1. The 70% Rule
The 70% rule is the most widely used formula for quickly evaluating whether a property is worth pursuing. It gives you a ceiling price. The maximum you should pay. To leave room for profit after repairs and your costs.
Here is what each piece means:
- ARV (After Repair Value): What the property will sell for after all renovations are complete. This comes from comparable sales data (comps).
- 70%: This percentage accounts for the investor's profit margin, holding costs, closing costs, and financing costs. Some investors use 65% in slower markets or 75% in hot markets. But 70% is the standard starting point.
- Repairs: The total estimated renovation cost to bring the property to its full ARV condition.
- Your Fee: If you are sourcing the deal for an end buyer, this is your assignment or facilitation fee.
Colorado Example
A 3-bed/2-bath ranch in Thornton. ARV based on comps: $475,000
Estimated repairs (new kitchen, bathrooms, flooring, paint): $55,000
Your fee: $15,000
MAO = $475,000 × 0.70 − $55,000 − $15,000
MAO = $332,500 − $55,000 − $15,000
Maximum Allowable Offer: $262,500
A few important caveats: The 70% rule is a screening tool, not a final answer. Every property deserves its own analysis. A deal that fails the 70% test might still work if the ARV is rock-solid or the market is appreciating fast. And a deal that passes the test on paper can still go wrong if the repair estimate is too low or the comps are poorly selected.
When to Adjust the Percentage
- Use 65% in: Slow-moving markets, rural areas, higher price points ($600K+), or properties with major unknowns
- Use 70% in: Most Front Range suburbs, standard fix-and-flip scenarios
- Use 75% in: Hot neighborhoods (LoHi, RiNo, Old Town Fort Collins), low-rehab properties, or when the investor is buying for a rental hold strategy
2. Running Comps
Your ARV is only as good as your comparable sales. Bad comps lead to bad numbers, which lead to bad deals. Here is how to pull solid comps that hold up to scrutiny.
What Makes a Good Comp
A strong comparable sale shares these characteristics with your subject property:
- Recency: Sold within the last 90 days (180 days maximum in slower markets)
- Proximity: Within 0.5 miles in urban areas, 1 mile in suburban, 3 miles in rural
- Size: Within 200 square feet of the subject property
- Bed/Bath Count: Same bedroom and bathroom count (or within one)
- Age: Built within 10 years of the subject
- Condition: Renovated/updated condition (since you are estimating what the property will sell for after rehab)
- Same Subdivision or Neighborhood: This matters more than distance in many Colorado markets
Standard Adjustments
No two properties are identical. You will need to adjust comp prices to account for differences. Here are the standard Colorado adjustments:
| Feature | Typical Adjustment |
|---|---|
| Square footage (above grade) | $100 - $150 per sqft (varies by market) |
| Bedroom count | $5,000 - $15,000 per bedroom |
| Bathroom count | $5,000 - $10,000 per bathroom |
| Garage (attached vs. none) | $15,000 - $30,000 |
| Finished basement | $20 - $50 per sqft (lower than above grade) |
| Lot size | Minimal in subdivisions, $5,000 - $20,000+ for acreage |
| Pool | $10,000 - $25,000 (less value in Colorado than sunbelt states) |
| Age of home | $1,000 - $3,000 per decade |
What Makes a Bad Comp
- Foreclosures or short sales (distressed pricing does not reflect market value)
- Sales between family members or related entities
- Properties sold more than 6 months ago in a shifting market
- Different property type (comparing a townhome to a single-family detached)
- Significantly different lot characteristics (backing to a highway vs. a park)
- New construction used as a comp for a 1970s ranch
Pro tip: Always pull at least 3-5 comps. Throw out any outliers (highest and lowest if they do not make sense), and use the remaining sales to establish a range. Your ARV should land in the middle of that range unless you have a strong reason to skew higher or lower.
3. Estimating Repairs
Repair estimates are where most investors get burned. Underestimate rehab costs and your profit disappears. Overestimate them and you will never win a deal. The goal is to be accurate enough to make good decisions without spending hours on every property.
