The 70% Rule for Fix and Flips, Explained

The 70% rule is the single most quoted guideline in house flipping — a fast back-of-the-envelope test that tells you the most you should pay for a property given its after-repair value and rehab cost. It's not a law, and it's not perfect, but it encodes the discipline that keeps flippers (and the lenders who fund them) out of trouble. This guide explains the formula, works through real examples, and shows when to adjust it.

The formula

The 70% rule says your maximum purchase price should be:

Max Offer = (ARV × 0.70) − Estimated Repairs

Where ARV is the after-repair value — what the property will sell for once renovated — and repairs is your total rehab budget.

The logic: you're capping your purchase + rehab at 70% of ARV, which reserves the other 30% to cover your holding costs, financing costs, closing costs on both ends, selling costs (agent commissions), and — critically — your profit. That 30% is your margin of safety.

A worked example

ARV:                $300,000
Estimated repairs:  $50,000

Max Offer = (300,000 × 0.70) − 50,000
          = 210,000 − 50,000
          = $160,000

So on a property that will be worth $300,000 fixed up and needs $50,000 of work, the 70% rule says don't pay more than $160,000. At that price, your purchase + rehab is $210,000 — exactly 70% of ARV — leaving $90,000 to absorb every other cost and your profit.

Where that 30% goes

ARV:                              $300,000
Less purchase + rehab (70%):     −$210,000
Gross spread:                      $90,000

Financing (points + interest):   ~$15,000
Closing costs (buy + sell):      ~$10,000
Selling costs (~6% commission):  ~$18,000
Holding costs (taxes/ins/util):   ~$5,000
Estimated profit:                ~$42,000

The 30% buffer isn't arbitrary padding — it's consumed by real, predictable costs, with profit as the remainder. That's why blowing through the 70% rule is dangerous: you're eating into the money that's supposed to cover those costs.

Why lenders use it too

The 70% rule isn't just a flipper's tool — it mirrors how fix-and-flip lenders underwrite. Recall that flip loans cap leverage at the lower of a loan-to-cost figure and an ARV cap of ~70–75%. A deal that respects the 70% rule naturally fits inside the lender's ARV cap, which is why these deals get funded smoothly. A deal that violates it will get flagged when the lender's appraiser sets the ARV — see fix-and-flip loan requirements.

In other words, the 70% rule and the lender's ARV cap are two views of the same risk discipline.

The two inputs that make or break it

The rule is only as good as its two inputs, and both are easy to get wrong:

1. ARV — the number flippers most often inflate

Your ARV must be supported by conservative comparable sales — recently sold, renovated properties similar in size, condition, and location. The temptation is to cherry-pick the highest comp; the discipline is to use realistic ones. An ARV that's $20,000 too high cascades through the whole calculation and erases your margin. The lender's appraiser will use real comps, so use them yourself first.

2. Repairs — the number flippers most often underestimate

An itemized scope of work beats a guess every time. Walk the property, price the work realistically, and add a contingency (10–20%) for the surprises that always surface once demo starts. Underestimating rehab is how a "70% rule" deal quietly becomes an 80% deal.

When to adjust the percentage

The "70" isn't sacred — it's a starting point you tighten or loosen based on the deal:

• Use a lower percentage (65% or less) when: ARV is uncertain, the rehab is heavy or structural, the market is softening, you're a first-timer, or holding costs will be high (a slow market or a long project). A bigger buffer protects you.
• A higher percentage (72–75%) can be defensible when: comps are rock-solid, the rehab is light and predictable, the market is hot, you're experienced, and your financing/holding costs are low. But you're trading away safety margin — do it knowingly.

Think of 70% as the default and adjust toward more caution far more readily than toward less.

What the rule leaves out

The 70% rule is a quick filter, not a full underwrite. It doesn't explicitly account for:

• Wholesale fees if you bought through a wholesaler.
• Unusually high or low commissions or closing costs.
• Very long holds that rack up financing and holding costs.
• Markets with atypical selling costs or transfer taxes.

For any deal that passes the 70% screen, follow up with a full deal analysis — every line item, your actual financing quote, and a realistic timeline. The rule tells you whether a deal is worth analyzing; the full analysis tells you whether to do it.

A second example: a thinner deal

ARV:                $250,000
Estimated repairs:  $40,000

Max Offer = (250,000 × 0.70) − 40,000
          = 175,000 − 40,000
          = $135,000

If the property is listed at $160,000, this deal fails the 70% rule at the asking price — you'd be paying $25,000 over your maximum, eating straight into your margin. Either negotiate the price down toward $135,000, or pass. This is exactly the kind of decision the rule is built to make fast.

Bottom line

The 70% rule — (ARV × 0.70) − repairs — is the flipper's fast guardrail, reserving 30% of ARV for the costs and profit that a flip must cover. Its accuracy lives entirely in honest inputs: a conservative ARV and a realistic, contingency-padded rehab budget. Use it to screen deals quickly, tighten the percentage when risk is higher, and always follow a passing deal with a full underwrite. Found one that pencils? Get a quote with your purchase, rehab, and ARV, and review fix-and-flip loan requirements.

This guide is general information for real estate investors, not financial advice. The 70% rule is a guideline, not a guarantee; every deal needs its own full analysis.