70% Rule
The 70% rule is a fix-and-flip screening formula: your maximum offer should not exceed 70% of the property's after-repair value (ARV) minus estimated rehab costs.
It is a first-filter tool — not a deal approval. A property that passes the 70% rule still needs full underwriting. A property that fails it should rarely be pursued.
What the 30% buffer covers
The 30% gap between ARV and your offer is not pure profit. It covers:
| Cost category | Typical range |
|---|---|
| Buying and selling commissions | 5–6% of ARV |
| Closing costs (purchase + sale) | 2–4% of ARV |
| Holding costs (taxes, insurance, utilities, loan) | 1–3% of ARV |
| Profit margin | 10–15% of ARV |
| Contingency / unexpected rehab | 3–5% of ARV |
Add those up and you get 21–33% of ARV — almost exactly the 30% buffer. There is no fat left in the 70% rule. This is why offers that stretch above the formula consistently underperform.
The formula
| Input | What it means | Where to get it |
|---|---|---|
| ARV | Estimated market value after full renovation | Comparable renovated sales |
| Rehab costs | Full cost to renovate to market standard | Contractor scope + contingency |
| MAO | Maximum allowable offer — the price ceiling | Output of the formula |
Worked example
A distressed 3-bed/2-bath, 1,450 sq ft.
| Step | Calculation | Value |
|---|---|---|
| Comparable renovated sales (avg) | From 3 nearby closed sales | $290,000 ARV |
| ARV × 70% | $290,000 × 0.70 | $203,000 |
| Estimated rehab | Full renovation: kitchen, baths, paint, flooring | $45,000 |
| Maximum allowable offer (MAO) | $203,000 − $45,000 | $158,000 |
If the seller wants $175,000, the deal does not pass the 70% rule at that price and rehab scope. Either negotiate the price to $158,000 or below, find a way to reduce rehab scope, or pass.
Adjusting the multiplier by situation
70% is a common default, not a law. The right multiplier depends on:
| Situation | Suggested multiplier |
|---|---|
| Short hold time, strong market, experienced team | Up to 75% |
| Standard flip, average market | 70% |
| Longer hold, uncertain market, first-time flipper | 65% |
| High-risk neighborhood, soft market, large rehab | 60–65% |
First-time flippers should use 65% or lower. Every project runs over budget and over schedule. The 70% rule was designed by experienced operators who know how to control costs and timelines. If you do not have that track record yet, give yourself more buffer.
What the 70% rule does not account for
| Factor | Not captured |
|---|---|
| Actual holding period | Long renovations increase holding costs significantly |
| Financing cost (hard money) | Hard money at 10–12% + points is expensive; model it explicitly |
| Seller concessions needed | Getting to asking price is different from closing at MAO |
| Deal-specific selling costs | Some markets have higher transfer taxes or commissions |
| Market shifts during renovation | ARV can soften during a 6-month project |
The 70% rule is a filter, not a financial model. After passing the filter, build a full pro forma with actual rehab scope, financing terms, holding period, and selling costs.
Common mistakes
1. Using the wrong ARV. If your ARV is inflated by 10%, your MAO is $20,000 higher than it should be ($290K vs. $261K ARV at $45K rehab = $158K vs. $137K MAO). ARV accuracy is the most important variable.
2. Using an optimistic rehab estimate. Scope creep and surprises are normal. Add a 10–20% contingency to any rehab estimate before applying the formula.
3. Applying 70% in expensive markets. In markets where ARV is $600,000+, the 30% buffer still has to cover the same cost categories — which may require a lower multiplier if spreads are tight.
4. Treating MAO as the opening offer. MAO is the ceiling. Offer lower and negotiate up. If the best you can do is $158,000 and the seller accepts exactly $158,000 with no negotiating room, you have no cushion.
Frequently asked questions
Is the 70% rule still relevant in today's market? Yes — as a screening filter. The specific multiplier may need adjustment based on financing costs and market conditions, but the underlying logic (your offer must leave room for all costs plus a margin) is timeless.
What if I cannot find deals that pass the 70% rule? You are looking in the wrong places, at the wrong property types, or in markets with insufficient distress. The MLS rarely produces 70%-rule deals. Off-market sourcing (direct mail, driving for dollars, motivated seller lists) is where these opportunities typically exist.
Does the 70% rule work for rentals? It was designed for flips. For BRRRR, you can adapt it — the refinance replaces the sale, so model the refinance proceeds instead of sale proceeds. Many BRRRR investors use a modified version: (ARV × 0.70) − rehab = target acquisition price, which ensures post-refinance equity.
Can I go above 70% if I have a low rehab cost? The multiplier accounts for all non-rehab costs. A property with $10K rehab and 70% of $290K ARV = $193K MAO. A property with $50K rehab and 70% = $153K MAO. The rehab amount moves the MAO, but the 70% controls the cost cushion independent of rehab scope.
The 70% rule is a screening heuristic, not investment advice. Actual returns depend on accurate ARV estimation, rehab execution, financing terms, and market conditions. Always consult qualified professionals before making investment decisions.