The 70% rule is a napkin-math shortcut that has survived decades for one reason: it works well enough to keep you from overpaying. It does not work well enough to tell you what to pay. That distinction matters more than most flipping content will admit. The rule is a screening tool: a two-second gut check that tells you whether a deal deserves your time, not whether it deserves your money.
What is the 70% rule?
The 70% rule gives you a maximum allowable offer on a flip. Take the after-repair value, multiply by 0.70, subtract the rehab cost. What is left is the most you should consider paying.
ARV is what the property will sell for once renovations are done, based on recent sold comps, not hope. Rehab cost is your total renovation budget. The 70% multiplier creates a 30% buffer between the ARV and what you have tied up in the deal. That buffer is supposed to cover selling costs, holding costs, buying costs, and, if everything goes right, a profit.
Notice that last part. The profit is what is left over, not what is guaranteed. Flippers who treat 30% as their margin find out quickly that real estate has more friction than they planned for.
How the math works: a worked example
The calculator above loads with a $320,000 ARV, a $50,000 rehab budget, and a $175,000 purchase price. Here is the math:
| Step | Calculation | Result |
|---|---|---|
| 70% of ARV | $320,000 × 0.70 | $224,000 |
| Subtract rehab | $224,000 − $50,000 | $174,000 |
| Max offer | $174,000 |
The purchase price of $175,000 is $1,000 over the ceiling. That does not automatically kill the deal, but it means you are starting with zero cushion and hoping nothing goes wrong. Hope is not a rehab strategy.
Try sliding the ARV up to $330,000 in the calculator above, a realistic number if you are in a neighborhood where comps have been ticking up, and the max offer jumps to $181,000. Now you have $6,000 of breathing room. That is how sensitive this formula is. Small changes in ARV move the ceiling meaningfully.
Where the 30% buffer actually goes
The single most common mistake in flipping is thinking the 30% is your profit. It is mostly friction. Here is a realistic breakdown on a typical flip, and once you see the numbers, you will understand why experienced flippers guard this buffer with their lives:
| Cost category | % of ARV | On a $320k ARV |
|---|---|---|
| Selling costs (agent commissions, closing, transfer tax) | 6% – 8% | $19,200 – $25,600 |
| Holding costs (loan interest, insurance, taxes, utilities) | 5% – 7% | $16,000 – $22,400 |
| Buying costs (title, inspection, origination fees) | 2% – 3% | $6,400 – $9,600 |
| Net profit | 12% – 15% | $38,400 – $48,000 |
That 12% to 15% net is the best case. Rehab on budget. Timeline on track. No surprises. One contractor delay that adds two months of hard money interest at 12% can cut your profit in half. A foundation issue that adds $15,000 to the rehab can erase it entirely. The rule exists because these things happen on enough deals to matter.
When the 70% rule breaks
The rule was built for a specific type of deal: a mid-market flip with a moderate rehab in a market with predictable values. Step outside that box and the 30% buffer either is not enough or is too much.
| Scenario | Why 70% breaks | What to do instead |
|---|---|---|
| Low-ARV properties ($100k–$150k) | The dollar amount of the buffer shrinks to $30,000–$45,000. Fixed costs like commissions, closing fees, and insurance eat a larger share. A $5,000 surprise is a bigger percentage hit. Flippers in markets like Cleveland or Memphis run into this constantly. | Drop to 65% or run full line-item analysis. |
| Luxury flips ($600k+ ARV) | Margins tighten because the buyer pool is smaller, days on market stretch longer, and holding costs on a $500,000 hard money loan are brutal. A luxury flip in Scottsdale that sits for four months can burn $20,000 in interest alone. | Use 65% and model holding costs explicitly. |
| Hot markets with heavy competition | In parts of Dallas, Phoenix, or Charlotte, competition pushes purchase prices above 70%. Flippers who strictly follow the rule in these markets never buy anything. Flippers who abandon it lose money. | Use 75% only with cosmetic rehab and strong comps. Do the real math. |
| Declining or uncertain markets | Your ARV is a guess about the future. If values in the neighborhood are flat or slipping, like parts of Austin and Boise experienced in 2023, your ARV may be stale by the time you list. | Use 65% and comp to the most recent 60 days only. |
The pattern is clear: higher risk means a lower percentage, lower risk means you can push it. But "lower risk" means you can prove it with data, not that you feel optimistic about the deal.
