The 70% Rule for Fix and Flip: How to Calculate Your Maximum Offer

What Is the 70% Rule?

The 70% rule is a quick formula that fix-and-flip investors use to determine the maximum price they should pay for a property. It's designed to ensure you leave enough room for rehab costs, holding costs, selling costs, and profit.

The formula:

Maximum Purchase Price = (ARV x 70%) - Repair Costs

Where:

• ARV = After-Repair Value (what the property will be worth after renovation)
• 70% = the safety margin that accounts for holding costs, selling costs, and profit
• Repair Costs = your estimated renovation budget

How to Use the 70% Rule: Step by Step

Step 1: Determine the ARV

The After-Repair Value is what the property will sell for after your renovations are complete. To estimate ARV:

• Pull comparable sales (comps) from the last 3-6 months within a half-mile radius
• Focus on properties with similar square footage, bedrooms, and condition
• Adjust for differences in features, lot size, and location
• Use the most conservative comps — don't cherry-pick the highest sales

Not sure how to estimate ARV? Our ARV Estimator walks you through the comparable sales analysis step by step.

Step 2: Estimate Repair Costs

Walk the property and create a detailed scope of work:

• Get contractor bids or use per-square-foot estimates for each category
• Include materials, labor, permits, and a 10-15% contingency
• Common categories: roof, HVAC, electrical, plumbing, kitchen, bathrooms, flooring, paint, landscaping

Need help building a detailed rehab estimate? Use our Rehab Budget Calculator to organize costs by category and estimate monthly carrying expenses.

Step 3: Run the Formula

Example:

• ARV: $350,000
• Repair costs: $60,000
• Maximum purchase price: ($350,000 x 0.70) - $60,000 = $185,000

This means you should pay no more than $185,000 for this property to maintain a healthy profit margin.

What the 30% Covers

The 30% margin isn't all profit. It typically breaks down as:

Cost	Typical % of ARV
Selling costs (agent commissions, closing)	8-10%
Holding costs (loan payments, insurance, taxes, utilities)	5-8%
Profit	12-17%

On a $350,000 ARV, that 30% ($105,000) might look like:

• Selling costs: $31,500 (9%)
• Holding costs: $21,000 (6%)
• Profit: $52,500 (15%)

When to Adjust the 70% Rule

The 70% rule is a guideline, not gospel. Consider adjusting based on:

Use a lower percentage (65%) when:

• You're in a slow or declining market
• The property needs extensive structural work
• Your timeline is uncertain
• You're new to flipping and want extra margin

Use a higher percentage (75%) when:

• You're in a hot, fast-moving market
• The property needs only cosmetic updates
• You have reliable contractors and predictable costs
• You can close and sell quickly

Use the actual numbers when:

• You have enough experience to calculate exact holding costs, selling costs, and desired profit
• You're analyzing a deal where the 70% rule gives a borderline result
• You're working in a market with unusual cost structures

Common Mistakes with the 70% Rule

1. Overestimating ARV — the single biggest mistake. Use conservative comps.
2. Underestimating repairs — always add a contingency. Hidden issues are common in distressed properties.
3. Ignoring holding costs — every month you hold the property costs money (loan interest, insurance, taxes, utilities)
4. Forgetting selling costs — agent commissions, closing costs, and transfer taxes add up to 8-10% of ARV
5. Using the rule for rental properties — the 70% rule is designed for flips, not buy-and-hold

The 70% Rule and Hard Money Loans

Most hard money lenders are familiar with the 70% rule and use similar logic when evaluating deals. When a lender offers up to 90% LTV on purchase and 100% rehab financing, they're evaluating the deal against the ARV — just like you should be. Check your deal's leverage with the LTV Calculator.

This alignment is important. If your deal passes the 70% rule test, it's more likely to get approved for hard money financing. If it doesn't pass, the lender will likely see the same risk you should.

Quick Reference Calculator

To quickly check a deal:

1. Find the ARV
2. Multiply by 0.70
3. Subtract your repair estimate
4. That's your maximum offer

If the seller's asking price is at or below that number, the deal is worth pursuing. If it's significantly above, either negotiate down or walk away.

Want to automate this? Our Maximum Offer Calculator applies the 70% rule and factors in holding costs and selling costs for a more complete picture. Then run a full deal analysis with our Fix & Flip Profit Calculator.

Bottom Line

The 70% rule is one of the most useful tools in a flipper's toolkit. It's simple, fast, and keeps you disciplined. But remember: it's a starting point for analysis, not a substitute for detailed due diligence. Run the numbers, verify your assumptions, and always have a margin of safety.