Quick Per-Square-Foot Method
Use this for initial screening before committing to a detailed estimate:
| Rehab Level | Scope of Work | Cost per Sqft |
|---|---|---|
| Cosmetic / Light | Paint, flooring, fixtures, landscaping, minor touch-ups | $15 - $30 |
| Medium | Kitchen remodel, bathroom updates, new appliances, some drywall repair, lighting | $30 - $60 |
| Heavy | Full kitchen and bath gut, new HVAC, electrical panel upgrade, plumbing updates, windows | $60 - $100 |
| Full Gut / Down to Studs | Complete renovation including structural, all mechanical systems, layout changes, foundation work | $100 - $175 |
Quick Estimate Example
A 1,600 sqft home in Aurora needs a full kitchen remodel, updated bathrooms, new flooring throughout, and some electrical work.
That falls into the medium-to-heavy range: roughly $55/sqft
Quick estimate: 1,600 × $55 = $88,000
When to Get a Detailed Estimate
Always get a detailed, line-item estimate before making a final offer or going under contract. The per-sqft method is for screening only. A detailed estimate should cover:
- Kitchen (cabinets, countertops, appliances, plumbing, electrical)
- Bathrooms (vanities, tile, fixtures, plumbing)
- Flooring (material type and square footage)
- Paint (interior and exterior, prep work)
- HVAC (age of system, replacement vs. repair)
- Electrical (panel, wiring, outlets, fixtures)
- Plumbing (supply lines, drain lines, water heater)
- Roof (age, remaining life, replacement cost)
- Windows (count, size, type)
- Foundation and structural
- Exterior (siding, gutters, landscaping, concrete)
- Permits and fees
Colorado-Specific Repair Considerations
Watch for These in Colorado Properties
- Radon mitigation: Colorado has some of the highest radon levels in the country. Budget $800 - $2,500 for a mitigation system if one is not already installed. Nearly every buyer will request testing.
- Altitude and roofing: High UV exposure at elevation degrades roofing materials faster. A roof with 10 years of life left in Texas might have 5 years left in Colorado. Hail damage is also extremely common along the Front Range.
- Older homes and asbestos: Homes built before 1980 may have asbestos in popcorn ceilings, floor tiles, insulation, and pipe wrap. Abatement costs $5 - $20 per square foot.
- Expansive soils: Common along the Front Range, especially in Aurora, Parker, and Colorado Springs. Expansive clay soil causes foundation movement and cracking. Foundation repairs can run $5,000 - $30,000+.
- Evaporative coolers vs. AC: Many older Colorado homes have swamp coolers instead of central AC. Conversion costs $5,000 - $12,000 and is often expected by buyers in today's market.
4. Location Analysis
A property with great numbers in a bad location is a bad investment. Location determines your exit strategy, your holding timeline, your tenant quality, and your long-term appreciation. Here is what to evaluate.
Key Location Factors
- School district ratings: Properties in top-rated school districts (Cherry Creek, Douglas County, St. Vrain Valley) command 10-20% premiums over comparable homes in weaker districts.
- Crime statistics: Check local police department crime maps. Avoid areas with high violent crime. Not just for property value, but for your ability to sell or rent.
- Employment proximity: How close is the property to major employers? Denver Tech Center, Anschutz Medical Campus, downtown Denver, Buckley Space Force Base, and the US Air Force Academy (Springs) all drive housing demand.
- Transit and commute: RTD light rail access adds value in the Denver metro. Walk Score and Transit Score provide quick metrics.
- Walkability: Proximity to restaurants, shops, parks, and trails. Colorado buyers pay a premium for outdoor access and walkable neighborhoods.
- Neighborhood trajectory: Is the area improving or declining? Look for new construction, business openings, infrastructure investment, and rising price trends.
