The 70% rule in house flipping, explained
The 70% rule says a fix-and-flip investor should not pay more than 70% of a property's After-Repair Value (ARV) minus the estimated cost of repairs. The formula is: Maximum Offer = (ARV × 0.70) − Repair Costs. The 30% buffer is meant to cover acquisition costs, holding costs, selling costs, and profit margin.
The formula in plain terms
Maximum Offer = (ARV × 0.70) − Repair Costs
That’s it. Two variables drive the calculation: what the property will be worth after it’s fixed (ARV), and what it will cost to fix it.
Everything else — your profit, your closing costs in and out, your carrying costs during renovation — must fit inside the 30% buffer. If a deal doesn’t clear this threshold, it fails the first screen.
A worked example
A property is listed at $130,000 in a neighborhood where fully renovated comparable homes sell for $210,000. After a contractor walkthrough, you estimate $38,000 in repairs.
Maximum offer = ($210,000 × 0.70) − $38,000 = $147,000 − $38,000 = $109,000
The asking price of $130,000 is $21,000 above your maximum. The deal doesn’t work at list price. To make it work, you need either a lower purchase price, a lower renovation cost estimate, or a higher ARV supported by stronger comps.
What the 30% buffer actually covers
The 30% cushion between your offer and ARV is not your profit. It has to cover several line items:
| Cost item | Typical range (% of ARV) |
|---|---|
| Acquisition closing costs | 1–3% |
| Renovation financing / hard money interest | 2–5% |
| Holding costs (taxes, insurance, utilities) | 1–3% |
| Selling costs (commissions, concessions) | 6–8% |
| Target profit margin | 10–15% |
| Total | ~20–34% |
The rule fixes the buffer at 30%, but real costs run anywhere from 20% to 34% depending on the deal. On a clean cosmetic flip you land at the low end and the buffer holds.
On a gut renovation in a soft market, a slow timeline and a price concession or two push you to the top of the range, and the buffer is gone. Experienced flippers often drop to 65% the moment a deal carries that kind of uncertainty.
When to adjust the rule
Tighten to 65% when:
- Renovation scope is poorly defined or contains structural unknowns
- The market is slow (high days-on-market for your exit price range)
- Carrying costs are high (hard money at 11–13%, or a long renovation timeline)
- You are new and your cost estimates carry more uncertainty
You may stretch toward 75% when:
- The market is very active and properties at ARV are moving in under 30 days
- You are an experienced operator with highly reliable contractor cost estimates
- You are buying with cash and have no financing costs
- The renovation is cosmetic-only with minimal unknown risk
The rule is a screen. It stops you overpaying before you have done the real work, and it is only as good as the ARV and repair numbers you feed it.
General information for real estate investors, not financial, legal, or tax advice. Specific thresholds and terms vary by lender, market, and program; confirm the numbers that apply to you with the relevant professional.
Frequently asked questions
Why 70% and not 75% or 65%?
The 70% figure is a rule of thumb shaped by typical all-in transaction costs and a target profit margin. Acquisition closing costs (2–3%), holding costs over a typical renovation timeline (2–4%), selling costs including agent commissions (5–7%), and a 10–15% profit margin together consume roughly 25–30% of ARV. The remaining 70% is what can go into the purchase and repairs. In higher-cost or slower-moving markets, the rule often tightens to 65%.
Does the 70% rule apply to BRRRR deals?
The 70% rule was designed for flips. In a BRRRR deal (Buy, Rehab, Rent, Refinance, Repeat), the exit is a cash-out refinance rather than a sale. Most lenders refinance to 70–75% of ARV, so the 70% rule still functions as a rough guide for what basis you can refinance out of — but rental income and DSCR requirements matter more in that model.
What if repair estimates are unreliable?
The 70% rule is only as good as the repair estimate plugged into it. Investors often get preliminary estimates from contractors before making an offer, then budget a 10–15% contingency on top. If you can't get a contractor walkthrough before offer, apply a wider margin — some experienced flippers use 65% in that case.
Does the 70% rule work in every market?
It does not. In high-appreciation markets where properties sell quickly and competition is fierce, some investors stretch to 75–80% of ARV and accept a thinner per-deal profit in exchange for volume. In slow or high-cost markets — longer days on market, higher carrying costs, lower demand — many experienced flippers tighten to 60–65%. Treat the 70% figure as a starting point, not a law.
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