The 70% rule in house flipping: how it works, when it lies, and the math behind it
Maximum offer = 70% of ARV minus repairs. Why the formula exists, what's actually inside the missing 30%, and when 70 is the wrong number.
What is the 70% rule? A screening formula for flips: pay no more than 70% of the after-repair value (ARV) minus repair costs. For a house worth $300,000 fixed up and needing $40,000 of work, the maximum offer is $300,000 × 0.70 − $40,000 = $170,000. The 30% you're not paying isn't profit — it's selling costs, holding costs, financing costs, and your margin, in that order. Understand what lives inside the 30% and you'll also understand when the rule should be 75% — or 65%.
Where the 30% actually goes
The rule looks like a 30% profit until you itemize it on the $300k example:
That ~15% margin is the payment for risk, work, and the months of your life — and it's what evaporates first when the rehab runs over or the market cools mid-project. The rule's discount exists because flips have brutal fixed costs: you pay full transaction costs on both ends of a short hold.
Using the rule correctly
- 01Establish ARV from evidenceThree to five sold comps: same neighborhood, same size ±20%, same style, renovated condition, sold in the last 3-6 months. Listings show what didn't sell yet. ARV is the number the flip's buyer's appraiser must reach — respect that.
- 02Estimate repairs with a walkthrough, not a guessRoof, HVAC, electrical, plumbing, foundation first — the expensive invisible systems. Then cosmetics by square foot. Before an offer, replace your estimate with a contractor's bid plus 15% contingency.
- 03Apply the formula as a filterMAO = ARV × 0.70 − repairs. Above the answer, walk. The rule's power is the speed of the no — analyzing 30 deals to offer on 3 beats falling in love with the first.
- 04Then underwrite the survivor line by lineFor any deal you'll actually offer on: real financing quote, month-by-month holding budget, realistic timeline, exit price at conservative comps, and your break-even sale price. The rule found the deal; the spreadsheet buys it.
When 70% is the wrong number
The rule embeds fixed-ish percentages against costs that aren't fixed:
| Push toward 65% (more discount) | Can work at 75-80% (less discount) | |
|---|---|---|
| Price band | Cheap houses (<$150k ARV) — fixed costs eat a larger share | Expensive houses ($500k+) — margins are dollars, not percentages |
| Market | Slowing, high days-on-market, price cuts spreading | Fast, supply-starved, multiple offers on renovated product |
| Timeline | Big structural projects, permit-heavy cities | Cosmetic-only refreshes closing in 60-90 days |
| Financing | Expensive hard money, points on points | Cash or cheap capital that shrinks carry |
| Your experience | First three flips — pay for your own error bars | Proven crew, tenth project, known neighborhood |
The discipline has a body count behind it. ATTOM's 2025 numbers: the typical flip grossed 25.5% on purchase price — the thinnest margin since 2008 — BEFORE renovation, financing, and carry, and studies put first-flip break-even-or-loss rates between half and 70%. Virtually every one of those losses walked in through a massaged MAO — ARV nudged up, repairs nudged down, until the deal someone wanted passed the screen someone else invented to stop it. The formula only protects people who feed it honest inputs. That's not a caveat; it's the entire instruction.
Flipping's place in the long game
A flip converts skill and nerve into a taxed lump of capital — ordinary income rates, no depreciation shelter, no step-up ending. That makes flipping a fine engine and a poor destination: the twenty-year math favors holding. Flip to build the capital pile; then let the BRRRR method and the Cashflow pillar put that pile to work in assets you never have to sell.
Run the rule on your deal
Your ARV, your repairs, your offer - the ceiling and the full profit waterfall, live.
Frequently asked questions
+What is the 70% rule in real estate?
A flipper's screening formula: never pay more than 70% of a property's after-repair value minus repair costs. On a $300,000 ARV house needing $40,000 of work, the maximum offer is $170,000. The 30% discount covers selling costs, holding costs, financing, and the flipper's profit margin.
+How do you calculate ARV?
After-repair value comes from 3-5 sold comparables: same area, similar size and style, renovated condition, sold within the last 3-6 months, adjusted for differences. Use sold prices, not listings — ARV must be a number a buyer's appraiser will support, or your exit price is fiction.
+How much profit does the average house flip make?
Industry gross-profit figures often show $60-70k per flip, but gross profit ignores rehab, holding and financing costs. A disciplined flip bought near the 70% rule nets roughly 10-15% of ARV pre-tax — around $30-45k on a $300k property. Thin-margin flips routinely net zero after surprises.
+Is the 70% rule too strict in expensive markets?
Often, yes. On high-priced homes the fixed costs are a smaller percentage, so 75-80% can still leave six-figure dollar margins. Conversely, on sub-$150k houses 70% is frequently too generous. Anchor on dollars of margin after itemized costs, and let the percentage float.
+Is flipping houses still profitable?
Yes, for operators who buy deep enough — which is the actual skill. Higher rates raise holding costs and thin the buyer pool, punishing sloppy underwriting first. The 70% rule (tightened in slow markets) exists precisely to keep you out of break-even projects.