Help me understand the 70% rule for flipping

[Tony H.]

Hi BP,

I have been reading about this 70% rule for house flipping. I analyzed a few fixer properties here in Bay Area and Sacramento.

Honestly, I dont understand how the 70% rule will work.

Here is an example:

A property here in San Jose ask for $680k. It's pretty run down.. I wont be surprised if it will cost me $100k to rehab.

Now with the 70% rule, my offer for the property should be at around $425k..(and that's not including additional profit).

If I am analyzing correctly, the ARV should be around $750k. With the 70% rule.. that means I should offer ($750k x 70%) - $100k Rehab = $425k.

I gave this rough $425k number to my agent and he think he should not waste time putting together an offer.

I did the same rough calculation on a house in Sacramento. 

A house listed at $200k.. Need $25k repairs (estimate) and ARV is about $260k.

According to 70% rule.. my offer should be ($260k x70%) - $25k rehab = $157k.

Again.. the offer seems WAY too low.. and there is no way me (or my agent) should waste time putting together an offer.

What am I doing wrong here?

Dislclaimer: I am still learning how this all works so I can pinpoint a more accurate calculation before jumping in. 

Thanks!