The 65%, 75%, and 80% variants
The 70% number is a starting point, not a law. Experienced flippers adjust the percentage based on the deal's risk profile and the market they are operating in. Here is what each variant looks like on the same property:
| Percentage | When to use it | Max offer on $320k ARV, $50k rehab |
|---|---|---|
| 65% | Large rehabs ($100k+), uncertain ARV, declining market, your first or second flip. This is the "I do not know what I do not know" percentage. | $158,000 |
| 70% | Standard rule. Works for most markets and most deal sizes where you have solid comps and a manageable rehab. | $174,000 |
| 75% | Experienced flipper, cosmetic rehab under $30k, five-plus comps supporting the ARV, seller's market with fast turns. Common in hot markets like parts of Nashville and Tampa. | $190,000 |
| 80% | Cosmetic-only scope, extremely tight market with proven comps, deep cash reserves, and a track record of fast execution. This is the "professional with a crew on standby" percentage. | $206,000 |
Notice the spread: $158,000 to $206,000 on the same property. That $48,000 gap is the price of risk tolerance. Use the percentage slider in the calculator above to see exactly where each variant puts your ceiling, and notice how fast the margin evaporates as you push past 75%.
Apply 70% to ARV, never to asking price
This trips up beginners constantly, and it is worth hammering because the mistake is expensive. The asking price is what the seller wants. The ARV is what the market will pay for the finished product. These are two completely different numbers, and confusing them will wreck your math.
Say a seller lists a distressed property at $200,000. A beginner applies 70% to the asking price: $200,000 × 0.70 = $140,000, then subtracts $50,000 rehab and offers $90,000. That number has no connection to the deal's economics. If the ARV is $320,000, the real max offer is $174,000. If the ARV is $240,000, it is $118,000. The asking price is noise.
Always start with comps. Pull three to five recent sales of similar homes in finished condition within a half mile. That gives you the ARV. Then apply the rule. The asking price only matters when you compare your max offer to it and decide whether there is a deal to make, or a negotiation to have.
How the rule plays across different markets
The 70% rule does not work the same everywhere. The markets where it works best are mid-price markets with decent inventory and predictable values. The markets where it struggles are the extremes.
- Midwest and Southeast cash-flow markets. In cities like Indianapolis, Memphis, and Birmingham, you can still find deals that pass the 70% rule because acquisition prices are low relative to ARV. The catch: at $120,000 ARV, a 30% buffer is only $36,000, and fixed costs eat more of it. Many experienced flippers in these markets use 65% to compensate.
- Hot Sun Belt markets. In parts of Dallas, Phoenix, and Charlotte, competition has compressed margins for years. Deals that pass the 70% rule are rare, and when they appear, they tend to have something wrong that the numbers are not showing: foundation issues, flood zones, title problems. If you are consistently finding 70% deals in a hot market, ask why nobody else has bought them.
- Coastal and high-cost markets. In San Diego, the Bay Area, or South Florida, a $700,000 ARV flip with $100,000 in rehab has a max offer of $390,000. That kind of discount on a $700,000 property is nearly impossible to find on the MLS. Flippers in these markets tend to source off-market and work on tighter margins, 75% or even 80%, but with higher dollar profits per deal. The risk per deal is also significantly higher.
- Stabilizing or cooling markets. When a market shifts, like Austin in 2023 or parts of Boise, ARVs from three months ago may not hold. The 70% rule does not account for a moving target. In these conditions, use the most recent 60 days of comps only, and consider dropping to 65%.
Pairing the 70% rule with a full flip analysis
The 70% rule is a filter, not a proforma. It tells you whether a deal deserves a closer look. It does not tell you whether to write a check. Once a property passes the 70% screen, run it through a full fix-and-flip analysis with actual line items:
- Purchase costs. Title insurance, inspection, appraisal, origination points, recording fees. These vary by state and lender. A deal in Texas has different closing costs than one in Ohio.
- Rehab budget with contingency.Add 10% to 15% on top of your contractor's bid. Every flip has surprises: termites behind drywall, a failing sewer lateral, permits that take longer than expected. The flippers who do not budget for surprises are the ones posting cautionary tales on Reddit.
- Holding costs month by month. Hard money interest at 10% to 13%, property taxes, insurance, utilities, lawn care. A six-month flip has double the holding costs of a three-month flip. This is where timeline kills profit, and most first-time flippers underestimate their timeline by at least a month.
- Selling costs.Agent commissions (5% to 6% total), seller's closing costs, staging, professional photography. Some flippers try to save by going FSBO. Most of them discover that saving 3% on commission costs them 10% in final sale price.
If the deal still hits your target return after all those real numbers, you have a deal. If it only works with optimistic assumptions (best-case rehab, fastest timeline, top-of-range ARV), the 70% rule was trying to warn you and you should listen.
When to bend the rule
Rigid rules in a flexible market make you miss deals. There are legitimate reasons to go above 70%, but every one of them requires experience and specific conditions, not just a feeling that the deal "should work."
- Cosmetic-only rehab.If the scope is paint, flooring, fixtures, and landscaping with no structural, mechanical, or plumbing work, the risk of cost overruns is genuinely low. A 75% ceiling can work. But "cosmetic only" means you have inspected the property thoroughly, not that you are hoping the foundation is fine.
