Quick Answer
The 70% rule says a house flipper should pay no more than 70% of a property's after repair value (ARV), minus the cost of repairs. The formula is: maximum offer = (ARV x 0.70) minus repairs. The other 30% covers holding costs, closing costs, selling costs, and profit.
What Is the 70% Rule in Real Estate?
The 70% rule is a quick screening formula for fix-and-flip deals. It gives you a maximum allowable offer (MAO) before you spend time on a full analysis. If the seller's price is far above that number, you can move on.
It starts with the after repair value, takes 70% of it, and subtracts repairs. Simple math, but only as good as the inputs.
The Formula, With an Example
Maximum offer = (ARV x 0.70) minus estimated repair costs
- ARV: $250,000
- ARV x 0.70 = $175,000
- Estimated repairs: $40,000
- Maximum offer: $175,000 minus $40,000 = $135,000
These numbers are an illustrative example. The 30% gap, $75,000 here, is not all profit. It has to pay for buying costs, loan interest, insurance, taxes, utilities, and selling costs before any profit is left.
When Investors Adjust the 70%
The 70% is a rule of thumb, not a law. Investors move it up or down based on:
- Price point: on higher-priced homes, a fixed dollar profit is a smaller percentage, so some investors go above 70%. On low-priced homes, 70% may not leave enough dollars, so some go below it.
- Market speed: slow markets mean longer holds and higher costs.
- Financing: hard money interest and points eat into the margin.
- Repair risk: older homes, foundation issues, or an unclear scope call for a lower number or a larger contingency.
Where the 70% Rule Falls Short
- It only works if your ARV is accurate. An inflated ARV makes a bad deal look good.
- It is built for flips. Buy-and-hold rentals are judged by rent, cash flow, and return instead.
- It ignores your specific costs. Always run a full budget before you sign.
Frequently Asked Questions
What is the 70% rule in real estate?
The 70% rule is a guideline for house flippers: pay no more than 70% of the after repair value (ARV), minus the cost of repairs. The remaining 30% covers costs and profit.
How do you calculate the 70% rule?
Multiply the ARV by 0.70 and subtract estimated repairs. For example, $250,000 x 0.70 = $175,000, minus $40,000 in repairs, equals a $135,000 maximum offer.
Is the 70% rule still realistic?
It depends on the market and the price point. In competitive markets some investors pay more than 70%, while others stay at or below 70% to protect their margin. Use it to screen deals, then run full numbers.
Does the 70% rule apply to rental properties?
Not really. The 70% rule was built for fix-and-flip deals. Rentals are usually evaluated on rent, expenses, cash flow, and cash-on-cash return.
Related Terms & Guides
- Fix and Flip Calculator: Check a price against the 70% rule
- ARV Calculator: Get the ARV the rule starts from
- After Repair Value (ARV): What a property is worth once it is fixed up
- Assignment of Contract: How wholesalers transfer a contract to an end buyer
- Double Closing: Buy and resell in two separate closings
- Off-Market Property: Deals that never hit the MLS
- Proof of Funds (POF): Showing a seller you can close
- Earnest Money Deposit (EMD): The good-faith deposit that secures a contract
- Transactional Funding: Short-term money for the first closing
- Pallas Investor Deals: Off-market properties in 13 states
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