The 70% Rule in House Flipping: A Comprehensive Guide

The 70% rule is the foundation of profitable house flipping. It states that you should pay no more than 70% of a property's After Repair Value (ARV) minus the cost of repairs. This simple formula has protected investors from bad deals for decades.

The Formula

Maximum Offer = ARV × 0.70 − Repair Costs

For example, if a property has an ARV of $300,000 and needs $40,000 in repairs:

Why 70%?

The 30% buffer covers three critical cost buckets:

• Closing costs (buy + sell): Typically 8-12% of the deal value, including agent commissions, title fees, transfer taxes, and escrow costs.
• Holding costs: Monthly expenses during the rehab — loan interest, property taxes, insurance, utilities, and maintenance. At 4-6 months, this adds up fast.
• Profit margin: The remaining buffer is your profit. On a properly analyzed deal, this should leave you with at least $25,000 or 15% ROI.

When to Adjust the 70% Rule

Experienced investors know the 70% rule is a guideline, not gospel. Here's when to adjust:

Go Lower (65% or less)

• High-cost markets with expensive financing
• Properties with structural or foundation issues
• Slow markets where days-on-market exceeds 60
• Your first few deals (build in extra buffer for mistakes)

Go Higher (75%)

• Hot markets with properties selling in under 14 days
• Cosmetic-only rehabs with minimal risk
• Cash purchases (no loan interest or points)
• Properties you know extremely well (repeat addresses or neighborhoods)

Step-by-Step: Using the 70% Rule

1. Determine ARV: Pull 3-5 comparable sales from the last 90 days within 0.5 miles. Adjust for square footage, bed/bath count, and condition. Always use SOLD prices, not list prices.
2. Estimate repairs: Walk the property with a contractor. Get itemized estimates for every scope item. Add 10-15% contingency on top.
3. Calculate max offer: ARV × 0.70 − Repairs = Maximum purchase price.
4. Submit your offer: Start 5-10% below your max offer to leave room for negotiation.
5. Verify with a calculator: Use our free flip calculator to model the full deal including financing, holding costs, and closing costs.

Common Mistakes

• Inflating ARV: Using the highest comp instead of the average. Be conservative — your profit depends on an accurate ARV.
• Underestimating repairs: Forgetting permits, dumpster fees, landscaping, or staging costs. Always get a professional inspection.
• Ignoring holding costs: Every month you hold the property costs money. Factor in 4-6 months minimum.
• Emotional bidding: If the numbers don't work at 70%, walk away. The next deal is always around the corner.