs and profit.
= (ARV × 0.70) − Renovation Cost
Term 04
Holding Costs
Ongoing expenses during renovation and sale: loan interest, taxes, insurance, utilities. Accumulate daily. A 6-month flip at $1,200/month adds $7,200 to your costs.
Typical range: $800–$2,000/month
Calculator
Enter the four numbers below. The calculator applies the 70% Rule and outputs your maximum offer, projected profit, and a deal rating.
Based on comparable sales in the area, not the asking price
Include a 10% buffer for surprises
The price you plan to pay or offer
Loan interest + taxes + insurance + agent commissions (~10% of ARV)
Max Allowable Offer
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Projected Profit
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Return on ARV
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Worked Example
Sample Deal: 3BR/1BA, Baltimore, MD
A beginner investor finds a distressed property listed at $189,000. Here is how the analysis works.
| ARV (from 3 comparable sales) | $285,000 |
| Renovation estimate (kitchen, baths, flooring, paint) | $38,000 |
| + 10% contingency | $3,800 |
| Total renovation budget | $41,800 |
| MAO = ($285,000 × 0.70) − $41,800 | $157,700 |
| Asking price | $189,000 |
| Negotiated purchase price | $155,000 |
| Holding & closing costs (est. 5 months) | $22,500 |
| Projected profit | $285,000 − $219,300 = $65,700 |
Result: Proceed. The negotiated price came in below MAO by $2,700. Projected profit of $65,700 represents 23% of ARV, well above the 15% minimum threshold. The initial asking price did not work but negotiation made the deal.
Common Beginner Mistakes
Most CommonUsing the listing price or Zestimate as ARV. ARV must come from actual comparable sales, recently sold, nearby, similar size and condition. Automated estimates are not comps.
Most CostlyUnderestimating renovation costs. Skipping a contractor walkthrough, forgetting permits, or missing hidden issues (mold, foundation, electrical) can double your budget. Always add 10% contingency.
Forgetting holding costs. Every week a project runs over, you pay interest, taxes, and insurance. A 2-month delay at $1,500/month wipes $3,000 from your margin. Build the full timeline into your analysis.
Overpaying because of emotion. Falling in love with a property and offering above MAO is how beginners lose money on their first deal. The calculator tells you the ceiling. Do not exceed it.
Skipping agent commissions and closing costs. These typically add 8–10% to the cost of a transaction. Many beginners run the numbers without them and are surprised when their profit shrinks at closing.
Click items to mark as reviewed.
Key Terms
70% Rule
Pay no more than 70% of ARV minus renovation costs. The remaining 30% covers transaction costs (~10%), holding costs (~10%), and profit (~10%).
Comps
Comparable sales — recently sold homes similar in size, condition, and location. The only reliable basis for estimating ARV. Must be actual closed sales, not active listings.
Hard Money Loan
Short-term financing from a private lender, typically 8–15% interest, secured by the property. The most common financing vehicle for flips. Terms: 6–18 months.
Contingency
A 10% budget reserve built into the renovation estimate to absorb unexpected costs. Treat it as mandatory, not optional.
How to Use This Guide (Full Version)
Works Cited
Works Cited
Scott, J. The Book on Estimating Rehab Costs: The Investor's Guide to Defining Your Renovation Plan, Building Your Budget, and Knowing Exactly How Much It All Costs. Revised ed., BiggerPockets Publishing, 2019.
Scott, J. The Book on Flipping Houses: How to Buy, Rehab, and Resell Residential Properties. Revised ed., BiggerPockets Publishing, 2019.