What Is the 70% Rule in House Flipping?

The 70% rule says a house flipper should pay no more than 70 percent of a property's After Repair Value, minus the cost of repairs. Written as a formula: Maximum Offer = (ARV x 0.70) - Repair Costs. It is a fast screening filter, not a full underwriting model.

What is the 70% rule in house flipping?

The rule exists because flippers need to reject bad deals quickly. On a busy day you might look at forty addresses. You cannot build a full pro forma for each one, so you need a single calculation that tells you within ten seconds whether an address is worth a closer look. The 30 percent the rule holds back is not profit. It is a bundle that has to cover:

• •Purchase closing costs and lender points
• •Holding costs during the renovation (interest, taxes, insurance, utilities)
• •Selling costs (agent commissions, title, transfer taxes, buyer concessions)
• •Your profit
• •The margin of error on both your ARV and your repair estimate

That last item is the one people forget. The rule is partly a shock absorber for being wrong.

How do you calculate the 70% rule?

Three inputs, one formula.

Worked example (illustrative numbers)

A 3 bed, 2 bath, 1,500 square foot house that needs a full cosmetic renovation plus a roof.

If the seller wants $195,000, the deal fails the screen and you move on unless something about it is unusual enough to justify a full analysis.

What the 30 percent actually pays for

Continuing the same illustrative deal, assume you buy at $159,000, spend $58,000, and sell at $310,000.

Roughly $54,300 on a $310,000 exit, or about 17.5 percent of ARV. That is the shape of a healthy flip in a normal market, and it shows why the discount has to be that steep. The 30 percent looked enormous until the actual costs came out of it.

When the 70% rule breaks

The rule assumes a specific cost structure. Change the structure and the multiplier has to change with it. High-priced markets. On a $900,000 ARV, 30 percent is $270,000. Fixed costs like title and permits do not scale with price, so the rule leaves too much on the table and you will never win a bid. Investors in expensive markets often use 75 to 80 percent. Low-priced markets. On a $120,000 ARV, 30 percent is $36,000, and after $6,000 of closing costs and $9,000 of commissions there is very little left. Many investors tighten to 60 or 65 percent below roughly $150,000. All cash, fast turns. No lender points and no monthly interest means less to absorb. Some cash buyers stretch to 75 percent. Heavy rehab. Long timelines mean more holding cost and more risk of scope creep. Tighten the multiplier, do not loosen it. Tighten. A wholesaler using the 70 percent rule to price a contract for an investor buyer subtracts the fee: (ARV x 0.70) minus repairs, minus assignment fee.

Does the 70% rule work for rentals or BRRRR?

Not directly. The 70 percent rule is calibrated for a sale, which means it is sized around commissions and a short holding period. A BRRRR investor does not pay a listing commission, holds indefinitely, and cares about the refinance appraisal and the resulting cash flow instead of a net sale. For BRRRR, the equivalent question is whether the loan you can get after the refinance covers your all-in cost. Investors often target all-in at 75 percent of ARV so a 75 percent loan to value cash-out refinance returns most of their capital. Run that with the BRRRR calculator rather than a flip formula, and check the resulting cash flow with the rental property calculator.

The two inputs that decide whether the rule helps you

The 70 percent rule is arithmetic. Arithmetic is never the problem. The problem is always ARV and repairs. ARV error is leveraged. Because the formula multiplies ARV by 0.70, every dollar of ARV inflation adds 70 cents to your maximum offer. An ARV that is 10 percent high on a $310,000 property adds about $21,700 to your offer ceiling and simultaneously removes $31,000 from your exit. That single error can swing a deal from a $54,000 profit to breakeven. Repair error is dollar for dollar. A $58,000 estimate that lands at $80,000 takes $22,000 straight out of profit, and it usually comes with additional holding cost from the extra weeks. Practical defenses:

1. 2. Look at what the top comp's condition actually was before you anchor to its price. 3. Get a real contractor walkthrough before you go hard on earnest money. 4. Add a contingency of 10 to 20 percent on rehab, higher on older housing stock. 5. Underwrite the exit at the low end of your comp range, not the high end.

How to use the rule without being fooled by it

Treat it as a screen with a hard second step. Anything that passes the 70 percent filter gets a real pro forma with your actual financing terms, your actual holding period, and your actual selling costs. Plenty of deals pass the screen and fail the pro forma, especially when lender points are high or the property is in a slow submarket. To run it, start with the free ARV calculator, size the work with the rehab cost estimator, then take the survivors into the deal analyzer for a full profit and return model. All the free calculators are listed at free tools and none of them require a signup. Resideline shows the comps behind an ARV and lets you adjust them, which matters here because the 70 percent rule is only as good as the ARV you feed it. Estimates are frozen when a property lists and then graded against the real closing price, with results published on the public accuracy dashboard. Live valuations currently cover 31 US states.