The 70% rule sets a maximum purchase price for a flip: don't pay more than 70% of the property's after-repair value (ARV), minus the estimated cost of repairs. It's a flip-specific pricing guideline built to leave enough margin to cover the purchase, the rehab, holding costs, selling costs, and a profit — it has nothing to do with rental income and isn't used for buy-and-hold analysis, which is what the 1% and 50% rules are for.
The Formula
Maximum offer = (ARV × 0.70) − Estimated repair costs
Illustrative example only: a property will be worth $250,000 after renovation (its ARV), and repairs are estimated at $40,000.
- $250,000 × 0.70 = $175,000
- $175,000 − $40,000 = $135,000 maximum offer
At a $135,000 purchase price plus $40,000 in repairs, total investment is $175,000 against a $250,000 ARV — leaving $75,000 of gross margin to cover closing costs on both ends, holding costs (loan interest, taxes, insurance, utilities while the property is being worked on and marketed), agent commissions on the resale, and profit.
Why 70% and Not 100%
The gap between the 70% ceiling and the full ARV isn't all profit — it's a buffer against the costs and risks that eat into a flip's margin:
- Buying and selling closing costs
- Holding costs for however long the renovation and resale actually take
- Real estate agent commissions on the sale
- Rehab cost overruns, which are the norm rather than the exception on older properties
- Actual profit for taking on the risk and doing the work
The 70% figure is a widely used starting point, not a fixed law — some investors run tighter (65%) in markets with thin margins or higher renovation risk, and some run looser (75%) in strong, fast-moving markets with lower holding-cost risk. What matters is understanding what the number is protecting against, not treating 70% as sacred.
The Two Numbers That Make or Break This Rule
The formula is only as good as its two inputs, both of which are commonly misjudged by newer flippers:
- ARV should be based on genuinely comparable recent sales — similar size, condition, and location, sold (not listed) within the last several months — not an optimistic guess or a Zestimate.
- Repair costs should come from an actual scope of work and contractor estimates, not a rough gut-check. Underestimating rehab cost is one of the most common reasons a flip that looked profitable on paper ends up losing money.
What to Watch Out For
- Garbage-in, garbage-out. An inflated ARV or a lowball repair estimate makes the formula produce a maximum offer that's too high, no matter how correctly you apply the 70%.
- It doesn't include acquisition financing cost if you're using hard money or private capital — factor loan points and interest into your holding-cost estimate on top of the 70% math.
- Local market conditions change what "70%" should be. A market with fast sales and low uncertainty can support a higher percentage; a slow or declining market often calls for more buffer, not less.
- Don't confuse this with rental screening tools. The 1% and 50% rules evaluate rental income and expenses — they're irrelevant to pricing a flip offer, and vice versa.
Frequently Asked Questions
Where does the 70% figure come from?
It's an industry rule of thumb developed by house flippers and hard money lenders as a practical ceiling that tends to leave enough margin to cover closing costs, holding costs, selling costs, and profit — not a regulatory or legal standard.
Can I offer more than 70% of ARV minus repairs?
Yes, and some experienced flippers do in strong markets with low holding-cost risk or when they have a cost advantage (in-house crew, wholesale material pricing). Going above 70% means accepting a thinner margin for error.
Is the 70% rule the same as the 1% or 50% rule?
No. The 1% rule screens rental income against purchase price, and the 50% rule estimates rental operating expenses. Both are rental-hold tools. The 70% rule is specifically for pricing a flip offer based on after-repair value and repair costs — a different question entirely.