The 70% Rule in House Flipping: Formula, Examples & When to Break It
How to use the 70% rule to calculate maximum allowable offer on a flip. Three worked examples at different price points, plus when experienced flippers adjust to 72-75%.
The 70% rule is the most widely used quick-math formula in house flipping. It gives you a maximum purchase price that, if followed, should leave enough margin for rehab costs, holding costs, selling costs, and profit. It is not perfect, but it is the best starting filter for evaluating deals quickly.
The Formula
Maximum Allowable Offer (MAO) = ARV x 0.70 - Rehab Costs
Where:
- ARV (After Repair Value) = What the property will sell for after renovations, based on comparable sales
- 0.70 = The 70% factor, which reserves 30% of ARV for your profit and all soft costs (closing costs, holding costs, agent commissions, financing costs)
- Rehab Costs = Your estimated renovation budget
The result is the most you should pay for the property. Anything above this number compresses your margin. Anything below it increases your profit.
Why 70%?
The 30% margin that the 70% rule creates is not all profit. It needs to cover:
| Cost Category | Typical % of ARV |
|---|---|
| Selling agent commissions | 5-6% |
| Buyer/seller closing costs | 2-3% |
| Holding costs (loan interest, taxes, insurance, utilities) | 3-5% |
| Financing costs (origination, points) | 1-2% |
| Contingency / unexpected costs | 2-3% |
| Profit | 12-17% |
| Total | ~30% |
At 70%, a typical flip yields 12-17% profit on ARV, or roughly 25-40% return on cash invested (depending on leverage). If any of the cost categories run over, it eats directly into profit.
Three Worked Examples
Example 1: Starter Home Flip ($200K ARV)
A 3-bed/1-bath ranch in a suburban neighborhood. Comps support a $200,000 ARV after a cosmetic renovation.
Rehab scope: New kitchen ($18,000), bathroom update ($6,000), flooring ($8,000), paint ($3,000), landscaping ($2,000), miscellaneous ($3,000).
Rehab estimate: $40,000
MAO = $200,000 x 0.70 - $40,000 = $100,000
You should offer no more than $100,000 for this property.
Projected P&L:
| Item | Amount |
|---|---|
| Purchase price | $100,000 |
| Rehab costs | $40,000 |
| Closing costs (buy) | $3,000 |
| Holding costs (5 months) | $6,500 |
| Financing costs | $3,500 |
| Closing costs (sell) | $4,000 |
| Agent commissions (5%) | $10,000 |
| Total cost | $167,000 |
| Sale price (ARV) | $200,000 |
| Gross profit | $33,000 |
That $33,000 profit on roughly $45,000-$50,000 cash invested (down payment + rehab out of pocket) is a solid return for a 5-6 month project. Use the flip calculator to run your own numbers.
Example 2: Mid-Range Flip ($375K ARV)
A 4-bed/2.5-bath colonial that needs a full kitchen gut, two bathroom remodels, HVAC replacement, and cosmetic updates throughout.
Rehab estimate: $85,000
MAO = $375,000 x 0.70 - $85,000 = $177,500
Projected P&L:
| Item | Amount |
|---|---|
| Purchase price | $177,500 |
| Rehab costs | $85,000 |
| Closing costs (buy) | $5,300 |
| Holding costs (6 months) | $12,000 |
| Financing costs (hard money) | $7,500 |
| Closing costs (sell) | $5,500 |
| Agent commissions (5%) | $18,750 |
| Total cost | $311,550 |
| Sale price (ARV) | $375,000 |
| Gross profit | $63,450 |
At this price point, the dollar profit is more attractive ($63K), but the capital at risk is also higher. You are likely investing $80,000-$100,000 of your own cash between down payment and rehab draws.
Example 3: High-End Flip ($650K ARV)
A 5-bed/3-bath home in an upscale neighborhood. Needs a luxury kitchen, master bath remodel, hardwood refinishing, new roof, and high-end finishes throughout.
Rehab estimate: $150,000
MAO = $650,000 x 0.70 - $150,000 = $305,000
Projected P&L:
| Item | Amount |
|---|---|
| Purchase price | $305,000 |
| Rehab costs | $150,000 |
| Closing costs (buy) | $9,000 |
| Holding costs (7 months) | $21,000 |
| Financing costs (hard money) | $13,000 |
| Closing costs (sell) | $9,500 |
| Agent commissions (5%) | $32,500 |
| Total cost | $540,000 |
| Sale price (ARV) | $650,000 |
| Gross profit | $110,000 |
High-end flips offer bigger dollar profits but come with proportionally bigger risks. Rehab budgets on high-end homes are more likely to blow out, holding periods tend to be longer (luxury homes sell slower), and the buyer pool is smaller. A detailed walkthrough of flip strategy and risk management is in the fix and flip guide.
When to Use 72-75% Instead of 70%
The 70% rule is conservative by design. Experienced flippers sometimes use a higher percentage in specific situations:
Low-Rehab Cosmetic Flips
If the rehab is purely cosmetic ($15,000-$25,000), the risk of cost overruns is minimal. An experienced flipper with reliable contractors might use 73-75% because:
- Lower rehab means less contingency needed
- Shorter hold time (2-3 months vs. 5-7)
- Less financing cost
- Less can go wrong
Example: $250K ARV, $20K rehab
- At 70%: MAO = $155,000
- At 75%: MAO = $167,500
The extra $12,500 in purchase price might be the difference between winning and losing the deal. The compressed margin is acceptable because the risk profile is lower.
