What Is 70% Rule?
The 70% rule says: (ARV × 0.70) − renovation costs = max offer. It builds in a 30% buffer for closing costs, holding costs, and flip profit. Use a conservative ARV calculation and realistic renovation budget. In hot markets, 70% may be hard to achieve; in distressed markets, you may do better.
The 70% rule is a fix-and-flip guideline: your maximum purchase price should not exceed 70% of ARV minus renovation costs, leaving room for profit and holding costs.
At a Glance
- What it is: Max offer = (ARV × 0.70) − renovation costs
- Why it matters: Quick filter for deals; protects profit margin
- Key detail: The 30% covers closing, holding, profit—not just profit
- Related: ARV, ARV calculation, maximum allowable offer
- Watch for: Overestimating ARV or underestimating rehab breaks the rule
Max Offer = (ARV × 0.70) − Renovation Costs
How It Works
The math. ARV = after-repair value (what it sells for when done). Renovation costs = your full renovation budget including contingency. The 30% left over covers: (1) buyer and seller closing costs, (2) holding costs during rehab and listing, (3) your profit.
Example. ARV $300K, renovation $45K. Max offer: ($300K × 0.70) − $45K = $210K − $45K = $165K. If you pay $165K, the 30% ($90K) must cover ~$15K closing, ~$16K holding (8 months), and ~$59K profit. Tight but workable.
When it works. Distressed properties, motivated sellers, off-market deals. When ARV is solid and renovation is known.
When it doesn't. Hot markets where 70% is unrealistic. Some investors use 65% or 75% depending on risk tolerance. The rule is a starting point, not law.
Real-World Example
Sarah Chen finds a 1,250 sq ft ranch in Raleigh. Her ARV calculation: $285K based on 4 sold comps. Renovation budget: $42K (kitchen, baths, flooring, paint). 70% rule: ($285K × 0.70) − $42K = $199,500 − $42K = $157,500 max.
Seller asks $168K. Sarah offers $155K. Seller counters $162K. Sarah holds at $157K—her rule says no higher. Seller accepts $158K. Sarah's all-in: $158K + $42K + $12K closing + $14K holding = $226K. Sale at $285K = $59K profit. The rule worked.
If she had paid $168K: $168K + $42K + $12K + $14K = $236K. Sale $285K = $49K profit. $10K less. The rule saved her from overpaying.
Pros & Cons
- Quick deal filter
- Protects profit margin
- Easy to explain to partners and lenders
- Works across markets with adjustment
- 70% is arbitrary; some markets need 65%, others 75%
- Depends on accurate ARV and renovation estimates
- Can cause you to miss deals in competitive markets
- Doesn't account for financing structure
Watch Out
- ARV risk: Overestimate ARV and your max offer is too high—you overpay
- Rehab risk: Underestimate renovation and the 30% buffer shrinks
- Market risk: In declining markets, ARV may drop before you sell—build extra buffer
Ask an Investor
The Takeaway
The 70% rule is a discipline tool. It forces you to anchor on ARV and renovation budget before you get emotionally attached. Use it as a filter; adjust for your market and risk tolerance. When it says no, listen.