70% Rule for Fix-and-Flips: When It Helps — and When It Hurts
Explains the 70% rule for fix-and-flips, shows concrete examples of how to calculate it, when it protects you, and real scenarios where rigidly following it can make you miss a profitable deal.
What the 70% rule is
The 70% rule is a quick underwriting shortcut many flippers use to screen purchases. The rule says: buy the property for no more than 70% of the property's After Repair Value (ARV) minus the estimated repair costs. Written as a formula:
Maximum Purchase Price = 0.70 × ARV − Estimated Repairs
It’s designed to create a margin that covers repairs, carrying costs, selling costs, financing, and leaves room for profit. It’s simple, fast, and conservative by design.
A concrete worked example
Say a house has comps that give an ARV of $300,000 and you estimate $45,000 in repairs. The 70% rule gives:
0.70 × $300,000 − $45,000 = $210,000 − $45,000 = $165,000
Under the rule you’d target a purchase at $165,000 or less. If the seller wants $175,000, you’d move on, based on the rule alone.
Why the rule protects you
The 70% rule is most useful when you need a fast, conservative filter that accounts for common hidden costs:
- It forces attention to ARV and repair costs before emotional bidding.
- It builds a buffer for unexpected issues discovered in rehab (hidden water damage, code work).
- It implicitly covers selling costs (commissions), carrying costs (loan interest, taxes, insurance, utilities), and a modest profit margin.
A simple checklist the rule helps enforce:
- Estimate ARV from reliable comps.
- Build a realistic repair budget.
- Compare the result to the asking price.
If you’re newer to flipping, using the 70% rule reduces the chance of overpaying and burning cash while holding a rehab project.
The 70% rule is a screening tool, not a valuation model. Use it to reject bad deals quickly; don’t treat it as the final word.
Why following it blindly can make you miss good deals
Markets, business models, and financing vary. A rigid 70% cutoff ignores those variables. Here are common scenarios where the rule is too strict.
1) Lower market costs or lower commissions
Say the ARV is $200,000 and repairs are $20,000. The 70% rule says: 0.70×200k − 20k = $120,000 max. Suppose the seller will accept $130,000. That seems outside the rule, but if you plan to sell with a reduced commission (say 3% instead of 6%) and you have cheap financing, your net could still be attractive. Lower selling costs or lower holding costs widen margins and justify paying more than the 70% number.
2) Shorter timeline or owner-carry / creative financing
If you can close quickly and flip in 30 days with minimal carrying costs, the buffer the 70% rule assumes isn't necessary. Or if the seller offers owner financing at below-market costs, you may be able to accept a higher purchase price and still meet your profit target.
3) Value-add that increases ARV beyond comps
The rule assumes ARV is fixed and based on comps. If you can credibly increase ARV by an extra bedroom, converting garage to living space, or legally adding a rental unit, the real ARV you can achieve may be higher than comps suggest — which means the 70% cutoff underestimates what you should pay.
4) Small, predictable repairs and sweat equity
If repairs are cosmetic and you or your team can execute them cheaply, estimated repair costs may be overstated by a conservative 70% calculation. Lower actual rehab costs change the math.
How to adjust the rule practically
Instead of a single hard line, treat 70% as a baseline and adjust according to measurable factors:
- Increase your multiplier (75%–80%) only when you have verifiable lower selling/holding costs or higher ARV upside.
- Reduce it (65% or lower) if you are inexperienced, using expensive short-term financing, or the market is volatile.
- Always run a full expense sheet: repairs, permits, contingency (5–10%), interest, taxes, insurance, utilities, staging, marketing, and at least 6% selling costs unless you have proof otherwise.
Run sensitivity scenarios
For every deal, run two scenarios: conservative (ARV −10% and higher holding costs) and optimistic (ARV as-is and lower holding costs). If both scenarios make money, the deal is likely solid. If only the optimistic one works, consider whether the upside assumptions are reliable.
Practical next steps
- Estimate ARV from at least three solid comps and verify with local agents.
- Build a line-item rehab budget and add a contingency.
- Calculate carry costs for the expected timeline and for a stressed timeline.
- Plug those numbers into a full flip model and compare to the 70% number.
If you want help estimating ARV quickly, use our ARV calculator to test scenarios and see how repair and selling cost assumptions move the buy price.
Bottom line
The 70% rule is a useful first filter and a conservative default that protects new flippers from overpaying. But it’s not a universal law. Understand the assumptions baked into the rule, quantify your own costs, and run conservative and optimistic scenarios. When your numbers — not a percentage — support the purchase, you can confidently move forward.
Run the numbers on one candidate deal with the full cost list before you make a yes/no call.