Hot Seller’s Markets
When homes sell in under 14 days with multiple offers, holding costs drop and ARV risk decreases (you are unlikely to miss on price in a bidding-war market). Some flippers will go to 72-73% in these conditions.
The danger: markets shift. If you underwrite at 73% and the market cools during your rehab period, you have zero margin. This is how flippers get burned.
High-Volume Operators
Flippers doing 15-30+ deals per year can absorb a skinnier margin on individual deals because:
- They have negotiated contractor rates (10-15% below retail)
- They get volume discounts on materials
- Their holding costs are lower (established lender relationships)
- They can average out one bad deal across many good ones
If you are doing fewer than 5 flips per year, stick to 70% or below.
Markets Where 70% Deals Do Not Exist
In competitive markets (much of the West Coast, parts of the Northeast), finding deals at 70% of ARV minus rehab is nearly impossible. Some investors in these markets use 75% or even 78% as their baseline.
This works if and only if:
- Your ARV estimate is rock solid (3+ very recent comps)
- Your rehab budget has been scoped by a contractor, not estimated from photos
- You are holding for under 4 months
- You have reserves to absorb a loss if the deal goes sideways
Using 75%+ without all four conditions is speculation, not investing.
When to Use 65% or Lower
Conversely, you should tighten below 70% when:
- Major structural work (foundation, load-bearing walls) — cost overruns are common
- Unpermitted additions that may need to be brought to code
- Slow markets where average days on market exceeds 60
- You are new and still calibrating your rehab estimates and ARV accuracy
- The deal requires rezoning, variances, or subdivision
Many experienced flippers use 65% for anything involving foundation work or significant structural repairs. The risk premium is worth the tighter margin.
Common Mistakes With the 70% Rule
Mistake 1: Inflated ARV
The entire formula rests on an accurate ARV. If you overestimate ARV by 10%, you are overpaying by 7% of ARV right off the top. Always use sold comps from the last 3-6 months, not active listings. Active listings are asking prices, not market value.
Mistake 2: Underestimating Rehab
The second most common failure point. Get a real scope of work and at least two contractor bids before committing. Walk the property with a contractor, not just an agent. Budget 10-15% contingency on top of contractor bids.
Mistake 3: Ignoring Holding Costs
A flip that takes 8 months instead of 5 can eat $5,000-$15,000 in extra holding costs (loan interest, taxes, insurance, utilities). The 70% rule’s 30% margin includes an assumption of reasonable holding time. Extended holds erode that margin.
Mistake 4: Applying It to the Wrong Deal Types
The 70% rule is designed for single-family residential flips in average markets. It does not apply well to:
- New construction spec homes
- Commercial properties
- Land development
- Luxury homes above $1M (use 65% for these)
- Properties with environmental issues
The 70% Rule as a Screening Tool
The best use of the 70% rule is as a first-pass filter. When you are evaluating 20 deals a week, you need a quick way to separate the maybes from the definite-nos. The 70% rule does that.
Run the numbers in 30 seconds:
- Estimate ARV from a quick comp check
- Estimate rehab from photos and listing description
- Calculate MAO
- Compare to asking price
If the asking price is above your MAO, either negotiate hard or move on. If it is at or below, do the deeper analysis: walk the property, get contractor bids, pull precise comps, and build a full project budget.
The flip calculator automates this analysis and includes holding costs, financing, and selling costs so you can see your projected profit instantly.
Frequently Asked Questions
What does the 70% rule account for?
The 30% margin covers selling costs (agent commissions at 5-6%), buyer and seller closing costs (2-3%), holding costs during renovation and sale (3-5%), financing costs (1-2%), contingency for unexpected issues (2-3%), and your profit (12-17%). The exact breakdown varies by market and deal, but these are typical ranges.
Is the 70% rule too conservative?
For most flippers, especially those doing fewer than 10 deals per year, the 70% rule provides an appropriate margin of safety. Markets where 70% deals are genuinely unavailable may require adjusting to 72-75%, but this should be a conscious decision backed by accurate ARV and rehab estimates, not a way to rationalize overpaying.
How do I calculate ARV accurately?
Use 3-5 recently sold comparable properties (within the last 3-6 months) that are similar in size, bedroom/bathroom count, lot size, and condition to what your property will look like after renovation. Adjust for differences using price-per-square-foot and feature adjustments. Do not use active listings or pending sales as your primary comps. An experienced local agent can provide a CMA (comparative market analysis) for free.
Does the 70% rule work in expensive markets?
In markets where median home prices exceed $500,000, many flippers find it difficult to source deals at 70%. Some adjust to 73-75% but compensate by doing only cosmetic renovations, minimizing hold time, and having extremely accurate ARV estimates. The margin for error shrinks significantly at higher percentages, so tighter project management is essential.
Should I include closing costs in my rehab budget when using the 70% rule?
No. The 70% rule’s 30% margin already accounts for closing costs, holding costs, and commissions. Your rehab number should be only the renovation costs. If you add closing costs to the rehab line, you are double-counting and your MAO will be artificially low. This is conservative (not necessarily bad) but will cause you to miss viable deals.