70% Rule for House Flipping: When It Works and When It Doesn't

The formula

Maximum Offer = (ARV × 0.70) − Repair Costs. The idea: pay no more than 70% of the after-repair value, minus what it costs to get it there, leaving the remaining 30% of ARV to cover financing costs, holding costs, selling costs, and actual profit.

Where it works well

In mid-range markets with typical financing and typical timelines, a 30% margin usually covers the real costs (selling costs alone often run 6-10% of ARV) with room left for meaningful profit. As a first-pass filter to quickly rule out overpriced listings before spending time on a full analysis, it's fast and reasonably reliable.

Where it breaks down

High-value markets. On an $800,000 ARV flip with $60,000 in repairs, the 70% Rule caps the offer at $500,000 — leaving a $240,000 margin. That's almost certainly far more than actual costs and target profit require, meaning a strict 70% Rule would make the investor underbid and lose the deal to someone running real numbers instead of a rule of thumb.

Low-value markets. On a $90,000 ARV flip needing $25,000 in repairs, the rule caps the offer at just $38,000 — a $27,000 margin. But selling costs alone (about 8% of ARV) eat roughly $7,200 of that, and financing and holding costs on a smaller deal don't scale down proportionally — insurance, a hard money loan's minimum fees, and inspection costs are similar in dollar terms whether the ARV is $90,000 or $400,000. The remaining margin can shrink to the point where the deal isn't worth the risk, even though it "passes" the rule.

What to use instead once a deal passes the screen

The 70% Rule is meant to be a first filter, not a final answer. Once a property looks promising under it, replace the rule of thumb with the actual numbers: real contractor rehab quotes (see the rehab budgeting guide), actual financing terms, a realistic holding period, and current local selling costs — run through the House Flip Calculator to get a real projected profit and ROI instead of a generic margin assumption.

A simple gut check

If the 70% Rule's implied margin is dramatically larger or smaller than what your actual expenses and target profit require, trust the real analysis over the rule — the rule exists to save time screening listings, not to replace the calculation once you're seriously considering an offer.