The 70% rule says a flipper should pay no more than 70% of the after-repair value, minus the cost of repairs. It is the quickest way to tell whether a property is worth a closer look, and most experienced investors use some version of it.
It is also a shortcut. The 30% it leaves on the table has to cover your buying costs, holding costs, financing, selling costs and profit. Whether it actually does depends on the price of the house and the market you are in.
The Formula
Maximum allowable offer = (ARV × 70%) − repair costs
- ARV (after-repair value) is what the house should sell for once it is fixed, based on recent sales of comparable renovated homes nearby.
- Repair costs are your full rehab budget, including a contingency.
The answer is the most you should offer. It is a ceiling, not a target, and your opening offer is usually lower.
A Worked Example
A house will be worth $300,000 when finished and needs $45,000 in repairs.
$300,000 × 70% = $210,000
$210,000 − $45,000 = $165,000 maximum offer
Now check whether the 30% cushion holds up. These costs are illustrative; yours will differ.
| Item | Amount |
|---|---|
| Sale price (ARV) | $300,000 |
| Purchase price | −$165,000 |
| Repairs | −$45,000 |
| Buying closing costs (about 2%) | −$3,300 |
| Holding costs: taxes, insurance, utilities ($1,200 × 6 months) | −$7,200 |
| Financing: points and interest | −$12,000 |
| Selling costs: commissions and closing (about 8%) | −$24,000 |
| Estimated profit | $43,500 |
That is about 14.5% of the sale price. Run the same deal at a $185,000 purchase price and the profit drops to roughly $23,000, before a single surprise in the walls.
Where the 70% Rule Breaks Down
Low-priced houses
Many costs do not shrink with the price of the house. Insurance minimums, utilities, permits and lender fees cost about the same on a $120,000 house as on a $250,000 one. On cheap houses those fixed costs eat a bigger share of the 30%, and investors often need 60% to 65% to make the same profit.
Expensive markets
On higher-priced homes, 30% is a large dollar cushion. In competitive markets, investors sometimes pay 75% or more and still clear a solid profit. That works only when the comps and the budget are tight.
Long or uncertain timelines
The example assumes six months. A permit delay or a slow sale adds a month of holding and interest costs each time. Hard money loans make every month expensive.
Soft ARVs
The formula is only as good as the ARV. One optimistic comp can inflate your maximum offer by tens of thousands. Use recent, nearby, truly comparable renovated sales, and lean conservative.
How to Use It Well
- Screen with 70%. If the asking price is far above the number, move on quickly.
- Verify with a full analysis. For any deal that passes, run the line-by-line numbers like the table above with your real financing terms.
- Adjust the percentage to your market. Track what your past deals actually netted and set your own rule.
- Build a real repair budget. A walkthrough guess is not a budget. See How to Estimate Rehab Costs Before You Make an Offer.
- Decide your minimum profit first. Know the dollar amount that makes the risk worth it, and walk away from deals that do not reach it.
Run Your Numbers
Once a deal passes the 70% screen, the Rental Property Cash Flow Calculator & Deal Analyzer helps you run the full numbers on flips and rentals. Want to try it first? Start with the FREE Investor Deal Worksheet. Explore all Investor Tools.
Keep Reading
- How to Estimate Rehab Costs Before You Make an Offer
- The BRRRR Method Explained: Buy, Rehab, Rent, Refinance, Repeat
- How to Price a Home: A Plain-English Guide to the CMA
Written by Marchelle Cook, a Realtor for 26 years and a real estate investor and property manager since 2012. This article is for educational purposes only and is not investment, lending or tax advice. Every deal is different; verify numbers with your lender, contractor and other professionals.
Read our editorial standards and how we explain the numbers.