- Extremely strong comps. Five sold comps in the last 60 days, all above your ARV estimate, in the same subdivision. The ARV is as close to certain as real estate gets. This kind of comp support turns the 70% rule from a safety net into an overcorrection.
- Fast-moving market. If homes in the neighborhood are selling in under 15 days, your holding costs shrink dramatically. Less time holding means a thinner buffer is still safe. But fast markets can slow down. Check the trend over the last three months, not just last week.
- Deep cash reserves.If a worst-case outcome (rehab goes 25% over, house sits for four months) would not put you in financial distress, you can afford tighter margins on a specific deal. The key word is "specific." This is not a blanket license to run at 80% on every deal.
If none of those conditions apply, stick to 70% or below. The rule exists because flippers underestimate costs, overestimate ARV, and assume best-case timelines. The ones who survive long enough to get experienced are the ones who respected the buffer early on.
Frequently asked questions
What is the 70% rule in house flipping?
The 70% rule says your maximum allowable offer on a flip is 70% of the after-repair value minus the estimated rehab cost. On a house worth $300,000 after renovations with $40,000 in repairs, the ceiling is $300,000 times 0.70 minus $40,000, which is $170,000. Anything above that and you are eating into the buffer meant to cover transaction costs, holding costs, and profit. It is the flipper's equivalent of a stop-loss order: it does not guarantee a win, but it prevents the catastrophic losses that blow up first-time flippers.
Is the 30% buffer my profit?
No, and this misconception kills deals. The 30% is mostly friction. Selling costs eat 6% to 8% (agent commissions, closing fees, transfer taxes). Holding costs run 5% to 7% (loan interest, insurance, taxes, utilities). Buying costs add another 2% to 3%. What survives all that friction is your net profit: typically 12% to 15% of ARV on a well-executed flip. That is why one contractor delay that adds two months of hard money interest can turn a profitable flip into a break-even one.
When should I use 65% instead of 70%?
Use 65% when the deal carries above-average risk: a heavy rehab over $100,000 where surprises are likely, a property in a softening market like parts of Austin or Boise where values have been choppy, your first or second flip, or any project where the holding period could stretch past six months. The tighter percentage gives you a bigger cushion for the things you cannot predict. Experienced flippers who have been through a rehab that went 40% over budget understand why that extra 5% exists.
Can I use 75% or 80% and still be safe?
Experienced flippers in fast-moving markets sometimes bump to 75%. At 80% you have almost no room for error: a single contractor delay, a surprise foundation issue, or a market dip can wipe out your margin entirely. If you are running 80%, you had better have a deep pipeline, fast crews, and cash reserves to absorb a bad outcome. In markets like parts of Dallas or Nashville where inventory moves in under two weeks, 75% can work on a cosmetic flip. Beginners should not touch 80% regardless of the market.
Should I apply the 70% rule to the asking price?
Never. This is the most common beginner mistake and it will wreck your math completely. The rule is always applied to the after-repair value: what the property will sell for once all renovations are complete. The asking price is what the seller wants. The ARV is what the market will pay. A seller listing a distressed property at $200,000 tells you nothing about the deal's economics. The only number that matters is what comparable, renovated homes are actually selling for in that neighborhood.
How do I estimate after-repair value accurately?
Pull recent sold comps within a half-mile radius that match the finished condition of your flip: same bedroom count, similar square footage, updated finishes. Use three to five sales from the last 90 days. Ignore active listings. They reflect hope, not reality. In neighborhoods with few sales, like rural areas or very high-end pockets, you may need to widen the radius or time frame, but that also means your ARV is less certain and you should drop to 65%. If you cannot find at least three solid comps, the ARV is a guess and the 70% rule cannot save you from a bad guess.
Does the 70% rule work for the BRRRR strategy?
It works as a quick screen, but BRRRR has a different exit: you refinance instead of sell, so there are no selling costs. That means the buffer does not need to be as thick. Many BRRRR investors use 75% of ARV minus rehab as their ceiling. The real constraint in BRRRR is the refinance appraisal and the loan-to-value the lender allows, which a full BRRRR analysis covers better than a napkin rule ever will.
What if a deal fails the 70% rule but still looks profitable?
Run a full fix-and-flip analysis with actual line items for every cost: purchase closing costs, holding costs month by month, rehab with a 10% to 15% contingency, selling commissions, and transfer taxes. If the deal still pencils to your target profit after all that, the 70% rule was too conservative for this particular deal. That happens. The rule is a screening filter, not a final verdict, and occasionally a good deal lives just outside the filter. Just make sure you are being honest about why, not rationalizing your way into a deal you have already fallen in love with.