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ARV $400k and $60k rehab means $220k is the ceiling — every dollar above it comes straight out of the $71k profit.
The 70% rule exists because flips die from forgotten costs, not bad intentions. Pay at most 70% of the after-repair value minus repairs — on a $400,000 ARV with $60,000 of rehab, that's a $220,000 ceiling — and the 30% haircut quietly absorbs purchase closing, six months of hard-money interest, selling costs, and the overrun hiding in every wall. At that ceiling this deal returns $71,200 profit on $50,800 of cash: 140% cash-on-cash. The tool runs both sides: the rule-based max offer, and the full P&L on your actual numbers — including the pessimistic case, because a $10k overrun plus a 5% ARV miss is the scenario that separates flippers from cautionary tales.
Investors use it before writing the offer: the 70% rule sets a $220k ceiling on a $400k-ARV/$60k-rehab deal, and the full P&L shows $71.2k profit on $50.8k cash — plus the amber flag when your offer crosses the ceiling.
The 30% gap isn't profit — it's the budget for everything between purchase and sale. On a $400k ARV flip, purchase closing (~2%), six months of 11% hard money on $280k (~$15,400), selling costs (~6.5% = $26,000), and misc holding ($3,000) total roughly $49,000 before profit. The rule leaves about $71,000 of gross margin in the example — most of which IS spoken for. Experienced flippers flex it: 75–80% in fast, low-margin markets (dangerous for beginners), 65% in expensive or slow ones. The invariant: the rule is a ceiling, not a target. Paying under it is how you survive the overrun you haven't met yet.
ARV optimism, and it's not close. The entire model keys off what the renovated house will actually sell for, and beginners comp from active listings (asking prices are wishes) or Zestimates instead of sold comps within a mile and six months. A 5% ARV miss on a $400k target is $20,000 — against a $71,000 profit, that's 28% gone before rehab starts. Second place: rehab underestimation, typically 20–30% on the first few projects, which is why the budget field says "padded." Third: holding time — every extra month at 11% on $280k adds $2,567, and extension fees on hard money are punitive. All three failure modes are optimism, which is why the pessimistic-case line in the verdict matters more than the headline profit.
Harshly, and it belongs in your offer math. Frequent flips make you a "dealer" in the IRS's view: profit is ordinary income (your marginal rate, up to 37%), plus self-employment tax (15.3% on most of it) if you're operating as an individual/LLC — no capital-gains treatment, no 121 exclusion, and holding a year doesn't fix dealer status if flipping is your business. On the $71,200 example, a 32% bracket plus SE tax can take $25,000–30,000. State tax stacks on top. Strategies exist (S-corp salary splitting, holding select properties as rentals first, opportunity-zone structures) but they require a CPA who works with investors — get one before your second flip, not after your fifth.