How do investors calculate cash offers?
Updated October 10, 2026
Investors make their money on the purchase. That is the premise behind the 70% rule: a renovation investor needs to buy at a price that leaves room for repairs, other costs, risk, and a profit when the home is resold. The purchase price establishes that opportunity; the final result still depends on execution and the resale. Let’s understand how the calculation works and what it means for you as a seller.
Watch Larry’s explanation
Captions are included.
Ten things to understand about the 70% rule
Investors make their money on the purchase
An investor cannot rely on a future buyer paying more than the market supports. Buying at the right price creates room for the work, expenses, and return the deal requires. Paying too much at the beginning can leave little room to recover later.
Start with the after-repair value
After-repair value, or ARV, is an estimate of what the home could sell for after the planned improvements are completed. Support that estimate with comparable sales and a realistic finished condition. It is different from your home’s current as-is value.
Apply the 70% rule
The rule of thumb is: estimated maximum purchase price = (after-repair value × 70%) − estimated repair costs. Multiply the projected finished value by 70%, then subtract the renovation budget.
Deduct the repair budget
Repairs are subtracted after multiplying the ARV by 70%. The estimate should reflect the work needed to achieve the projected resale value. Labor, materials, permits, and unexpected conditions can affect that budget.
Understand the remaining 30%
The portion outside the 70% purchase-and-repair budget leaves room for other expenses, uncertainty, and the investor’s intended return. It is not automatically a 30% profit. Financing, holding costs, closing expenses, and resale costs can consume that margin.
The inputs matter as much as the formula
An overly optimistic resale estimate or an understated repair budget can make a poor deal appear attractive. Ask which comparable sales and repair assumptions support the investor’s calculation.
Treat 70% as a starting point
The rule is a screening tool, not a required offer percentage or an appraisal. Investors may adjust their purchase limits for the property, competition, costs, and risk. Some offers will be above or below the result.
Know the investor’s plan
This guide focuses on buying, renovating, and reselling. Rental investors may analyze income and operating expenses differently. Ask whether the buyer plans to purchase directly or assign the contract to another buyer.
Review the offer beyond the price
Cash does not automatically mean no inspection, no fees, or no cancellation rights. I’ll help you confirm available funds and review deposits, deadlines, assignment provisions, and other conditions with your attorney.
Compare the offer with your selling goals
The investor’s purchase target is not the only way to evaluate your home. Let’s compare a cash offer with a realistic traditional listing, including net proceeds, preparation, timing, and the work you would take on.
Compare the outcome, not just the headline price
A cash offer from an investor is one option to compare with a traditional listing. The price, terms, costs, and timing matter. Let’s review your goals before deciding which path fits. The thing I would keep top of mind is that a cash offer from an investor is going to come with a hefty discount in most cases.
A practical example: the 70% rule in action
Suppose an investor estimates that a home could sell for $400,000 after improvements and that the required renovation will cost $50,000. These are hypothetical figures, not an estimate for your property.
The calculation
($400,000 × 70%) − $50,000 = $230,000
- Estimated after-repair value: $400,000.
- 70% of that value: $280,000.
- Less estimated repairs: $50,000.
- Illustrative maximum purchase price under the rule: $230,000.
Buying for $230,000 and spending $50,000 on repairs puts the purchase and renovation total at $280,000. The remaining $120,000 between that total and the projected $400,000 resale must cover other expenses, risk, and profit. It is not all profit, and the resale price is not guaranteed.
The lesson: Investors make their money on the purchase by creating room in the deal from the beginning. For you as a seller, that explains the investor’s target; it does not establish your home’s current market value or mean you should automatically accept the offer. Let’s compare it with your other options.
Before accepting a cash offer
- Confirm the buyer’s identity, available funds, and ability to close.
- Request the full written offer, including fees and conditions.
- I’ll work with your attorney to help you understand inspection, cancellation, and assignment provisions.
- Estimate your net proceeds after your mortgage payoff and other seller costs.
- Let’s compare a cash offer with a realistic traditional-listing plan.
Common questions
Does cash mean there will be no inspection or price changes?
No. Those terms depend on the written agreement. Some buyers inspect, request changes, or retain cancellation rights. Let’s examine those provisions with your attorney before you decide.
Is there a standard percentage every investor pays?
The 70% rule is a familiar starting point for renovation investors, but it is not a universal requirement. Actual offers depend on the resale estimate, repairs, other expenses, risk, competition, and the investor’s strategy. Ask for the assumptions behind the offer.
Will I always net more with a traditional listing?
That cannot be promised. A traditional listing may attract buyers willing to pay more, but the outcome depends on the property, market response, preparation, costs, and timing. Let’s compare estimated net proceeds and the work involved instead of assuming either path is always better.
Can you help me receive an offer from local investors?
Yes. Tell me about the property and what you want to accomplish. I can help you explore a cash offer from local investors and compare it with a traditional sale. You decide which option fits your situation.
“Your Marketing Matters”
Before you make your next move…
Let’s compare your options with a clear view of the numbers and the terms. I’ll help you evaluate a cash offer alongside a selling strategy built around your goals.
Straightforward answers. Smart solutions. Real results.
Further reading: Rocket Mortgage explanation of the 70% rule · Rocket Mortgage explanation of the 70% rule · NAR guidance on comparing offers.
