70% Rule

What is the 70% rule?

The 70% rule is the house-flipping industry’s standard offer formula: pay no more than 70% of the after-repair value (ARV) minus estimated repair costs. The 30% held back is not all profit, it must cover buying and selling costs (agent commissions, closing costs), financing costs (hard money interest and points), carrying costs (taxes, insurance, utilities during the project), and still leave a profit margin, typically 10% to 15% of ARV.

On a house with a $200,000 ARV needing $30,000 of work, the rule caps the offer at $140,000 − $30,000 = $110,000. Roughly speaking, of the $60,000 spread: $16,000 to $20,000 goes to transaction costs, $8,000 to $12,000 to financing and carrying costs, leaving $28,000 to $36,000 of profit if the ARV and repair estimates hold.

The percentage flexes with context. Higher-priced properties can work at 75% to 80% (fixed costs shrink relative to ARV), while cheap houses may need 65% or lower (a $10,000 surprise is devastating on a $90,000 ARV). Experienced flippers treat the rule as a first filter and then build a full line-item budget, ARV comps, repair bids, financing terms, timelines, before offering. Wholesalers must contract below the 70% number to leave room for their fee.

Worked example

A flipper evaluates a house with a $240,000 ARV needing $40,000 of renovation. Maximum offer = $240,000 × 0.70 − $40,000 = $128,000. If the seller wants $150,000, the flipper passes or negotiates, at $150,000, transaction, financing, and carrying costs would consume nearly the entire margin.

Frequently asked questions

Where does the 30% in the 70% rule actually go?

Selling costs take the biggest bite, agent commissions and closing costs on the resale typically run 7% to 9% of ARV. Financing costs (hard money points and six-plus months of interest) take another 4% to 6%, and carrying costs (taxes, insurance, utilities) 1% to 2%. What remains, usually 10% to 15% of ARV, is the flipper’s profit and the buffer that absorbs surprises. Deals bought above the 70% line hand that buffer to the seller.

Should I always stick to exactly 70%?

No, it is a calibration point, not a law. In expensive markets, competitive conditions push experienced flippers to 75% to 80% because fixed costs are proportionally smaller and inventory is scarce. On sub-$120,000 properties, 65% or lower is prudent since small dollar surprises are proportionally huge. Cash buyers who avoid financing costs can also pay slightly more. What never changes: build a full budget before relying on any percentage.

Related tools and guides

• Real Estate Investment Calculator