The 70 percent rule explained: when it works, when it lies

Last updated: May 12, 2026

The 70 percent rule says your maximum offer on a flip equals seventy percent of ARV minus rehab. It is the most quoted rule in real estate investing and one of the most misunderstood. Used correctly it is a thirty second sniff test. Used as a substitute for underwriting it is a great way to lose money on three flips in a row.

The formula

Maximum allowable offer equals 0.70 times ARV minus estimated rehab. On a $300,000 ARV with $50,000 rehab, the rule says do not pay more than $160,000. The thirty percent spread between MAO and ARV is supposed to cover everything that is not rehab or purchase. That is closing costs in, holding, agent commission out, closing costs out, lender fees, contingency, and profit.

Where the number 70 came from

The thirty percent buffer was reverse engineered from a typical 2010 era flip on a $150,000 ARV property. Hard money loans cost two points and twelve percent. Properties sat on market for sixty to ninety days. Agent commissions ran a full six percent. A reasonable flipper wanted a fifteen percent return on cost, which on a $150,000 sale meant about $22,500 of profit. Add roughly $22,500 of friction costs and you land at thirty percent of $150,000, or $45,000 of total spread above rehab and purchase. The rule was a rough fit for that exact deal.

Almost none of those inputs are still true. Hard money in 2026 runs ten percent and two points. Median days on market is shorter in most metros but longer in others. Agent fees have unbundled. Profit expectations on a $400,000 flip are no longer fifteen percent of sale, they are closer to ten. The rule was a heuristic for a vanished market.

When the 70 percent rule still works

The rule is a clean approximation when all of the following hold.

• ARV between roughly $150,000 and $300,000.
• Rehab budget between fifteen and twenty five percent of ARV.
• Hold period under six months.
• Fixed agent commission of five to six percent on the way out.
• Hard money or private capital at standard market rates.
• Healthy seller market with low days on market.

Under these conditions, the thirty percent buffer reliably covers your friction and leaves a fair profit. Use it to filter inbound leads before you spend an hour underwriting.

When the rule lies

High price tiers

On a $700,000 ARV, the rule allows a thirty percent buffer of $210,000 above rehab. Your actual friction costs do not scale linearly. A six percent commission on $700,000 is $42,000, but your holding, lender, and closing costs together are maybe $35,000. You have $130,000 of slack. The rule lets you overpay and still feel disciplined. Sophisticated high end flippers use the seventy five or even eighty percent rule because the absolute dollar buffer is what matters, not the ratio.

Low price tiers

Below $100,000 ARV the rule is too generous. A $90,000 sale loses $5,400 to commission, $4,000 to closing costs, and easily $6,000 to holding. That is $15,400 of friction on a sale, plus profit. Thirty percent of $90,000 is $27,000. After friction, your profit is $11,600 before any rehab overruns. One bad inspection and you have lost money. In this tier the right rule is 65 percent.

Heavy rehab

When rehab exceeds thirty percent of ARV, the rule breaks because holding time stretches and contingency risk balloons. A six month rehab consumes more lender interest, more property taxes, more insurance. Use 65 percent and add a fifteen percent contingency line to rehab.

Cold markets

If days on market on similar finished product is past ninety, your holding cost assumption is broken. The rule assumes you sell quickly. Add one percent to your discount for every thirty days of expected market time beyond sixty. In a market with one hundred twenty median days on market, use 66 percent.

Hot markets

In a market where comps are climbing two to three percent a month, your ARV at exit is not your ARV today. Some flippers exploit this by paying above the 70 percent rule. This is gambling on continued appreciation, not investing. Run your numbers off today's ARV, not next year's. If the deal does not pencil at flat prices, walk.

The adjusted formula

A cleaner version that holds up across markets uses explicit friction.

Maximum allowable offer equals ARV minus rehab minus selling costs minus holding minus desired profit minus contingency.

Selling costs are six percent of ARV. Holding is one percent of ARV per month of expected ownership. Profit is fifteen percent of total project cost or a fixed dollar floor, whichever is higher. Contingency is ten to fifteen percent of rehab.

Plug in real numbers and you get a real answer. The 70 percent rule is the lazy version of this same math. It is not wrong, it is just rounded so aggressively that it only fits one shape of deal.

Quick reference table

Worked example: where the rule misleads

Consider two deals an investor sees in the same week.

Deal A. ARV $240,000, rehab $40,000. The 70 percent rule allows $128,000. Seller wants $135,000. The rule says walk. Full friction underwriting: selling costs $14,400, holding for five months $12,000, profit target $25,000, contingency $4,000. Total friction $55,400. Maximum offer equals 240,000 minus 40,000 minus 55,400, equals $144,600. At $135,000, the deal pencils to about $35,000 of profit. The rule said no, the math says yes.

Deal B. ARV $620,000, rehab $90,000. The 70 percent rule allows $344,000. Seller wants $360,000. The rule says walk. Full friction underwriting: selling costs $37,200, holding for six months $37,200, profit target $60,000, contingency $9,000. Total friction $143,400. Maximum offer equals 620,000 minus 90,000 minus 143,400, equals $386,600. At $360,000, the deal pencils to $86,600 of profit, well above target. The rule said no, the math says yes, with strong margin.

The 70 percent rule rejected two good deals. A disciplined investor running real friction numbers accepts both. The danger is the inverse case, common in 2021 to 2023, where investors using the 70 percent rule accepted deals that were too thin because the rule's buffer no longer matched a market where holding times had stretched to nine months and selling concessions had returned. The rule does not adapt. You have to.

The honest verdict

The 70 percent rule is a filter, not an offer. Use it to throw out the obvious losers in your first five minutes. Anything that survives, run through the full friction model. If a seller will only deal at 73 percent and your full underwriting says yes at 73 percent, take the deal. If a seller offers you 65 percent and your full underwriting says no at 65 percent, walk. The rule does not own your wallet.