The 70% Rule in Real Estate Explained
The 70% rule is the most widely used pricing formula in fix-and-flip and wholesale real estate. It states that you should pay no more than 70% of the after-repair value (ARV) minus the cost of repairs. This simple formula has protected investors from overpaying for decades by building in a margin for holding costs, selling costs, and profit.
The formula
Maximum Allowable Offer = ARV × 0.70 − Repair Costs
Example: A property has an ARV of $250,000 and needs $40,000 in repairs.
MAO = $250,000 × 0.70 − $40,000 = $175,000 − $40,000 = $135,000
At $135,000 purchase, the total investment is $175,000 ($135K purchase + $40K repairs). The sale price is $250,000. The 30% margin ($75,000) covers holding costs (~$8,000-$12,000), selling costs (~$20,000-$25,000), and profit (~$38,000-$47,000).
Why 70% and not 80% or 60%?
The 30% margin accounts for three categories of cost that every flip incurs:
| Cost Category | Typical Range | Notes |
|---|---|---|
| Holding costs | 4-6% of ARV | Mortgage, taxes, insurance, utilities during rehab |
| Selling costs | 8-10% of ARV | Agent commissions (5-6%), buyer closing costs, title insurance |
| Profit | 15-18% of ARV | Your return for the risk and effort |
| Total | 27-34% | 30% is the middle of this range |
At 70%, you have enough cushion for typical costs plus a healthy profit. If you pay 80%, the margin drops to 20%, leaving almost nothing for profit after costs. At 60%, you have an extra-large margin that provides safety but makes it harder to win deals in competitive markets.
When to use 65% (more conservative)
Tighten to 65% when the deal carries higher risk:
- Your first few flips (mistakes are more likely)
- Properties needing major structural work (cost overruns are common)
- Uncertain markets with declining prices
- Properties in slower-selling areas (longer holding period)
- Higher interest rate environments increasing holding costs
When to use 75% (more aggressive)
Experienced investors sometimes stretch to 75% in specific situations:
- Hot markets where properties sell in under 30 days (reduces holding costs)
- Cosmetic-only rehabs with predictable costs
- Properties in premium neighborhoods with strong demand
- When you are selling FSBO (saving 2.5-3% on listing agent commission)
- When you have a reliable GC with fixed-price contracts
At 75%, there is very little room for error. One budget overrun or one month of extra holding time can eliminate your profit. Only experienced investors with tight cost control should operate at 75%.
The 70% rule for wholesalers
Wholesalers use a modified version that subtracts their assignment fee from the buyer's MAO:
Wholesaler's max offer = ARV × 0.70 − Repairs − Assignment Fee
Example: $250,000 ARV × 0.70 − $40,000 repairs − $10,000 fee = $125,000
The wholesaler contracts at $125,000 and assigns to a flipper at $135,000 (the flipper's MAO). The wholesaler earns $10,000 and the flipper has a deal that works at 70%. See our MAO guide for the full calculation.
The 70% rule for BRRRR investors
BRRRR investors modify the rule to account for the refinance step. Instead of selling, they refinance at 75% of ARV. Their maximum purchase should ensure the refinance recovers their total investment:
Total investment (purchase + rehab) ≤ ARV × 0.75
This means the purchase + rehab should not exceed 75% of ARV. The 70% rule (which subtracts repairs separately) naturally achieves this.
Limitations of the 70% rule
It is a screening tool, not a final analysis. Use it to quickly determine if a deal is worth deeper analysis. Then run a full pro forma with actual holding costs, closing costs, and realistic profit targets.
It does not account for market-specific costs. Property taxes vary from 0.5% to 3%+ of value. Holding costs in a 3% tax state are much higher than in a 0.5% state. Adjust your percentage accordingly.
It assumes you are using an agent to sell. If you sell FSBO or to an investor buyer (no commissions), your selling costs drop 2.5-3%, allowing a higher purchase price.
Related articles
- How to Calculate ARV: Complete Guide
- Maximum Allowable Offer: Full Guide
- Fix and Flip Calculator Guide
- How to Flip Houses: Step-by-Step
- Real Estate Comps Guide