Glossary
70% rule
The 70% rule is a house flipping rule of thumb: pay no more than 70% of the after repair value minus the rehab cost. On a $320,000 ARV with $50,000 of rehab, that is $174,000.
The 30% gap is meant to cover selling costs, loan costs, holding costs and profit in one quick step. It is a fast screen for listings, not a final offer.
How to calculate it
Max offer = ARV x 70% - rehab
- ARV $140,000, rehab $30,000: $98,000 - $30,000
- $68,000
- ARV $320,000, rehab $50,000: $224,000 - $50,000
- $174,000
- ARV $500,000, rehab $80,000: $350,000 - $80,000
- $270,000
Where it breaks
- Cheap houses. Fixed costs like closing fees and insurance are a bigger share of a low ARV. 70% can be too generous.
- Expensive houses. On a large ARV, 30% is a lot of dollars. 70% can be too tight and lose you deals.
- Long or heavy jobs. A gut rehab carries more months of interest than the rule assumes.
That is why Run The Deal adjusts the percent by price band: 65% under $150,000, 70% from $150,000 to $400,000, and 75% above $400,000. It subtracts 5 points for heavy or gut rehabs, flood zones or slow markets, and above $150,000 allows 5 points more in fast markets or when you list the house yourself.
Better than a rule of thumb
A full MAO prices your actual costs and profit target. On the $320,000 deal, a full MAO with a 12% margin target came out near $186,800, about $12,800 above the 70% number. Read the 70% rule guide for more.
Questions
Does the 70% rule include closing costs?
It is meant to. The 30% gap has to cover buying and selling costs, loan costs, holding costs and your profit together. That is why it gets tight on cheaper houses.
Is the 70% rule still realistic?
As a screen, yes. In competitive markets many deals trade above it. Run a full MAO with your real costs before deciding a deal does not work.
Does the 70% rule work for BRRRR?
Loosely. A BRRRR has no selling costs but needs the refi loan to cover your costs, so investors often screen against the refi LTV instead.
Keep going
Free tools
Run your next deal before you write the offer.
Run The Deal is in an invite-only beta. Ask for a spot and we will email you when it opens.