The 70% rule is a quick way to set a maximum offer on a flip: pay no more than 70% of the after-repair value, minus repairs. It's a good first filter, but it isn't an underwrite.
The Formula
Maximum offer = after-repair value (ARV) × 70% − repair costs
The 30% left over is meant to cover everything else (buying and selling costs, loan costs, holding costs) plus your profit. Take 70% of the ARV first, then subtract repairs.
Worked Example
A house that should sell for $500,000 after a $80,000 renovation.
- $500,000 × 70% = $350,000
- $350,000 − $80,000 = $270,000 maximum offer
Where the Rule Breaks
- Higher-priced markets. Around Boston and Providence, ARVs are high and competition is stiff. A fixed 30% cushion on a $900,000 ARV is $270,000, often more than a deal needs, so strict 70% offers rarely win. On low-priced homes, the same 30% can be too thin to cover fixed costs.
- Costs it ignores. Loan points, interest, insurance, utilities, transfer tax and agent commissions vary by deal, and the rule treats them all as one number.
- Time. Every extra month of holding costs money. A slow permit or a slow sale can erase the margin.
- Estimates. The answer is only as good as the ARV and repair estimates. Use conservative numbers.
A Better Check
Use the 70% rule to decide which properties are worth a closer look. Then underwrite the deal: model the loan and its draws, holding costs month by month, selling costs and the transfer tax, and stress-test a slow sale and a cost overrun. Many investors also set a target, such as profit of at least 15% of ARV, rather than a fixed offer percentage.
Sources
- What Is the 70% Rule in House Flipping?, Rocket Mortgage
- The 70% Rule in House Flipping, FlipperForce
Educational information only, not financial, lending, legal or tax advice. Lender programs, rates and tax rules change; confirm with your lender, attorney or tax advisor. See the disclaimer.