Real Estate Glossary

70 Percent Rule (70% Rule)

Quick Answer

The 70% rule states that real estate investors should pay no more than 70% of a property's ARV minus repair costs. It's a quick screening formula for house flippers and wholesalers: if ARV is $200K and repairs are $30K, the maximum offer is $200K × 0.70 − $30K = $110K.

What is 70 Percent Rule?

The 70% rule is the most widely used rule of thumb in fix-and-flip and wholesaling real estate. It provides a fast, reliable framework for determining the maximum price to pay for a distressed property while preserving an acceptable profit margin. The formula — multiply ARV by 70% and subtract estimated repair costs — builds in a 30% buffer that is designed to cover the investor's profit (10–15%), closing costs on both purchase and sale (3–6%), holding and carrying costs during renovation (3–5%), and a contingency reserve for cost overruns. The 70% rule is deliberately conservative because real estate deals have a way of costing more and taking longer than projected. Investors in very competitive markets sometimes push to 75–80% of ARV when deal flow is thin and confidence in comps is high — but this compresses margins and increases risk significantly. The rule is a screening tool, not a substitute for a detailed scope of work, accurate ARV analysis, or professional underwriting. Use it to quickly disqualify deals that can't work mathematically, and then apply more rigorous analysis to deals that pass the initial screen.

70% Rule Formula

Maximum Offer = (ARV × 0.70) − Estimated Repair Costs

70% Rule Example

Scenario

A house flipper is evaluating a distressed 3/2 in Nashville with an ARV of $320,000 needing $55,000 in repairs.

Numbers

($320,000 × 0.70) − $55,000 = $224,000 − $55,000 = $169,000

Result

Maximum offer = $169,000. At this price, the investor has $96,000 in gross margin to cover profit, closing costs, holding costs, and contingencies.

Frequently Asked Questions

Why 70% and not 80% or 60%?+

70% has become the industry standard because it typically leaves enough room for a 10–15% profit after covering closing costs (3–6%), carrying costs (3–5%), and contingencies (3–5%). More aggressive investors use 75–80%; more conservative investors use 60–65%. Adjust based on your market and the specific deal's cost profile.

Does the 70% rule include closing costs?+

Yes. The 30% buffer in the 70% rule is designed to absorb closing costs, carrying costs, and profit — you do not add them separately. Repair costs, however, are subtracted explicitly because they vary widely by property and must be estimated individually.

Can the 70% rule be used for rental properties?+

The 70% rule was designed for fix-and-flip, not buy-and-hold. For rentals, use NOI, cap rate, and cash-on-cash return to evaluate deals. BRRRR investors sometimes apply a modified version during acquisition, but the downstream analysis shifts to rental income metrics.

What if a deal fails the 70% rule but seems good?+

Revisit your assumptions first. Is your ARV conservative enough? Are your repair estimates accurate? If the numbers still don't work at 70%, you can evaluate at 75% if you have high confidence in the comps and a detailed scope — but proceed with caution. Emotional deals that "feel good" despite failing the math are how investors lose money.

Related Terms

Arv Mao