The 70% Rule Explained — How Cash House Buyers Actually Calculate Offers

Get more information about how we value your home for the cash offer we make to you: Danny Buys Houses home valuation methodology

When a cash buyer makes an offer on your house, is the number arbitrary—or is there actual math behind it?

In this episode, Danny pulls back the curtain on how professional real estate investors evaluate properties and calculate cash offers. He explains the commonly used 70% rule, what “after-repair value” means, how renovation costs affect an offer, and why the difference between an investor’s purchase price and the future resale price is not simply profit.

Using a real-world example, Danny walks through the numbers so homeowners can better evaluate an offer and decide whether selling as-is or renovating the property themselves makes the most sense.

In This Episode

• What the 70% rule is and how investors use it
• How a property’s after-repair value, or ARV, is determined
• Why investors compare recently sold, renovated homes nearby
• How repair costs are estimated and deducted from an offer
• Why the apparent 30% margin is not all investor profit
• The selling costs, commissions, financing expenses, taxes, insurance, and holding costs involved in a renovation
• The risks homeowners face when renovating a property themselves
• Why renovation projects frequently take longer and cost more than expected
• When an investor may be able to offer more than 70% of the property’s renovated value
• How FHA’s 90-day flipping restrictions can affect an investor’s resale timeline

The Basic Cash-Offer Formula

A commonly used starting point is:

Maximum cash offer = 70% of the after-repair value − estimated repair costs

The after-repair value is the estimated price the home could sell for after it has been fully renovated and updated to meet the expectations of buyers in the current market.

Example From the Episode

Danny uses a hypothetical house with an estimated after-repair value of $250,000.

$250,000 × 70% = $175,000

If the property requires approximately $50,000 in repairs:

$175,000 − $50,000 = $125,000 estimated cash offer

At first glance, the difference between a $125,000 offer and a future $250,000 selling price may seem enormous. However, the investor still has to pay for:

• The property purchase
• Renovations and unexpected repairs
• Property taxes and insurance
• Loan interest and origination fees
• Utilities and other holding expenses
• Real estate commissions
• Buyer closing-cost assistance
• Staging and resale preparation
• Market changes and the risk that the home sells for less than expected

Selling expenses alone may total approximately 10% of the eventual resale price. On a $250,000 sale, that could equal roughly $25,000 before accounting for holding costs, financing expenses, cost overruns, or market risk.

Are You Being Lowballed?

A lower offer does not automatically mean the buyer chose an arbitrary number or is attempting to take advantage of the seller. A legitimate investor should be able to explain:

1. The renovated value they assigned to the property
2. The comparable home sales used to support that value
3. The repairs they believe the house requires
4. The costs and risks included in their calculation

The 70% rule is generally used as a ceiling for properties requiring a substantial renovation. A house needing fewer repairs may support a higher percentage, such as 75%, depending on the property, market conditions, resale timeline, and associated risk.

Learn More

For a more detailed explanation of how Danny Buys Houses evaluates properties and calculates offers, visit:

DannyBuysHouses.com/valuation-methodology

Request a Cash Offer

Have an inherited property, a house needing major repairs, or a home you simply do not want to renovate and list?

Visit DannyBuysHouses.com or call Danny directly at 210-881-7707 to discuss the property and request a no-obligation cash offer.

About Danny Buys Houses

Danny has been buying houses for cash in San Antonio for more than 20 years. Danny Buys Houses helps homeowners sell properties as-is without making repairs, preparing the house for showings, or dealing with the uncertainty of a traditional listing.

Subscribe to the Danny Buys Houses Podcast for straightforward information about selling a house, understanding cash offers, and navigating difficult property situations.