Fix-and-flip investing looks simple from the outside: buy low, renovate, sell high. But the investors who consistently make money — and more importantly, don't lose it — do so because they underwrite every deal with discipline. The 70% rule is where that discipline starts.
What Is the 70% Rule?
The 70% rule is a quick-filter heuristic used by real estate investors to determine the maximum price they should pay for a property they intend to fix and flip. The formula is:
Maximum Allowable Offer (MAO) = (ARV × 70%) − Estimated Repair Costs
Let's break that down:
- ARV (After Repair Value) — The estimated market value of the property after all renovations are complete
- 70% — A buffer that covers your profit margin, holding costs, closing costs, and financing costs
- Estimated Repair Costs — The total cost to bring the property to ARV condition
The resulting number is the most you should pay for the property and still expect a viable profit.
Why 70%? Where Does That Number Come From?
The 70% threshold isn't arbitrary. It's designed to account for the real costs of a flip beyond just renovation:
- Acquisition costs: Closing costs, transfer taxes, inspection fees (~1–3% of purchase price)
- Holding costs: Property taxes, insurance, utilities, loan interest while you own it (~3–6% of ARV depending on timeline)
- Selling costs: Agent commissions, closing costs on the sale (~7–8% of ARV)
- Profit margin: What's left for you (target 10–15% of ARV minimum)
Add those up: 3% + 5% + 8% + 14% = 30%. That's where the 30% buffer comes from, making 70% the purchase ceiling.
How to Determine ARV
ARV is the most important — and most misunderstood — number in a flip analysis. Get it wrong, and every other calculation in your deal is corrupted.
ARV is not:
- The asking price
- What Zillow says
- What you hope the property will be worth
ARV is determined by comparable sales (comps) — what similar properties in the same neighborhood actually sold for, recently, in comparable condition.
How to Pull Comps
A solid comp analysis uses the following criteria:
- Location: Same neighborhood, ideally within 0.5 miles
- Size: Within 20% of your property's square footage
- Condition: Fully renovated, retail-quality finishes
- Recency: Sold within the last 90–180 days (tighter in hot markets)
- Type: Same property type (SFR to SFR, condo to condo)
Use at least 3 comps, weight the most similar ones more heavily, and be conservative. Overestimating ARV is the #1 way flippers lose money.
A Complete Example Deal Walkthrough
Let's run through a real example using the 70% rule.
Property: 3 bed / 2 bath, 1,400 sq ft ranch, significant deferred maintenance, dated finishes throughout.
Step 1: Determine ARV
You pull 4 comps in the neighborhood — renovated 3/2s that sold between $285,000 and $310,000 in the last 90 days. Two are very close in size and layout. You set a conservative ARV of $295,000.
Step 2: Estimate Repair Costs
You walk the property and price out the work:
- Kitchen (new cabinets, counters, appliances): $22,000
- Bathrooms (2 full updates): $14,000
- Flooring throughout: $8,000
- Roof (partial repair): $6,000
- HVAC service + minor repairs: $3,500
- Landscaping and exterior paint: $4,500
- Miscellaneous / contingency (10%): $5,800
Total estimated repairs: $63,800
Step 3: Calculate MAO
MAO = ($295,000 × 70%) − $63,800
MAO = $206,500 − $63,800
MAO = $142,700
If the property is listed at $165,000, you're $22,300 above your ceiling. This deal needs to come down in price — or your repair estimate needs to decrease — to work.
Accounting for Carrying Costs
The 70% rule bakes in an estimate for carrying costs, but it's worth calculating them explicitly — especially for longer projects.
Carrying costs typically include:
- Hard money loan interest: 10–14% annualized on the loan amount. On a $150,000 purchase with 6 months hold time at 12% = $9,000.
- Property taxes: Prorated at your local rate
- Insurance: Vacant property or renovation insurance, typically $100–200/month
- Utilities: $200–400/month depending on season and scope of work
On a 6-month flip, these costs can easily total $12,000–$18,000. Factor these in explicitly rather than relying on the 70% buffer alone.
When the 70% Rule Works — and When It Doesn't
The 70% rule is an entry filter, not a complete underwriting model. It's excellent for quickly screening deals and eliminating obvious non-starters. But it has real limitations:
When It Works Well
- Median-price markets with stable, reliable comps
- Properties with conventional renovation scopes
- Standard 4–6 month hold times
- Markets where you have deep comp data
When You Need to Adjust It
- High-end markets: Use 65% in luxury markets where margins are thinner and days-on-market are longer
- Hot seller's markets: Some investors push to 75–80% when inventory is extremely tight and appreciation is rapid
- Distressed properties: Add a larger contingency buffer (15–20%) for properties with unknown structural issues
- Cash purchases: With no loan interest, you have more flexibility — some investors use 75%
- Long timelines: If your renovation takes 9–12 months, the 70% buffer may not adequately cover carrying costs
The 5 Most Common 70% Rule Mistakes
- Using list price as ARV. ARV is what renovated comps sell for — not what the subject property is listed at, and not what you hope to sell it for.
- Underestimating repair costs. Add a 10–15% contingency. Every flip reveals surprises.
- Ignoring permit and inspection costs. Depending on scope, permits alone can add $5,000–$15,000+ to a project.
- Not accounting for market time. Even at a good price, if the market is slow, you'll pay an extra 2–3 months of carrying costs.
- Applying it rigidly in all markets. The 70% rule is a starting point. Your local market conditions should inform your actual target percentage.
Beyond the 70% Rule: Full Deal Analysis
Once a deal passes the 70% filter, you need a full pro forma that includes:
- Detailed repair cost line items
- Financing structure (purchase loan + rehab draws)
- Exact carrying cost projections by month
- Selling cost estimates (agent commissions, title, transfer)
- Multiple ARV scenarios (conservative, base, optimistic)
- Net profit and ROI calculations
That's the difference between flipping from a napkin and flipping like a professional. The 70% rule tells you whether to keep looking. A full deal analyzer tells you whether to pull the trigger.