The 70% Rule for Flipping: A Screen, Not a Guarantee

The 70% rule is the flipper's back-of-napkin filter: do not pay more for a property than 70% of its after-repair value, minus the rehab budget. It is fast, it can be done standing in a driveway, and it is meant to leave enough margin to cover holding costs, selling costs and profit. It is also frequently mistaken for a guarantee of profitability, which it was never designed to be.

The formula

These figures are illustrative — a teaching example, not market data for any particular city.

What the 30% is actually covering

The margin between after-repair value and your offer-plus-rehab is not profit. It absorbs several costs first:

• Purchase closing costs
• Financing costs during the hold — interest and points on hard money or a rehab loan
• Holding costs — taxes, insurance and utilities for however long the project runs
• Selling costs — agent commission and closing costs, commonly 7-10% combined
• Rehab overruns, which are closer to the rule than the exception
• Actual profit, which is whatever survives all of the above

Laid out that way it is easy to see why a deal that barely clears the rule with a thin contingency and an optimistic timeline often disappoints: most of the 30% is spoken for before profit is calculated.

What clearing the rule is actually worth

The rule is usually discussed as pass or fail, which hides how steep the gradient is. Take the same $285,000 project — $45,000 of rehab, hard money at 11% with two points and 10% down, six months to sale, $300 a month of carry, a 6% commission and 1.5% of seller closing costs — and change only the purchase price.

A $30,500 difference in purchase price moves the profit by $32,558 — more than the price difference itself, because the higher price also carries more interest and more points. That is the rule's real argument: not that 70% is a magic threshold, but that in a business where most costs are fixed by the project rather than the price, the purchase price is where nearly all of the profit is decided.

Where a flat 70% breaks down

The rule was popularized in lower-priced, higher-volatility markets, and it scales less cleanly than it looks, because not every cost it absorbs grows with after-repair value at the same rate.

Higher-priced flips. A 6% commission on a $700,000 project is $42,000. The margin the rule leaves does scale with value, but the fixed-ish costs — permits, utilities, the cost of an extra month — do not, which generally works in favor of the larger project rather than against it. The greater risk at that price point is not the percentage but the buyer pool, which is thinner and slower.

Fast markets. Shorter holds mean less financing and carrying cost to absorb, so experienced operators will sometimes work above 70% — 75% or a little more — when they are confident of a quick resale.

Slow or uncertain markets. Longer expected time on market argues for staying well under 70%, since interest and carry have more time to accumulate and the resale price itself is less certain.

Cash versus borrowed money. A cash buyer pays no interest and no points, which on this example is roughly $10,400 of cost that simply disappears — so a cash buyer can clear the same profit at a higher purchase price. The rule makes no distinction, which means it is calibrated for one financing structure and quietly wrong for the other.

The cost the rule cannot see

Time is the variable the formula ignores entirely, and it is the one that most often turns a good project into a mediocre one. On this example the loan accrues about $1,275 a month in interest and the carrying costs add $300, so every month of delay costs roughly $1,575 before anything else goes wrong.

Three months of slippage — a permit, a contractor, a buyer's financing falling through — costs about $4,700, and it also stretches the annualized return across a longer period, which compounds the damage to a measure most flippers care about. Two projects bought at the same price can return very different amounts purely on how long each took, and the 70% rule gives identical answers for both.

Why it's a screen, not an underwriting model

The rule tells you what to offer before you have done diligence. It is not a substitute for itemizing rehab, holding and selling costs against your actual numbers, which is what determines net profit — not whether a purchase price cleared a threshold.

The sensible sequence is to use it as the fast first filter on a list of addresses, then underwrite properly the few that survive. A deal that fails the screen badly is usually not worth the evening; a deal that clears it still has to prove itself line by line, because clearing a screen designed around assumptions about your financing, your timeline and your market is not the same as being profitable under yours.

Running the real version

The fix and flip calculator reports the 70% figure alongside the full project arithmetic, so you can see both the screen and what the deal actually produces after financing, carry and selling costs. If the exit might become a rental rather than a sale, the BRRRR calculator models that path instead, and our guide to the BRRRR method covers how the refinance replaces the sale.