How the 70 Percent Rule Works in Real Estate Investing

Published 2026-04-15 by Home Pros | Last updated 2026-04-15

If you've spent any time around real estate investors, you've probably heard someone mention "the 70 percent rule." It's one of those back-of-napkin formulas that experienced flippers and wholesalers rely on when they're deciding how much to offer on a property. But what does it actually mean, and when does it fall short?

Here's the short version: the 70 percent rule says you should pay no more than 70% of a property's after-repair value (ARV), minus the cost of repairs. It gives you a built-in margin for profit, closing costs, holding expenses, and the inevitable surprises that come with rehabbing houses.

The 70 Percent Rule Formula

The math is straightforward:

Maximum Offer = (ARV x 0.70) - Repair Costs

Say you're looking at a house that would be worth $300,000 once it's fixed up, and you estimate $45,000 in repairs. Your max offer would be ($300,000 x 0.70) - $45,000 = $165,000.

That $165,000 ceiling accounts for roughly 30% in margin, which typically breaks down something like this: 10-15% for your profit, 5-8% for closing and transaction costs, and the rest for holding costs like insurance, taxes, and utilities during the rehab period.

Why 70 Percent and Not 80 or 60

The 70% figure is a general-purpose starting point, not a law. It's popular because it tends to produce workable numbers across a range of price points and markets. According to the National Real Estate Investors Association, most experienced fix-and-flip investors target at least a 15% return on their all-in costs, and the 70 percent rule usually gets you in that ballpark.

In practice, some investors work with 65% in expensive or risky markets, while others push to 75% in markets where properties move fast and holding costs are low. The point isn't the exact percentage. It's having a consistent framework that keeps you from overpaying because you got excited about a deal.

When the 70 Percent Rule Works Well

This formula shines in a few scenarios:

Fix-and-flip projects in mid-range markets. When ARVs fall between $150,000 and $500,000, the 30% cushion tends to cover your real costs accurately. A $300,000 ARV house with $40,000 in repairs bought at $170,000 leaves roughly $90,000 for profit and costs. That's a solid deal in most markets.

Quick initial screening. When you're reviewing dozens of potential deals, running the 70% calculation takes about ten seconds and immediately tells you whether a property is worth a closer look. It saves you from burning time on overpriced listings.

Wholesale assignments. Wholesalers use it to figure out what an end buyer (the flipper) will pay, then work backward to set their offer price. If the end buyer needs to hit 70%, and you want a $10,000 assignment fee, you need to get the property under contract at ($165,000 - $10,000) = $155,000 in the example above. For the mechanics, see our guide to wholesale contract assignments.

When the 70 Percent Rule Breaks Down

No single formula works perfectly in every situation. Here's where the 70 percent rule can mislead you:

Low-price-point properties. On a $100,000 ARV house, your 30% margin is only $30,000. After repairs, closing costs, and holding costs, there might not be enough left to justify the risk. Some investors switch to a flat minimum profit target (say $20,000) for cheaper properties instead of relying on the percentage alone.

High-value markets. If you're looking at a $900,000 ARV property, a 30% margin is $270,000. That's more cushion than most deals need, and holding too strictly to 70% means you'll miss viable deals. Some investors in expensive metros use 75% or even 78% because their margins still work at those levels.

Rental holds or BRRRR deals. The 70 percent rule was designed for flip scenarios where you're selling within months. If you're buying to hold as a rental, your analysis should focus on cash flow, cap rate, and total return on investment. A property that fails the 70% test might still generate excellent monthly income. For more on this, the Investopedia guide to rental property analysis breaks down the different return metrics.

How to Calculate ARV Accurately

The 70 percent rule is only as good as your ARV estimate. If you overestimate what the property will be worth, your "safe" offer price is actually too high. If you want a full walkthrough, see our guide on how to calculate ARV for investment properties.

Most investors determine ARV by looking at comparable sales (comps) from the past 60-90 days within a half-mile radius. You want properties that are similar in size, age, bedroom count, and condition to what your property will be after repairs. The National Association of Realtors publishes regular market data that can help you check whether your local comp analysis aligns with broader trends.

A few things that throw off ARV estimates: using comps that are too old (markets shift), comparing different property types (single-family to duplex), or ignoring location differences within the same zip code. One street can be vastly different from the next.

Repair Cost Estimation Tips

Underestimating repairs is probably the most common mistake new investors make. A good rule of thumb is to walk the property with a contractor before making an offer, not after. Get line-item bids on the major systems: roof, HVAC, plumbing, electrical, foundation, and cosmetics. We've broken down the full process for building realistic rehab cost estimates bucket by bucket.

Then add a contingency. Most experienced investors add 10-20% on top of their contractor's estimate to cover the things nobody saw until demo day. As the Federal Reserve's housing research has noted, construction costs have risen substantially in recent years, so older cost assumptions may not hold up.

Putting It Together: A Real-World Example

You find a 3-bedroom house listed at $195,000. It needs a new roof, updated kitchen, and bathroom refresh. Your contractor estimates $52,000 in repairs. You pull comps and determine the ARV is $310,000.

Running the formula: ($310,000 x 0.70) - $52,000 = $165,000. That's your maximum offer. The house is listed at $195,000, so there's a $30,000 gap. You could try negotiating down, or move on to the next deal. Either way, you have a clear number to work with, and you're not guessing.

Should You Always Follow the 70 Percent Rule

Honestly, no. Think of it as training wheels for deal analysis. It gives you a quick, conservative way to evaluate properties, and it keeps you from overpaying when emotions or competition push prices up.

But as you gain experience, you'll develop a more refined underwriting process that accounts for your actual cost structure, market conditions, and investment strategy. The best investors treat the 70 percent rule as a starting point, then drill deeper into the numbers before writing an offer using our deal underwriting framework.

Frequently Asked Questions

What is the 70 percent rule in real estate investing?

The 70 percent rule is a formula investors use to determine maximum purchase price. You multiply the after-repair value (ARV) by 0.70, then subtract estimated repair costs. The result is the most you should pay for a property to maintain a healthy profit margin.

Does the 70 percent rule work for rental properties?

Not directly. The 70 percent rule was designed for fix-and-flip deals where you sell quickly. For rentals, you should analyze cash flow, cap rate, and return on investment instead. A property that fails the 70% test can still be a great rental hold.

What if my market is too competitive for 70 percent?

Some investors in hot markets adjust to 75% or even 78%, especially on higher-value properties where the dollar margin is still large. The key is knowing your actual costs so you can make an informed decision rather than just following a rule blindly.

How accurate does my ARV estimate need to be?

Very. Even a 5% error in ARV on a $300,000 property changes your maximum offer by $10,500. Use recent comps (within 90 days), match property type and size closely, and consult a local agent or appraiser if you're unsure.

Can wholesalers use the 70 percent rule?

Yes. Wholesalers typically use the formula to estimate what their end buyer (a flipper) will pay, then subtract their assignment fee. This gives them a target contract price that leaves room for everyone to profit.