What is the 70% rule in real estate?

The 70% rule is a guideline used by house flippers to determine the maximum price they should pay for a property. The formula is: Maximum Purchase Price = (ARV × 0.70) - Rehab Costs. This ensures there's enough margin for profit, holding costs, selling costs, and unexpected expenses.

Why 70% and not 80% or 90%?

The 30% margin accounts for: selling costs (6-10% for agent commissions and closing costs), holding costs (2-5% for utilities, insurance, taxes during rehab), profit margin (15-20% target), and unexpected expenses. In competitive markets, some investors use 75% or 80%, but this increases risk.

How do you calculate ARV (After Repair Value)?

ARV is calculated using comparable sales (comps) of recently sold, similar properties in the same area. Look for properties with similar square footage, bedrooms, bathrooms, and condition AFTER your planned renovations. Use 3-6 comps sold within the last 6 months.

Should I always use the 70% rule?

The 70% rule is a starting point, not an absolute rule. In hot markets, you may need to use 75-80% to be competitive (higher risk). In slow markets or for beginners, consider 65-70% for more safety margin. Always run full numbers beyond just the 70% rule.

What if the 70% rule doesn't work in my market?

In expensive markets like California or NYC, the 70% rule often doesn't work because acquisition costs are too high relative to ARV. Consider: using a higher percentage (75-80%) with lower profit targets, focusing on cash flow rentals instead of flips, or looking in different markets.

How accurate is the 70% rule?

The 70% rule is a quick screening tool, not a detailed analysis. It's about 80% accurate for typical flips but can vary based on: rehab scope (cosmetic vs structural), market conditions, holding time, and selling costs. Always do detailed analysis before making offers.

What expenses does the 30% margin cover?

The 30% margin typically covers: Realtor commissions (5-6%), Seller closing costs (1-2%), Holding costs during rehab (2-5%), Unexpected rehab overruns (10-15% of rehab budget), and Profit margin (15-20%). The exact breakdown varies by market and deal.

🏠 House Flipping

The 70% Rule in Real Estate

The #1 formula house flippers use to calculate maximum purchase price and ensure profitable deals.

Quick Answer

The 70% rule says real estate investors should pay no more than 70% of a property's After Repair Value (ARV) minus repair costs. Formula: Max Offer = (ARV × 0.70) − Repair Costs. It protects your profit margin and is the standard starting point for wholesale and flip offers.

What is the 70% Rule?

The 70% Rule states that a house flipper should pay no more than 70% of the After Repair Value (ARV) minus repair costs.

This rule has been used by successful house flippers for decades because it builds in enough margin for profit while accounting for the many costs involved in a flip: rehab costs, holding costs, selling costs, and unexpected expenses.

The 30% margin that the rule creates is what separates profitable flippers from those who lose money. It's your safety net.

The 70% Rule Formula

Max Purchase = (ARV × 0.70) - Rehab Costs

This is your maximum offer price for a flip

Breaking Down the Variables

ARV (After Repair Value)

What the property will sell for after all renovations are complete. Calculated using comparable sales (comps) in the area. This is the most important number – if your ARV is wrong, everything else fails.

70% (The Multiplier)

This creates a 30% margin that covers: selling costs (6-10%), holding costs (2-5%), unexpected expenses, and your profit (15-20%). Some investors use 65% (safer) or 75% (more competitive).

Rehab Costs

Total renovation budget including materials, labor, permits, and contingency (add 10-20% buffer). Get multiple contractor quotes and itemize every expense.

70% Rule Example

Sample Flip Analysis:

After Repair Value (ARV)

$300,000

Estimated Rehab Costs

$50,000

Calculation:

Step 1: $300,000 × 0.70 = $210,000
Step 2: $210,000 - $50,000 = $160,000
Maximum Purchase Price: $160,000

Expected Returns:

Total Investment

$210,000

Potential Profit

$90,000

*Before selling costs (~$20-25k). Net profit approximately $65-70k.

When to Adjust the 70% Rule

Use 65% Rule (More Conservative)

• You're a beginner flipper building experience
• Market conditions are uncertain
• Property needs major structural work
• Longer expected holding time (6+ months)

Use 70% Rule (Standard)

• Typical cosmetic rehab flip
• Stable, predictable market
• You have reliable contractors
• 3-6 month holding period expected

Use 75-80% Rule (Aggressive)

• Very competitive market (multiple offers)
• You're experienced with tight margins
• Quick flip (under 3 months)
• Accept lower profit for deal volume

Frequently Asked Questions

Does the 70% rule work for rentals?

No, the 70% rule is specifically for flips. For rentals, use the 1% rule, cap rate, or cash-on-cash return. Try our Rental Property Calculator for buy-and-hold analysis.

What if my ARV estimate is wrong?

ARV errors are the #1 cause of flip failures. Always use 3-6 recent comps, verify with multiple sources, and consider getting an appraisal. When in doubt, use a conservative ARV.

Should I include holding costs in rehab?

The 70% rule already accounts for typical holding costs in the 30% margin. However, for longer projects (6+ months), add holding costs separately or use the 65% rule for more buffer.

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Last updated: June 2026