If you flip houses or wholesale deals, you have probably heard someone mention the 70% rule. Maybe a mentor dropped it at a meetup. Maybe you read it on BiggerPockets and thought "that sounds too simple to be real."
It is simple. And it works, most of the time. But like any rule in real estate, using it blindly will cost you money. The investors who profit consistently are the ones who understand the math behind it, know when the formula fits, and know when it falls apart.
This guide walks through the full 70% rule, breaks it down with real deal numbers, and shows you exactly where it helps and where it can get you into trouble.
What Is the 70% Rule?
The 70% rule is a quick-math formula that tells you the maximum price you should pay for an investment property you plan to rehab and resell. The formula looks like this:
Maximum Allowable Offer (MAO) = ARV x 0.70 - Repair Costs
ARV stands for After Repair Value. That is the price the property should sell for once all renovations are complete. You estimate this by pulling comparable sales of recently sold, fully renovated homes in the same neighborhood with similar square footage, bed/bath count, and features.
The 0.70 multiplier accounts for your profit margin and soft costs like closing costs on both sides, holding costs during the rehab, financing fees, insurance, and real estate commissions at resale. The remaining 30% is the buffer that keeps your deal profitable even if something goes wrong.
Repair costs are your estimated renovation budget. This should include materials, labor, permits, and a contingency for surprises. The National Association of Home Builders tracks construction cost data that can help calibrate your estimates against current market conditions.
A Real Deal Example: How the Math Works
Say you find a distressed 3-bedroom, 2-bathroom house in a solid neighborhood. Comparable properties that have been recently renovated are selling for $250,000. You walk the property with your contractor and estimate $40,000 in repairs: new kitchen, bathroom refresh, flooring, paint, and some electrical work.
Plug those numbers into the formula:
MAO = $250,000 x 0.70 - $40,000
MAO = $175,000 - $40,000
MAO = $135,000
That means $135,000 is the most you should offer for this property. If you can buy it at or below that number, the deal has a built-in margin that covers your costs, absorbs some risk, and still leaves room for profit.
Let's verify by working the numbers forward. You buy at $135,000. You spend $40,000 on rehab. You sell at $250,000 after repairs.
Gross spread: $250,000 - $135,000 - $40,000 = $75,000
From that $75,000 you will pay closing costs on the buy (roughly $3,000-$5,000), holding costs during rehab (mortgage, taxes, insurance, utilities for 3-5 months, roughly $6,000-$10,000), agent commissions at resale (5-6% of $250,000, roughly $12,500-$15,000), and closing costs at resale ($3,000-$5,000). Total soft costs run $25,000-$35,000.
That leaves a net profit between $40,000 and $50,000. That is a strong return on a 4-6 month project. The formula did its job.
Why 70% and Not 75% or 65%?
The 30% margin is not arbitrary. According to data from Investopedia's analysis of fix-and-flip investing, the average soft cost load on a flip runs 15-20% of ARV when you include acquisition closing costs, financing, holding, resale commissions, and resale closing costs. That leaves 10-15% for profit.
A 10-15% net profit margin on ARV is reasonable for the risk involved. Anything thinner means a single surprise, whether that is a cost overrun, a slow market, or a repair you missed, eats your profit entirely.
The Federal Reserve's economic data shows that interest rates and financing costs directly impact holding costs. In a higher-rate environment like 2026, where hard money rates sit between 10-13%, the 70% rule becomes even more important because every extra month of holding cuts into your margin faster.
When the 70% Rule Works Best
The formula works best in certain conditions. Understanding these helps you know when to trust it.
Standard rehab projects. Properties that need $25,000-$60,000 in typical cosmetic and functional repairs. New kitchen, bathrooms, flooring, paint, maybe some roof or HVAC work. The scope is clear, the timeline is predictable (3-5 months), and comps are available.
Established neighborhoods with good comp data. When you have 3-5 recent comparable sales within a half-mile radius, your ARV estimate is solid. The formula depends on an accurate ARV. Bad ARV = bad MAO.
Markets with normal absorption rates. In markets where renovated homes sell within 30-60 days, the holding cost assumptions built into the 30% margin hold up. The National Association of Realtors publishes monthly inventory and days-on-market data by metro area. Check your local numbers before relying on national averages.
Wholesale deals with assignment margins. If you are wholesaling rather than flipping, the 70% rule helps you back into a price that gives your end buyer enough room to profit. A wholesaler who acquires a contract at 65% of ARV minus repairs can assign it at 70% minus repairs and still collect a $5,000-$15,000 assignment fee.
When the 70% Rule Falls Short
Here is where new investors get into trouble: they treat the 70% rule as gospel and either pass on good deals or overpay on bad ones.
High-ARV properties. On a $500,000+ ARV property, the 30% margin creates more dollar buffer than you need. Soft costs do not scale linearly with price. A 6% commission on $500,000 is $30,000, but holding costs, insurance, and closing costs do not double compared to a $250,000 deal. In these cases, experienced investors often work at 73-75% of ARV minus repairs. The margin is thinner on a percentage basis but wider on a dollar basis.
Low-ARV properties. On a $100,000 ARV property, the 30% margin is only $30,000. After subtracting soft costs, there is almost nothing left. Many investors use a 65% rule for low-ARV deals, or they add a minimum dollar profit requirement (like $15,000 minimum) regardless of what the percentage formula says.
Rental/BRRRR strategy. If you are buying to hold as a rental, the 70% rule does not account for rental income, loan-to-value refinance potential, or long-term appreciation. A rental investor might pay 80% of ARV minus repairs because the property will cash flow and refinance back most of the invested capital. Our BRRRR Method guide covers the math specific to buy-and-hold investors.
