What Is the 70 Percent Rule Real Estate Investors Use?
The 70 percent rule real estate investors use is a quick formula that tells fix-and-flip buyers the maximum they should pay for a property. It works by taking 70% of the after-repair value (ARV) and subtracting the estimated rehab costs. The result is your maximum allowable offer — the most you can pay and still make a profit.
If a property will be worth $200,000 after renovation and needs $40,000 in repairs, the 70% rule says your max offer is $100,000. Pay more than that and your profit margin shrinks to the point where one surprise — a low appraisal, a delayed sale, or an extra $5,000 in holding costs — wipes out your return.
This guide explains how the 70% rule works, when to follow it strictly, when to bend it, and why most beginners lose money by ignoring it. Use the free 70% Rule Calculator to run the numbers on any deal.
How to Calculate the 70% Rule
Formula: Maximum Offer = ARV × 70% − Rehab Costs
Three numbers. That is all you need. Here is how to find each one:
| Variable | How to Find It | Common Mistakes |
|---|---|---|
| ARV (After Repair Value) | 3-5 comparable sales within 0.5 miles, sold in last 6 months, similar size and condition | Using listing prices instead of sold prices |
| Rehab Costs | Contractor walkthrough, per-sqft estimates, line-item budget | Forgetting contingency (add 15%) |
| 70% Factor | Always 0.70 for standard flips | Using 75% or 80% without understanding the risk |
Estimate your ARV with the ARV Calculator and your rehab budget with the Rehab Cost Estimator.
Worked Examples
| Deal | ARV | Rehab | Max Offer (70%) | Potential Profit |
|---|---|---|---|---|
| Cleveland 3BR ranch | $155,000 | $35,000 | $73,500 | ~$20,000 |
| Memphis duplex | $210,000 | $45,000 | $102,000 | ~$25,000 |
| Indianapolis SFR | $185,000 | $30,000 | $99,500 | ~$22,000 |
| Atlanta townhome | $280,000 | $55,000 | $141,000 | ~$30,000 |
Let me verify the Cleveland example: $155,000 × 0.70 = $108,500 − $35,000 = $73,500 max offer. If you buy at $73,500 and sell at $155,000 after spending $35,000 on rehab, your gross margin is $46,500. After selling costs (6% commission = $9,300), closing costs (~$4,000), and holding costs (~$8,000 for 5 months), your net profit is approximately $25,200.
Why the 70 Percent Rule Real Estate Formula Uses 70%
The 30% margin that the 70% rule creates covers three cost categories that most beginners underestimate:
| Cost | Typical % | On a $200K ARV |
|---|---|---|
| Agent commission (selling) | 5–6% | $10,000–$12,000 |
| Closing costs (buy + sell) | 3–5% | $6,000–$10,000 |
| Holding costs (4-6 months) | 4–8% | $8,000–$16,000 |
| Profit margin | 10–15% | $20,000–$30,000 |
| Total | ~30% | ~$60,000 |
At 75%, your profit margin drops to ~15% of ARV. One $10,000 rehab overrun and you break even. At 80%, you are working for free if anything goes wrong — and something always goes wrong on flips.
The 70% rule exists because the average flip has $10,000-$15,000 in costs that first-time flippers do not anticipate. The 30% buffer absorbs these surprises. For a full breakdown, see how much it costs to rehab a house.
When to Follow the 70 Percent Rule Real Estate Investors Rely On
Your first 5 flips. Until you have a track record of accurate rehab estimates and reliable contractors, the 70% rule is your safety net. Experienced flippers can bend it because they know where the real costs are. Beginners cannot.
Heavy rehabs ($40K+). Larger rehabs have more unknowns — structural issues, code violations, permit delays. The bigger the rehab, the more margin you need.
Slow markets. If average days on market exceed 60 in your area, holding costs increase and the 70% rule becomes even more important. Every extra month on market costs $1,500-$3,000 in interest, taxes, and insurance.
Hard money financing. At 12-14% interest plus 2-3 points, your financing costs are $2,000-$4,000/month. The 70% rule accounts for this. Use the Hard Money Loan Calculator to model your carrying costs.
When Experienced Investors Bend the 70 Percent Rule
Some situations justify paying above the 70% threshold:
Light cosmetic rehabs ($10-15K). Paint, flooring, and fixtures carry almost zero risk of surprises. A flipper doing a $12,000 cosmetic rehab on a $200K ARV property might go to 75% ($150,000 − $12,000 = $138,000 max) because the rehab risk is minimal.
Hot markets with under 30 days on market. If properties sell in 2-3 weeks, holding costs are minimal and you can afford thinner margins.
BRRRR strategy (not selling). If you plan to refinance and hold as a rental instead of selling, agent commissions and selling costs disappear. The BRRRR Refinance Calculator models cash recovery without selling.
Wholesale deals (assignment). If you are assigning the contract for a $5-10K fee rather than doing the rehab yourself, your risk and costs are near zero. The 70% rule does not apply because you are not doing the flip.
