70% rule: does it still work?
By Austin Frangoules | Updated | 5 min read
The 70% rule says a flipper should pay no more than 70% of the after repair value minus the rehab cost. It still works as a fast screen for mid-priced houses, but it is too loose on cheap houses and often too tight on expensive ones. Use it to sort leads, then solve your real max offer from your actual costs.
What the 70% rule says
The 70% rule is one line of math: max offer = 70% x ARV minus rehab. The 30% you leave on the table is meant to cover closing costs, loan costs, holding costs, selling costs and your profit, all in one bucket.
- ARV
- $335,000
- 70% of ARV
- $234,500
- Rehab, including 10% contingency
- -$74,250
- Max offer at 70%
- $160,250
- Max offer at 75%: $251,250 minus $74,250
- $177,000
In our methodology's worked example, the full cost math at a $35,000 profit target lands near $177,900, closer to the 75% version. Illustrative numbers.
That gap is the whole problem. A rule that can be off by $17,000 on one house is a screen, not a price.
Why a flat 70% breaks
The rule assumes your costs are a fixed 30% of ARV. They are not. Some costs scale with price, like commissions and transfer tax. Others are close to fixed, like settlement fees, lender fees, inspections and a few months of utilities. On a cheap house those fixed costs eat a big share of the spread. On an expensive house they barely register.
Timeline matters too. A two-month cosmetic flip and an eight-month gut rehab carry very different interest and holding costs, yet the rule treats them the same.
Financing is the third gap. An all-cash buyer pays no points or interest. A hard money buyer might pay 2 points up front plus about 11% a year on the balance drawn, and some lenders charge interest on the full loan from day one. Two investors can apply the same 70% to the same house and end up with very different profits.
Selling is the fourth. If you list the house yourself and only pay the buyer's agent, you keep part of the commission the rule assumes you will spend. If the buyer asks for closing cost credits, you give some of it back. None of that shows up in a flat percentage.
Where it is too loose: cheap houses
- Max offer: 70% x $120,000 minus $30,000 rehab
- $54,000
- Rehab
- $30,000
- Buyer closing costs
- $2,500
- Financing and holding (illustrative)
- $7,500
- Selling: 6.6% of $120,000 plus $1,000
- $8,920
- Total cost
- $102,920
A 14% margin looks fine, but $17,080 is little room for a rehab overrun or a soft sale. At 65%, the offer drops to $48,000 and profit rises to about $23,080, holding the other costs flat.
On low-priced houses, many investors use 65% or less for exactly this reason. A $10,000 surprise is a small dent in a $300,000 flip and more than half the profit in this one.
Where it is too tight: expensive houses
- Rehab
- $60,000
- Closing $4,000, financing and holding $20,000 (illustrative)
- $24,000
- Selling: 6.6% of $400,000 plus $1,000
- $27,400
- Profit at 70% offer ($220,000)
- $68,600
- Profit at 75% offer ($240,000)
- $48,600
Financing and holding are held flat for simplicity. The 75% offer still clears a 12% margin, so a strict 70% bid could lose this house to a buyer who ran the full math.
Adjusting the percentage by market
If you use a rule at all, let the percentage move with the deal. Run The Deal shows a context-adjusted rule next to the classic 70% using these planning bands:
| Situation | Multiplier | Fast market or listing it yourself |
|---|---|---|
| ARV under $150,000 | 65% | 65% |
| ARV $150,000 to $400,000 | 70% | 75% |
| ARV over $400,000 | 75% | 80% |
| Heavy or gut rehab, flood zone, or slow market (median days on market over 60) | Subtract 5 points | Subtract 5 points |
A fast market here means a median of 30 days on market or less, or you save the listing side of the commission. These bands are still shortcuts. They narrow the gap but do not close it.
The better way: solve your max offer
Your real max allowable offer is the highest price where the deal still hits your target after every cost. Pick the target first: a dollar profit, a margin on ARV, or a return on cash. Then work backward through closing, loan sizing, interest, holding, selling and rehab.
Run The Deal solves this directly. It reruns the full deal at different prices until it finds the highest one that meets your target, then rounds down to the nearest $500. By default the target is both $30,000 of profit and a 12% margin on ARV. It shows the solved number side by side with the 70% rule and the context-adjusted rule, with one line explaining the gap.
Then check the downside. Your break-even ARV is the sale price where profit hits zero. The further your ARV sits above it, the more room you have when the comps were optimistic.
Common mistakes
- Using an optimistic ARV. The rule is only as good as the ARV. See how to calculate ARV.
- Leaving contingency out of the rehab before applying the rule. The rehab number should be the full budget.
- Applying 70% to every price point. Cheap houses need a lower percentage, and expensive ones can often bear a higher one.
- Ignoring the timeline. A long rehab or a slow market raises holding costs the rule never sees.
- Treating the rule as the offer. It is a filter for which deals deserve a full budget.
So, does the 70% rule still work?
As a 10-second filter on mid-priced houses, yes. As a final offer, no. It does not know your loan terms, your timeline, your selling costs or your profit target. Build the full numbers with our fix and flip budget template, then run your numbers in the free flip calculator to see the solved max offer next to the 70% line.
Questions
What is the 70% rule formula?
Max offer = 0.70 x ARV minus the rehab cost. On a $300,000 ARV with a $50,000 rehab, that is $210,000 minus $50,000, or $160,000.
Does the 70% rule include closing and holding costs?
Only loosely. The 30% left over is meant to cover closing, financing, holding, selling and profit together. It does not count your actual numbers, which is why it can be off by thousands.
Is the 70% rule too strict in today's market?
On higher-priced houses in fast markets it often is, and some investors use 75% or more there. On low-priced houses it is often too loose, and 65% is safer. Solving the max offer from real costs avoids the guesswork.
Should the rehab in the 70% rule include contingency?
Yes. Use the full rehab budget with contingency. Leaving contingency out makes the offer higher than it should be.
What is a better alternative to the 70% rule?
Solve the max allowable offer: the highest price where the deal still meets your profit or margin target after every cost. A deal calculator can rerun the full math at each price to find it.
For education only. Not legal, tax, lending or investment advice. Loan programs and guidelines change and vary by lender; confirm current terms with your lender.