How to read this result
In the default example, maximum allowable offer is $210,000.00. Results describe this input scenario; they are not a recommendation.
Change one assumption at a time to see how it affects the scenario. Compare periods and cost definitions consistently. Negative results show a modeled shortfall; an unavailable ratio needs a valid denominator.
Formula and methodology
Multiply ARV by a user-selected target percentage, then deduct repairs and other investor costs. The gross spread output is ARV minus the target percentage amount, before those deductions.
Enter percentages as whole numbers: 5 means 5%. When used as a factor, the calculation divides a percentage by 100. Percentage outputs multiply the final ratio by 100. Calculations retain precision internally; displayed amounts and rates are rounded to two decimals.
Variables and input definitions
- After-repair value (ARV) (USD)
- Estimated after-repair value. Minimum: 0.
- Target percentage (%)
- User-controlled rule-of-thumb percentage; not hard-coded as universally correct. Minimum: 0. Maximum: 100.
- Repair cost (USD)
- User-entered repairs. Minimum: 0.
- Other investor costs (USD)
- Closing, holding, financing or contingency costs not captured elsewhere. Minimum: 0.
Worked example
This example uses the exact prefilled inputs above. Reset defaults to restore this scenario after making changes.
| Item | Default scenario |
|---|---|
| After-repair value (ARV) | $400,000.00 |
| Target percentage | 70.00% |
| Repair cost | $60,000.00 |
| Other investor costs | $10,000.00 |
| Item | Default scenario |
|---|---|
| Maximum allowable offer | $210,000.00 |
| Target gross spread before repairs/costs | $120,000.00 |
Assumptions and limitations
Rule-of-thumb calculator only. Market conditions, financing, taxes and required return vary by investor.
Results describe this input scenario; they are not a recommendation.
The tool uses values you supply. It does not retrieve market prices, verify leases or inspect a property. Results exclude items outside the listed inputs. Review local requirements and the relevant contract when a payment, fee or allocation depends on them.
Common mistakes
Seventy percent is a default screening assumption, not a universal purchase rule. Review selling costs, holding time and required profit before choosing the percentage.
Sources and method references
These references provide context for the method and terminology. They do not endorse this tool or validate your property assumptions.
- Appraisal Institute — Basic Formulas — Income CapitalizationIncome/cap-rate/value relationships, gross income multiplier and debt-coverage formula references.
Frequently asked questions
Can I change the 70% assumption?
Yes. The target percentage is editable. The calculation remains transparent at another chosen percentage.
Can the maximum offer be negative?
Yes. Costs can exceed the selected share of ARV. A negative result means this simplified target leaves no positive offer under the entered assumptions.