The 70% Rule vs Other Flip Formulas
| Formula | Calculation | Best For |
|---|---|---|
| 70% Rule | ARV × 70% − Rehab | Quick screening, standard flips |
| 65% Rule | ARV × 65% − Rehab | Conservative investors, expensive markets |
| MAO (Max Allowable Offer) | ARV − Rehab − Holding − Selling − Profit | Precise analysis, replaces rule of thumb |
| Dollar Profit Target | ARV − All Costs − $25K minimum profit | Investors with fixed profit goals |
The 70 percent rule is a screening tool, not a final offer calculator. Always run the full analysis through the Fix-and-Flip Calculator before making an offer. It accounts for every cost line-by-line — holding, financing, commissions, closing, and contingency.
Common 70 Percent Rule Real Estate Mistakes
Using the wrong ARV. ARV is what the property will sell for after repairs — not what similar properties are listed for. Listing prices are aspirational. Sold prices are real. Pull comps from the MLS or county records, not Zillow estimates.
Underestimating rehab by skipping the contingency. If your contractor bids $35,000, your rehab budget is $40,250 (15% contingency). The 70% rule only works with realistic rehab numbers. See the rehab cost estimator guide for room-by-room benchmarks.
Ignoring holding costs. Every month you hold a property costs $1,500-$3,000 in hard money interest, property taxes, insurance, and utilities. A flip that takes 6 months instead of 4 adds $3,000-$6,000 to your costs. According to ATTOM Data, the average flip takes 162 days from purchase to sale.
Applying the rule in the wrong market. The 70% rule assumes you sell through an agent (5-6% commission). If you sell FSBO or to another investor, your selling costs drop and you can adjust to 72-75%. Conversely, in high-tax states like New Jersey or Illinois, 70% may not be enough — transfer taxes and higher property taxes eat into the margin.
How to Find Deals That Meet the 70 Percent Rule
- Foreclosures and bank-owned (REO). Banks want to sell fast, not for top dollar. Properties listed 20-30% below market often meet the 70% threshold after rehab calculations.
- Wholesalers. Wholesale deals are pre-screened for investor pricing. Many already meet or approach the 70% rule. The assignment fee ($5-10K) is built into the price.
- Driving for dollars. Distressed properties with overgrown yards, boarded windows, or code violations often hide motivated sellers willing to sell at 50-60% of ARV.
- Off-market direct mail. Letters to owners of properties with tax liens, probate, or long vacancy periods generate leads from sellers who prioritize speed over price.
- MLS with filters. Search for properties listed 60+ days with price reductions. Motivated sellers who have not received offers are more likely to accept 70% rule pricing.
Disclaimer
This article is for educational purposes only. The 70% rule is a screening guideline, not a guarantee of profitability. Actual flip profits depend on accurate ARV estimates, rehab costs, market conditions, financing terms, and execution. Consult licensed real estate professionals, contractors, and financial advisors before purchasing properties for flipping. ArvCalc is not a broker, contractor, or financial advisor.
The 70 percent rule real estate investors follow states that a fix-and-flip investor should pay no more than 70% of the after-repair value (ARV) minus the estimated rehab costs. For example, if ARV is $200,000 and rehab is $40,000, the maximum offer is $200,000 times 0.70 minus $40,000 equals $100,000. The 30% margin covers selling costs, holding costs, closing costs, and profit.
The 30% margin created by the 70 percent rule real estate formula covers agent commissions (5-6%), closing costs on both sides (3-5%), holding costs for 4-6 months (4-8%), and profit (10-15%). At 80%, profit margin is only 5-10% — one rehab overrun or delayed sale eliminates all profit. The 70% rule builds in enough buffer to absorb the unexpected costs that occur on nearly every flip.
In expensive markets (ARVs above $400K), the 70 percent rule real estate formula often produces offers too low to be competitive. Some investors adjust to 72-75% in hot markets with short days-on-market, but this reduces the safety margin. In high-cost markets, the dollar profit per deal is higher even at thinner percentages — 25% margin on a $500K ARV is $125,000 versus 30% on a $200K ARV at $60,000.
Pull 3 to 5 comparable sales within a half-mile radius that sold in the last 6 months. Look for properties with similar square footage, bedroom count, and condition (post-renovation). Use sold prices from the MLS or county records, not listing prices or Zillow estimates. Adjust for differences in lot size, upgrades, and location within the neighborhood.
Beginners should follow the 70 percent rule real estate investors rely on strictly for their first 5 flips. Some experienced investors recommend the 65% rule for beginners to account for inaccurate rehab estimates and unexpected costs. Until you have a proven track record of accurate cost estimates and reliable contractors, the extra 5% margin provides critical protection against the mistakes that all new flippers make.
Not directly. The 70% rule assumes you sell the property and pay agent commissions and selling closing costs. In a BRRRR deal, you refinance and hold — so those costs disappear. BRRRR investors typically target total cost (purchase plus rehab) at 75% of ARV to ensure the refinance recovers their capital. The BRRRR Refinance Calculator is a better tool than the 70% rule for these deals.
The 30% margin covers four categories: agent commission when selling (5-6% of sale price), closing costs on both purchase and sale (3-5% total), holding costs during rehab and marketing (4-8% including hard money interest, taxes, insurance, and utilities), and your profit (10-15%). On a $200,000 ARV property, the 30% margin equals $60,000 — split roughly between costs ($30,000-$40,000) and profit ($20,000-$30,000).
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