Colorado Growth Corridors to Watch
- Denver Metro North (Thornton, Northglenn, Westminster): More affordable entry points with strong appreciation as Denver expands north
- Aurora (East Side): Significant development around Anschutz Medical Campus and new Amazon/logistics facilities
- Colorado Springs (East and North): Military-driven demand (Fort Carson, Peterson SFB, Schriever SFB), strong population growth, and prices still 30-40% below Denver
- Northern Colorado (Fort Collins, Loveland, Greeley): University of Northern Colorado, Colorado State University, and expanding tech presence drive rental demand
- Brighton / Commerce City: Affordability play with significant infrastructure investment and proximity to DIA
Military Market Advantages (Colorado Springs)
Colorado Springs has five military installations and the US Air Force Academy. This creates consistent rental demand from servicemembers who receive Basic Allowance for Housing (BAH). BAH rates are published annually, giving landlords a predictable income baseline. Properties near military bases that rent at or below BAH rates rarely sit vacant.
University Town Dynamics (Boulder, Fort Collins)
University towns offer strong rental demand but come with considerations: student tenants turn over annually, wear-and-tear may be higher, and many areas have rental licensing requirements or occupancy limits. Boulder's rental restrictions are particularly strict. Fort Collins is generally more investor-friendly with a broader tenant base beyond just students.
5. Deal Math Walkthrough
Let us walk through a complete analysis on a realistic Colorado deal. Every number matters. Skip one line item and your profit projection falls apart.
Subject Property
3-bed / 2-bath single-family home in Lakewood, CO
1,450 sqft above grade, 600 sqft unfinished basement
Built 1972, needs full renovation (kitchen, baths, flooring, paint, new HVAC, roof has 3 years left)
Listed at $420,000 (on market 45 days, price reduced twice)
Step 1: Establish the ARV
Pull comps. Recently renovated homes in the same Lakewood neighborhood:
| Comp | Address | Sqft | Sold Price | Adjusted |
|---|---|---|---|---|
| 1 | 1234 Oak St (0.3 mi, 42 days ago) | 1,520 | $565,000 | $556,000 |
| 2 | 5678 Elm Ave (0.4 mi, 28 days ago) | 1,380 | $538,000 | $547,000 |
| 3 | 910 Pine Dr (0.2 mi, 61 days ago) | 1,460 | $552,000 | $551,000 |
Adjusted comp range: $547,000 - $556,000. Using the midpoint:
ARV = $550,000
Step 2: Estimate Repairs
| Item | Estimated Cost |
|---|---|
| Kitchen (full remodel. Cabinets, counters, appliances) | $22,000 |
| Bathrooms x 2 (full gut and rebuild) | $14,000 |
| Flooring throughout (LVP) | $9,500 |
| Interior and exterior paint | $7,500 |
| HVAC replacement (furnace + AC) | $9,000 |
| Roof replacement (architectural shingles) | $12,000 |
| Electrical updates (panel + outlets) | $3,500 |
| Radon mitigation system | $1,200 |
| Landscaping and exterior | $1,300 |
| Total Estimated Repairs | $80,000 |
Step 3: Apply the 70% Rule
$550,000 × 0.70 = $385,000
$385,000 − $80,000 (repairs) = $305,000
$305,000 − $15,000 (your fee) = $290,000
Step 4: Calculate the Spread
| Line Item | Amount |
|---|---|
| Offer / Purchase Price | $290,000 |
| Your Fee | $15,000 |
| Investor Purchase Price (from you) | $305,000 |
| Repairs | $80,000 |
| Investor Holding Costs (6 months: taxes, insurance, utilities, financing) | $18,000 |
| Investor Closing Costs (buy side + sell side) | $22,000 |
| Total Investor Cost | $425,000 |
| ARV (Sale Price) | $550,000 |
| Investor Net Profit | $125,000 (29.4% ROI) |
This deal works. The investor is above the 20% minimum ROI threshold, and you collect $15,000 for sourcing the deal. The listed price of $420,000 is too high. Your offer of $290,000 is where the numbers make sense. That gap is why negotiation skills and finding motivated sellers matter so much.
