The 70% Rule in Real Estate — How It Works and Exactly When It Breaks

The 70% rule says: pay no more than 70% of a property's After Repair Value, minus rehab costs.

Offer ≤ (ARV × 0.70) − Rehab

It's the most repeated formula in house flipping, and it's genuinely useful — as a screen. Where it hurts people is when they treat it as an offer formula. The 70% rule is a compressed version of the full MAO calculation, and like any compression, it throws information away. Here's what's inside the 30%, and the three situations where the shortcut gives you a wrong answer.

What the 30% actually represents

When you cap your price at 70% of ARV, the other 30% is silently covering everything except rehab: your buying costs, holding costs, financing costs, selling costs, and your profit. On a "typical" deal — mid-priced house, normal timeline, conventional-ish costs — those lines really do sum to somewhere near 30% of ARV, which is why the rule became a rule.

But none of those costs actually scales as a neat percentage of ARV. Commissions roughly do. Profit might. Holding costs scale with time. Financing costs scale with loan size and points. Title and inspection costs are close to flat. The rule works only where the averages happen to line up.

Break #1 — Low-priced properties

On a $120,000-ARV house, the 30% allowance is $36,000. But a title policy, inspections, utilities, insurance, six months of interest, and an agent's commission don't shrink to fit — many of those costs are the same dollars they'd be on a $300,000 house. Fixed costs eat a far bigger share of a small deal, so 70% is routinely too aggressive at the low end: you'll win the offer and lose the margin.

Break #2 — High-priced properties

Flip it around: on a $900,000-ARV property, 30% is $270,000 of allowance. Unless your carry is extraordinary, your actual costs plus a healthy profit likely total well under that — which means the rule has you offering less than you could, and in a competitive market that's the difference between buying deals and writing offers that never win. At the high end, 70% is often too conservative, and the investors who know the full math will outbid you and still profit.

Break #3 — When your money is expensive (or slow)

The rule has no input for financing. Two investors buy the same house: one with cash, one with hard money at 12% and 3 points on a nine-month timeline. Their true maximum offers can differ by tens of thousands of dollars — and the 70% rule hands them the same number. The same failure appears with slow timelines: every extra month of carry comes out of the 30% allowance, and the rule never asks how long you'll hold.

So what do you do with it?

Use it for what it is:

• Screening. Scanning 40 listings? 70%-minus-rehab is a fine first filter to decide which five deserve real analysis.
• Sanity check. If your full MAO comes out wildly far from the 70% figure, one of your inputs deserves a second look.
• Never for the offer itself. The offer comes from the full formula: ARV minus rehab, holding, buying, selling, financing, and your required profit — with your actual costs, your actual timeline, your actual money.

Some investors adjust the percentage — 75% in hot markets, 65% on cheap houses — which is really just admitting the rule needs to become the full calculation. At that point, do the full calculation.

Frequently asked questions

What is the 70% rule formula?

Maximum price = (After Repair Value × 0.70) − estimated rehab costs. The remaining 30% of ARV is meant to cover all other costs plus your profit.

Is the 70% rule accurate?

It's a reasonable approximation for mid-priced deals with typical costs and timelines. It's systematically too aggressive on cheap properties, too conservative on expensive ones, and blind to your financing — those are the cases where it gives wrong answers.

Should I use 70% or 75%?

Neither number is magic — the percentage is a stand-in for your real costs and required profit. If you find yourself tuning it, that's the signal to run the full MAO formula instead.

Does the 70% rule include closing costs?

Implicitly, yes — buying and selling costs are part of what the 30% allowance is supposed to cover, along with holding costs, financing, and profit. Nothing is itemized, which is exactly the rule's weakness.