70% Rule Question

[Andy Tomaswick]

Hi All,

I had a question about the 70% rule. I understand that you're supposed to take 70% of the ARV and subtract out rehab costs. What does that 30% that's taken out cover? I'm assuming it's covering things like closing and holding costs? The reason I'm asking is that I got very lucky on a financing source that would dramatically decrease the financing piece of the holding cost. How much of the 70% is covered by each of these: closing costs, financing costs, and utilities/taxes holding cost? Is there any other cost that I'm missing that's wrapped up into that other than theoretically the profit margin?

Any advice would be appreciated. Thanks in advance!