The 70% rule in real estate: what it is and how to use it

What is the 70% rule?

The 70% rule states that you should pay no more than 70% of a property's after-repair value (ARV), minus the cost of repairs needed to bring it to that value.

Formula: MAO = (ARV × 0.70) − Rehab costs

For example: if a property has an ARV of $300,000 and needs $40,000 in rehab, your maximum allowable offer (MAO) is ($300,000 × 0.70) − $40,000 = $170,000.

Where does the 30% margin go?

The 30% buffer (in this case $90,000) covers:

• Closing costs on the buy side (~2%) and sell side (~7–8%)
• Holding costs: taxes, insurance, utilities, HOA for 4–8 months
• Financing costs: hard money origination points and interest
• Unexpected rehab overruns (always budget 10–20% contingency)
• Your profit

When to use 65% or 60% instead of 70%

The 70% rule is a starting point, not a law. Adjust the percentage based on your situation:

• Use 65% if the deal has higher financing costs, you expect a longer hold time, or the market is slower.
• Use 60% for large, complex rehabs where cost overruns are more likely.
• You might go to 75% on a cosmetic flip in a hot market with a fast cash buyer lined up — but do a full cost analysis first.

Common mistakes when applying the 70% rule

• Overestimating ARV. Garbage in, garbage out. If your ARV is too high, your MAO will be too. Pull tight comps: same area, similar size, sold within 90 days.
• Underestimating rehab. Always add a 15% contingency to your rehab estimate.
• Forgetting soft costs. Permits, architectural plans, staging, landscaping — these add up fast.
• Not accounting for financing. A 12% hard money loan on $150,000 for 6 months = $9,000 just in interest.

Use the FlipIt calculator to check any deal in seconds

Rather than doing this math by hand every time, use the FlipIt Fix & Flip calculator. Enter your ARV, purchase price, and rehab costs, and it instantly checks your offer against the 70% rule and shows you projected profit, ROI, and annualized return.