Hot seller's markets. In markets with under 2 months of inventory, properties move fast at full price. Investors competing against retail buyers may need to offer above the 70% rule just to get deals. The risk is real, but experienced operators adjust their formula to 72-75% when market conditions support a faster exit.
Properties with income during rehab. A tenant-occupied property generating $1,200/month in rent during a 4-month rehab produces $4,800 in income that offsets holding costs. The 70% rule does not factor this in. Adjust accordingly.
How to Get Your ARV Right
The 70% rule is only as reliable as your ARV estimate. An inflated ARV makes a bad deal look good. A conservative ARV protects you.
Pull 3-5 comparable sales that closed within the last 90 days, within a half-mile, and within 200 square feet of the subject property. The comps should be renovated to the same level you plan for your project.
For a detailed walkthrough on calculating ARV, see our ARV Calculation Guide. It covers comp selection, adjustments for differences, and common mistakes that lead to inflated estimates.
The U.S. Census Bureau's American Housing Survey provides additional housing stock data that helps contextualize local market conditions when you are evaluating comps in less active markets.
How to Get Your Repair Estimate Right
Underestimating repairs kills more deals than overpaying. New investors consistently miss items or underestimate costs. Here is how to avoid that:
Walk every property with a contractor before making an offer. Not after, not during due diligence. Before. The walk-through number is your negotiating baseline.
Add a 15-20% contingency to every estimate. Older homes hide problems. Plumbing behind walls, electrical that is not up to code, structural issues under carpet. The contingency is not pessimism. It is realism.
Build a repair cost database. Track what every project actually costs versus what you estimated. After 5-10 projects, your estimates will tighten up significantly.
If you are new and do not have a contractor relationship yet, start by understanding how experienced investors approach deal underwriting. Our rental property underwriting guide covers the financial analysis framework that applies to both flips and holds.
The 70% Rule for Wholesalers
Wholesalers use the 70% rule differently. Instead of buying and rehabbing, wholesalers assign the contract to an end buyer. The end buyer needs the deal to work at 70% of ARV minus repairs. The wholesaler needs room below that for their assignment fee.
A common wholesaler target is to secure contracts at 60-65% of ARV minus repairs. The spread between the wholesaler's contract price and the 70% threshold is the assignment fee.
Example: ARV is $200,000, repairs are $30,000. The 70% MAO for the end buyer is $110,000. If the wholesaler contracts the property at $100,000, the assignment fee is $10,000. Clean. Simple. Profitable for everyone.
For more on building the buyer relationships that make wholesaling work, check out our guide to building a cash buyer list.
Adjusting the Rule for Your Market
Smart investors do not use 70% everywhere. They calibrate to local conditions. Here is a framework:
In competitive, high-appreciation markets (Austin, Charlotte, Raleigh), some investors work at 72-75% because properties appreciate during the rehab period and sell quickly at or above ARV. The risk is that if the market shifts mid-project, margins evaporate.
In cash-flow markets with slower appreciation (Memphis, Kansas City, parts of Oklahoma City), stick with 70% or tighter. Properties take longer to sell. Holding costs accumulate. The margin needs to be wider.
In markets with high construction costs (coastal cities, areas with labor shortages), the repair estimate is the variable to scrutinize, not the percentage. A $40,000 rehab in San Antonio might cost $55,000 in Charlotte for the same scope of work.
Common Mistakes Investors Make With the 70% Rule
Using retail ARV instead of realistic ARV. Zillow's Zestimate is not an ARV. MLS list prices are not ARVs. Only closed comparable sales provide a real ARV. Use sold data, not listing data.
Ignoring soft costs in the formula. Some investors see the 30% margin and think "that is my profit." It is not. That margin covers everything between purchase and resale. Your actual profit is what is left after every cost is paid.
Applying the rule to properties they do not plan to flip. The 70% rule was designed for fix-and-flip investing. Using it to evaluate rental properties, lease options, or seller financing deals will produce the wrong answer every time.
Not updating the formula for current interest rates and costs. The 70% rule was popularized when hard money was 8-10% and commissions were fixed at 6%. In 2026, hard money runs 10-13% and commissions are more negotiable post-NAR settlement. Adjust your assumptions.
Frequently Asked Questions
What is the 70% rule in real estate?
The 70% rule states that an investor should pay no more than 70% of a property's after-repair value (ARV), minus estimated repair costs. It is a quick-math formula for determining the maximum allowable offer on a fix-and-flip or wholesale deal.
How do you calculate the 70% rule for a house flip?
Multiply the ARV by 0.70, then subtract your estimated repair costs. For example, a property with a $200,000 ARV needing $30,000 in repairs: $200,000 x 0.70 - $30,000 = $110,000 maximum offer.
Can you use the 70% rule for buy-and-hold rental properties?
Not directly. The 70% rule is designed for fix-and-flip margins. Rental investors factor in cash flow, appreciation, and refinance potential, which allows them to pay more (typically 75-85% of ARV minus repairs) because the property generates income over time.
What happens if you pay more than 70% of ARV?
Your profit margin shrinks or disappears entirely. Every percentage point above 70% comes directly out of your profit. Paying 75% of ARV on a $250,000 property means $12,500 less profit compared to buying at 70%. If anything goes wrong (cost overruns, slow market, lower-than-expected sale price), you can lose money on the deal.
Does the 70% rule still work in 2026?
Yes, with adjustments. Higher interest rates in 2026 mean holding costs are steeper, which actually makes the 70% rule more important. However, in competitive markets with strong appreciation, experienced investors sometimes work at 72-75%. The key is understanding what the 30% margin covers and making sure your specific deal has enough cushion.
Looking for Deals That Fit the 70% Rule?
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