The 70% rule for flips, explained
The 70% rule says your maximum offer on a flip should be 70% of the after-repair value minus the rehab budget. The 30% gap is not profit; it covers holding costs, selling costs and your margin. Net profit on a true 70% deal is realistically 12% to 15%.
The 70% rule is the flipper's sanity check on price. It will not size your profit to the dollar, but it draws a clear line you should rarely cross when deciding what to offer.
The formula
On a home with a $320,000 ARV needing $50,000 of work, the rule caps your offer at 320,000 × 0.70 − 50,000 = $174,000. Always apply the 70% to the ARV, never to the asking price.
Where the 30% actually goes
| Bucket | Share of ARV |
|---|---|
| Selling costs (commission, closing) | 6% to 8% |
| Holding and financing | 5% to 7% |
| Buying costs | 2% to 3% |
| Net profit | 12% to 15% |
The single most common mistake is thinking the 30% is your profit. It is mostly friction; underestimate the rehab and the real profit disappears.
The 65 / 75 / 80% variants
- 65% rule: slow or declining markets, where you want more cushion.
- 75% rule: stable markets with decent inventory.
- 80% rule: hot markets, experienced investors only, thin margins.
Use it with a full analysis
The 70% rule sets your maximum offer; it does not confirm the deal is profitable. Run the full fix-and-flip numbers (holding period, selling costs, financing) before you commit. The rule gets you to a price worth analyzing; the analysis decides.
Frequently asked questions
Is the 30% in the 70% rule my profit?
No, and this is the most common misconception. The 30% buffer covers selling costs, holding and financing, and buying costs. The actual net profit on a true 70% deal is usually 12% to 15% of ARV.
Do I apply the 70% to the asking price or the ARV?
Always to the after-repair value (ARV), the price the finished home will sell for, then subtract rehab. Applying it to the asking price defeats the purpose.
Does the rule already include closing costs?
Yes. The 30% margin is designed to absorb buying and selling costs, so you do not subtract them again separately.
Should I use the 75% rule instead?
In hot, low-inventory markets experienced flippers sometimes stretch to 75% or even 80%, but every point above 70% trims your safety margin. In slow markets, 65% is safer.