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 itHow a property’s after-repair value, or ARV, is determinedWhy investors compare recently sold, renovated homes nearbyHow repair costs are estimated and deducted from an offerWhy the apparent 30% margin is not all investor profitThe selling costs, commissions, financing expenses, taxes, insurance, and holding costs involved in a renovationThe risks homeowners face when renovating a property themselvesWhy renovation projects frequently take longer and cost more than expectedWhen an investor may be able to offer more than 70% of the property’s renovated valueHow FHA’s 90-day flipping restrictions can affect an investor’s resale timelineThe 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 purchaseRenovations and unexpected repairsProperty taxes and insuranceLoan interest and origination feesUtilities and other holding expensesReal estate commissionsBuyer closing-cost assistanceStaging and resale preparationMarket changes and the risk that the home sells for less than expectedSelling 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: The renovated value they assigned to the propertyThe comparable home sales used to support that valueThe repairs they believe the house requiresThe costs and risks included in their calculationThe 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.
