70% Rule Real Estate

The 70% rule is a quick screening tool house flippers use to set a maximum offer price before they ever run a full deal analysis. It's not a precise valuation method — it's a fast gut-check to filter out deals that obviously don't have enough margin, so you don't waste time doing full due diligence on properties that were never going to work.

The Formula

Maximum Offer = (ARV × 70%) − Estimated Repair Costs

Where ARV (After Repair Value) is the realistic resale price of the property once renovations are complete, based on comparable sold listings — not your hoped-for price.

Worked Example

$140,000 minus $50,000 in repairs leaves a maximum offer of $90,000. Pay more than that and you're compressing the 30% buffer that's supposed to cover everything the rule doesn't explicitly list.

Why 30%, Not 0%?

The gap between ARV and your all-in cost has to cover more than just profit:

• Financing costs (interest and points on hard money or a rehab loan)
• Holding costs (property taxes, insurance, utilities, HOA dues while you own it)
• Closing costs on both the purchase and the eventual sale
• Selling costs (agent commissions, staging)
• A contingency for repair cost overruns — which happen on almost every rehab
• Actual profit for the risk and work you put in

The 70% figure is a widely used starting convention, not a law of physics — some investors adjust it up or down based on their market and risk tolerance, discussed below.

When to Adjust the Percentage

• Lower percentage (tighter margin allowed, e.g. 60-65%): Higher-risk markets, slower-selling areas, or deals with major unknowns (older homes, unpermitted work, foundation concerns) where you want a bigger buffer.
• Higher percentage (e.g. 75-80%): Fast-moving, low-risk markets with predictable renovation scopes, or very high-ARV properties where the dollar buffer at 70% would be far larger than actually needed to cover real costs.

Where the Rule Falls Short

The 70% rule is a screening heuristic, not a substitute for a full deal analysis. It has real limitations:

• It doesn't account for your specific financing cost or holding period — a deal financed in cash and sold in 30 days has a very different real margin than the same deal financed with points and interest over 6 months.
• It scales oddly at the extremes — on a very low-ARV property, 30% of ARV may not be enough dollars to cover real transaction costs; on a very high-ARV property, it can be far more buffer than the deal actually needs.
• It says nothing about how accurate your ARV or repair estimate actually is — the rule is only as good as the inputs you feed it.

Use it to filter deals quickly, then run every serious candidate through a full line-item analysis — including actual financing costs, actual holding period, and actual selling costs — before you make an offer. Our free flip calculator does exactly that.

Frequently Asked Questions

Q: Does the 70% rule include the cost of financing?
A: No — it's a simplified screening formula. Financing costs come out of the 30% buffer implicitly, but for an accurate picture you should model your actual financing cost separately.

Q: Is 70% the right number for every market?
A: No. It's a common starting convention that many investors adjust based on local market speed, deal risk, and their own risk tolerance.

Q: What's the biggest mistake investors make applying this rule?
A: Underestimating repair costs or using an overly optimistic ARV — both of which make the "maximum offer" the rule spits out look higher (and safer) than it actually is.