After Repair Value (ARV)
The estimated market value of a property after all planned renovations and improvements have been completed. This is a critical metric for determining the potential profitability of a rehab project.
Maximum Allowable Offer (MAO)
The highest price an investor should pay for a property to achieve their desired profit margin. Typically calculated using the 70% Rule or other investment formulas.
70% Rule
A quick calculation method stating that an investor should pay no more than 70% of the ARV minus repair costs. This rule provides a built-in profit margin and safety buffer.
Return on Investment (ROI)
A performance measure calculated as (Net Profit / Total Investment) × 100. It indicates the efficiency and profitability of an investment relative to its cost.
Cash on Cash Return
The ratio of annual pre-tax cash flow to the total cash invested, expressed as a percentage. This metric is particularly important for financed deals to measure return on actual cash invested.
Holding Costs
Ongoing expenses incurred while owning a property, including property taxes, insurance, utilities, HOA fees, and loan interest. These costs accumulate over the holding period and directly impact profitability.
Contingency Fund
A reserve amount (typically 10-20% of renovation costs) set aside to cover unexpected expenses, cost overruns, or unforeseen repairs discovered during the renovation process.
Closing Costs
Fees and expenses paid at the closing of a real estate transaction, including title insurance, attorney fees, recording fees, transfer taxes, and lender charges. These occur both when purchasing and selling.