And FHA buyer are driving prices up to the point that not only there is no cash flow but you are going to be in negative.

Two big expenses that really factor into decision making.

But how do I factor in the potential of adding units?

It seems to be high for a 2 bedroom on a spotty area but  if UoM is driving the demand , it is understandable ..

To me, that tells me it's a "guess" based on "fudge factors" which are based on "nothing" because of the lack of actual facts within the "fudge factors", and lack of any true analysis within the "rule".Third, if the rule has no real basis of facts, or analysis, and is not really a rule in the first place (or the 2nd place, in my order), then I'd say the 70% Rule is about 0% realistic...give or take 70%.

I got a car with four wheels and don't mind driving or doing the legwork to help out of state investors analyze a deal :-)Most of what I do is SFR and 2-4 unit residential (as that's where the biggest pool of buyers are).

I am currently on my way home from work, driving my truck.

I really appreciate the input, makes me think deeply about other factors in the deal. 

I drive for dollars everyday, I send out 50 yellow letters to absentee owners every week, and I have bandit signs posted around town.

That factors in no budgeting for capital expenditures.