The 70% Rule for Fix & Flips (With 3 Real Deal Examples)

What the 70% rule actually says

The 70% rule is a back-of-napkin ceiling for what a fix & flip investor should pay for a distressed property. In one line:

Maximum Allowable Offer = (ARV × 70%) − Rehab

ARV is the after-repair value — what the finished house sells for, not what it's worth today. Rehab is your all-in construction budget. The 30% "buffer" is meant to cover holding costs, financing, closing on both ends, agent commissions, and your profit.

Why 70% and not 65% or 75%

The number comes from institutional hard-money underwriting from the mid-2000s. Lenders working with new investors found that a 30% margin on ARV was the smallest gap that still absorbed:

• 6–9% in agent + closing costs on the exit
• 3–5% in financing costs over a typical 4–6 month hold
• 2–3% in taxes and insurance while holding
• A 12–18% net profit for the flipper

Add those and you get roughly 30%. Which is why the 70% rule survives — it's not arbitrary, it's the sum of every unavoidable cost plus a reasonable profit.

Three deals scored against it

Deal 1 — Columbus, OH, single-family, retail exit

ARV: $285,000. Rehab: $35,000. The 70% rule says pay no more than $164,500. The investor bought at $162,000 and sold at $283,500. Net profit after all costs: $34,800. The rule worked.

Deal 2 — Tampa, FL, coastal retail

ARV: $485,000. Rehab: $45,000. The 70% rule says pay no more than $294,500. The investor paid $320,000 (higher, because Tampa was still hot). Sold at $472,000 six months later after Tampa cooled. Net profit: $8,400. The rule was directionally right — the flipper made money but not enough for the risk.

Deal 3 — Philadelphia rowhome

ARV: $320,000. Rehab budgeted at $55,000, actual rehab $79,000 (permit delays + surprise structural). The 70% rule based on the budgeted rehab said pay no more than $169,000. Investor bought at $155,000 — well under. Still lost $4,200 because rehab blew up. The rule can't save you from a bad rehab estimate.

When the 70% rule lies to you

• Ultra-low ARV markets. On a $120k ARV in Cleveland, the "buffer" is just $36,000 — which won't cover $28k in rehab + $8k in closing + any profit. Below roughly $180k ARV, use the 65% rule.
• High-tax states. Texas at 2.2% property tax and New Jersey at 2.5% eat the buffer alive on longer holds. Model taxes explicitly.
• Slow markets. Days-on-market above 45 means your holding costs will exceed what 30% can absorb. Move to 65%.
• Retail markets with high finish expectations. Nashville, Austin, Denver — buyers expect designer finishes. The rule allows too much rehab budget slippage.

The upgrade: run the full underwrite

The 70% rule is a screen, not a decision. Once a deal passes the screen, run the full underwrite: purchase + rehab + holding × months + financing + closing on both sides. If your net profit is under $25k or your ROI under 20%, walk — even if the 70% rule said yes.

That's exactly what the FlipUnderwriter analyzer does in 60 seconds. Score every deal against the 70% rule and the full-cost model before you make an offer.