The 70% Rule, Explained (and When It Fails)
If you spend ten minutes in any house-flipping forum, someone will quote the 70% rule. It's a useful first filter, but treating it as gospel is one of the fastest ways to buy the wrong house. Here's what it says, why it works as a screen, and the fuller calculation you should run before you make an offer.
What the 70% rule says
The rule says your maximum purchase price should be no more than 70% of the after-repair value (ARV), minus the cost of repairs:
The 30% that's "left over" isn't all profit. It's meant to cover your buying costs, holding costs, financing costs, selling costs and your profit margin.
A worked example
Educational example only. Numbers are illustrative, not a prediction of results. Say comparable renovated homes nearby sold for about $300,000, so you set an ARV of $300,000. Your rehab estimate is $45,000.
- 70% of $300,000 = $210,000
- $210,000 − $45,000 = $165,000 maximum offer
Try your own numbers with the calculator on our homepage.
Why the rule is popular
- It's fast. You can screen a listing in under a minute and drop the ones that are obviously overpriced.
- It builds in a cushion. Beginners almost always underestimate costs and timelines; a big margin absorbs some of those mistakes.
- It forces you to think about ARV and rehab separately, instead of comparing a list price to "what houses go for around here."
Where the 70% rule fails
1. It ignores price level
Many selling and holding costs don't scale neatly with price. On a lower-priced house, fixed costs (closing fees, insurance minimums, utilities, your time) eat a bigger share of the 30%. On an expensive house, 30% of ARV may be a very large cushion, and sticking to 70% may mean you never win a bid in a competitive market. Many experienced investors adjust the percentage up or down by market and price band. That's fine, as long as the full cost breakdown below still works.
2. It ignores timeline
A flip that takes four months and one that takes ten have very different holding and financing costs. Permits, contractor delays and slow sales markets can stretch a project for months.
3. It depends entirely on two estimates
The formula is only as good as your ARV and rehab numbers. An optimistic ARV (using the single best comp) or a "per square foot" rehab guess can turn a 70% deal into a loss.
4. It hides your actual profit
The rule doesn't tell you how much you'll make. You need a dollar figure to decide whether the deal is worth your capital, risk and months of work.
The better approach: a full cost breakdown
Use the 70% rule as a screen, then build the real number from the bottom up:
- ARV, from at least three recent, similar sold comps. Use the middle of the range, not the top.
- Minus selling costs: agent commissions, seller-paid closing costs, transfer taxes where applicable, staging, buyer concessions.
- Minus rehab, line item by line item, plus a 10–20% contingency.
- Minus holding costs: taxes, insurance, utilities, HOA, lawn/snow, security, multiplied by a realistic timeline plus a buffer.
- Minus financing costs: points, interest, origination, draw and inspection fees.
- Minus buying costs: closing costs, title, inspection, appraisal.
- Minus your target profit. Decide this in dollars before you start negotiating.
Whatever's left is your maximum allowable offer. Write it down before you talk to the seller, and walk away if the price goes above it.
Stress-test the deal
Before you commit, rerun the numbers with three "what ifs": the ARV comes in 5% lower, the rehab runs 15% over, and the project takes three months longer. If the deal breaks under any one of those, it's too thin.
Bottom line
The 70% rule is a good bouncer: it keeps obviously bad deals out of the room. It's a bad accountant. Every deal that gets past the screen deserves a full line-item analysis. Our free Flip Deal Analyzer Checklist walks you through all of it.
This article is general education, not financial advice.