6. Red Flags
Not every property is worth pursuing, no matter how good the numbers look on paper. These issues can kill a deal, blow up your budget, or leave a property unsellable.
Structural and Environmental
- Foundation problems: Horizontal cracks, stair-step cracks in brick, doors and windows that do not close properly, uneven floors. In Colorado's expansive soils, this is common and expensive. Get a structural engineer's assessment before committing to any property with visible foundation issues.
- Environmental contamination: Former meth labs require professional remediation ($5,000 - $25,000+). Colorado requires disclosure, but not all sellers are honest. A $300 test can save you from a $20,000 surprise.
- Flood zones: Properties in FEMA flood zones require flood insurance, which makes them harder to sell and more expensive to hold. Check FEMA flood maps before making an offer.
- Lead paint: Homes built before 1978 likely have lead paint. Disclosure is required, and remediation adds cost. Not a deal-killer, but it must be factored in.
- Oil and gas wells: Some Colorado properties sit near or above old oil and gas wells or mineral rights may be severed. This can impact value and insurability.
Location Red Flags
- Busy roads: Properties on or backing to major roads (arterials, highways) sell for 5-15% less than comparable homes on quiet streets. Many investors will not touch them.
- Train tracks: Proximity to active rail lines reduces value and limits your buyer pool.
- Power lines: High-voltage transmission lines crossing or adjacent to a property deter buyers.
- Commercial adjacency: Backing to a strip mall, gas station, or industrial site.
Title and Legal Red Flags
- Liens: Tax liens, mechanic's liens, or judgment liens that exceed the property's equity
- HOA special assessments: Large pending special assessments that add unexpected costs
- Unpermitted work: Previous renovations done without permits can create issues at resale, especially additions or structural changes
- Boundary disputes or encroachments: Fences, structures, or driveways that cross property lines
- Probate properties: Can be great deals but add timeline uncertainty. Make sure the personal representative has authority to sell.
7. Due Diligence Checklist
Use this checklist for every property that passes your initial analysis. Complete these items during your inspection and due diligence period (typically 7-14 days in Colorado).
Physical Inspection
- Schedule full home inspection with a licensed Colorado inspector
- Request radon test (if not included in inspection)
- Assess roof condition. Age, hail damage, remaining life
- Check foundation for cracks, movement, or water intrusion
- Test all mechanical systems (HVAC, plumbing, electrical)
- Look for signs of water damage (stains, mold, musty smell in basement)
- Check for asbestos indicators if home is pre-1980
- Verify square footage matches public records
- Document all repairs needed with photos and measurements
- Get contractor bids for major items (roof, HVAC, foundation)
Title and Legal
- Order preliminary title report through title company
- Review for liens, encumbrances, and easements
- Verify legal description matches property boundaries
- Check for open permits or code violations with the city/county
- Verify property tax amounts and any delinquencies
- Confirm zoning allows your intended use
- Review HOA documents if applicable (CC&Rs, financials, meeting minutes, pending litigation)
- Check for special taxing districts (metro districts are common in newer Colorado developments). Related: see our guide on Colorado property taxes for investors →
Financial Verification
- Confirm ARV with at least 3 solid comps
- Get detailed repair estimate (not just per-sqft)
- Calculate all holding costs (taxes, insurance, utilities, financing)
- Estimate closing costs for both buy and sell transactions
- Verify the deal meets minimum profit threshold
- Check if the investor's financing is in place (proof of funds or pre-approval)
Market Verification
- Confirm days on market for comps (are renovated homes selling quickly?)
- Check current inventory levels in the target neighborhood
- Look for competing renovated listings that could affect your exit price
- Verify rental rates if the strategy is buy-and-hold
- Check for any planned developments or zoning changes in the area
Informational only. This guide is for general educational purposes and reflects market conditions and figures available at the time of writing. Real estate markets, prices, and regulations change — verify current figures and consult a licensed real estate, financial, or legal professional before making investment decisions. EZ Investments is a real estate company, not a financial advisor.