Underwriting
The 70% Rule for Fix & Flips (With 3 Real Deal Examples)
Short answer
The 70% rule caps a fix & flip offer at 70% of after-repair value minus the rehab budget: MAO = (ARV x 0.70) - rehab. On a $285,000 ARV with a $35,000 rehab, the maximum offer is $164,500. The remaining 30% covers agent commissions, closing costs, financing, holding costs, and your profit.
What does the 70% rule actually say?
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 is it 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.
What do three real deals look like scored against the rule?
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 does the 70% rule lie 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.
What should you do after a deal passes the 70% rule?
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.
Market matters here: run the same numbers on the local pages for Tampa, FL, Orlando, FL, Charlotte, NC, and Nashville, TN and you will see the 30% buffer behave very differently in each one.
That's exactly what the FlipRuns analyzer does in 60 seconds. Score every deal against the 70% rule and the full-cost model before you make an offer.
Frequently asked questions
What is the 70% rule formula?
Maximum Allowable Offer = (ARV x 70%) - rehab. ARV is the after-repair value, rehab is your all-in construction budget, and the 30% gap covers holding, financing, closing, commissions, and profit.
Why is it 70% and not 65% or 75%?
The 30% buffer is the sum of unavoidable costs: 6-9% agent and closing costs on the exit, 3-5% financing over a 4-6 month hold, 2-3% taxes and insurance, plus a 12-18% net profit.
When should you use the 65% rule instead?
Use 65% below roughly $180k ARV, in high-tax states like Texas and New Jersey, and in slow markets where days on market exceed 45. The 30% buffer is simply too small to absorb those costs.
Does passing the 70% rule mean the deal works?
No. The rule is a screen, not a decision. A Philadelphia rowhome bought $14,000 under the 70% ceiling still lost $4,200 because the rehab estimate was wrong by $24,000.
How do you calculate ARV for the 70% rule?
Use three to five sold comparables within a mile, closed in the last 90-180 days, with similar square footage and finish level to your planned rehab - not the property's current condition.
What profit should a flip make after the 70% rule?
Walk away if the full underwrite shows net profit under $25,000 or ROI under 20%, even when the 70% rule says the price is acceptable.
Which guides should you read next?
Work through 5 Beginner Flip Mistakes That Cost $20,000+, How to Read Real Estate Comps Like an Appraiser, and Real Rehab Cost Per Square Foot in 2026: Regional Guide next, then price the same deal against local numbers on the fix & flip market pages and check the ceiling with the 70% rule calculator.
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