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 |
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.
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.