If you are serious about flipping houses and making money, the 70% rule is the single most important formula you need to know. It is the fastest way to protect your profit before you ever make an offer — and every experienced house flipper uses it.

This guide breaks down exactly what the 70% rule is, how to calculate it step by step, and when you should (and should not) apply it.

What Is the 70% Rule in Real Estate?

The 70% rule is a quick formula used by house flippers to calculate the maximum price they should pay for a property. The goal is to leave enough room for repair costs, holding costs, closing costs, and a healthy profit margin.

The formula is:

Maximum Allowable Offer (MAO) = (ARV × 70%) − Repair Costs

Where ARV is the After Repair Value — the estimated market value of the home once all renovations are complete.

How to Use the 70% Rule: Step-by-Step Example

Let’s walk through a real example so you can see exactly how it works.

Scenario: You find a distressed property. After researching comparable sales in the neighborhood, you estimate the ARV is $280,000. A contractor quotes repairs at $45,000.

1. Multiply ARV by 70%: $280,000 × 0.70 = $196,000
2. Subtract repair costs: $196,000 − $45,000 = $151,000
3. Your Maximum Allowable Offer = $151,000

If the seller is asking $175,000, walk away. If they accept $148,000, you are in a good position to make a solid profit.

Why 70%? Where Does That Number Come From?

The 30% buffer that the 70% rule builds in is not arbitrary. It is designed to cover all the costs that eat into a house flip:

• Selling costs (agent commissions): Typically 5-6% of the sale price
• Closing costs (buying and selling): 2-4% total
• Holding costs (mortgage, taxes, insurance, utilities): 2-4% depending on how long the flip takes
• Unexpected repairs and overruns: 5-10% buffer
• Your profit: The remaining 10-15%

When all these costs are added up, 30% disappears fast. The 70% rule ensures you start from a position where profit is protected even if things do not go perfectly.

When to Adjust the 70% Rule

The 70% rule is a guideline, not a rigid law. Experienced investors adjust it based on the situation:

• Use 65% rule on high-risk deals — properties with extensive structural damage, bad neighborhoods, or uncertain ARV. More buffer = more safety.
• Use 75% rule on low-risk deals — properties in strong markets, minimal repairs needed, or where you have very accurate comps. Less buffer needed when confidence is high.
• In very hot markets where inventory is tight, some flippers push to 75-80% to stay competitive — but this eats significantly into profit and increases risk.

As a beginner, always stick to 70% or lower until you have several deals under your belt.

Common Mistakes When Applying the 70% Rule

• Using an inflated ARV: Overestimating what the property will sell for is the most expensive mistake in house flipping. Only use recently sold comps, not active listings.
• Underestimating repair costs: Get a real contractor quote before finalizing your MAO. Never guess repairs on a flip.
• Forgetting holding costs: The longer your flip takes, the more it costs. Factor in monthly mortgage, taxes, insurance, and utilities.
• Ignoring closing costs: Both buying and selling involve closing costs. Budget 2-3% on each side.

The 70% Rule vs. Full Deal Analysis

The 70% rule is a screening tool, not a replacement for full deal analysis. Use it to quickly filter out deals that will never work. Once a deal passes the 70% test, run a complete analysis that includes:

• Itemized repair estimate from a licensed contractor
• Detailed holding cost calculation (based on realistic timeline)
• Closing cost estimates for both buy and sell
• Agent commission at 5-6% of ARV
• Profit margin check (aim for minimum $25,000-$30,000 on a deal)

Our free calculator below does all of this for you automatically.

Run the Numbers on Your Next Deal

Key Takeaways

• The 70% rule formula is: MAO = (ARV × 70%) − Repair Costs
• The 30% buffer covers selling costs, holding costs, closing costs, and your profit.
• Never use inflated ARV or guessed repair numbers — your profit depends on accuracy.
• Use 65% for risky deals, 75% only for very safe, well-analyzed deals.
• Always follow up with a full deal analysis after the 70% rule screening passes.

Master the 70% rule and you will never overpay for a flip. Use the calculator above to apply it to any deal in seconds.