Value-add

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

SFRCalc Editorial

The 70% rule is the flipper's version of a back-of-napkin filter: don't pay more for a property than 70% of its after-repair value (ARV), minus the rehab budget. It's fast, it's easy to calculate standing in a driveway, and it's meant to leave enough margin to cover holding costs, selling costs, and profit. It's also frequently misunderstood as a guarantee of profitability, which it was never designed to be.

The formula

Max offer = (ARV × 0.70) − Rehab budget

Example

After-repair value (ARV)	$285,000
70% of ARV	$199,500
Rehab budget	$45,000
Max offer (70% rule)	$154,500

What the 30% is actually covering

That 30% margin between ARV and your max offer-plus-rehab isn't pure profit — it's absorbing several costs at once:

Purchase closing costs
Financing costs during the hold — interest and points on hard money or a rehab loan
Holding costs — taxes, insurance, utilities for however long the project runs
Selling costs — agent commission and closing costs, typically 7–10% combined
Rehab budget overruns, which are close to the rule rather than the exception
Actual profit, which is whatever's left after all of the above

Laid out that way, it's easy to see why a deal that barely clears the 70% rule with a thin rehab contingency and an optimistic timeline often ends up disappointing — most of that 30% gets absorbed by costs before profit is calculated.

Where a flat 70% breaks down

The rule was popularized in lower-priced, higher-volatility markets. It scales less cleanly at higher price points, because selling costs and holding costs don't grow at the same rate as ARV does:

Higher-priced flips. A 6% commission on a $700,000 ARV is $42,000 — a much larger absolute number than the same percentage on a $200,000 flip, even though the 70% rule's margin scales with ARV the same way regardless of price point.
Fast, hot markets. Shorter hold times mean less financing and holding cost to absorb, so some experienced flippers will go above 70% (say 75–78%) when they're confident about a quick resale.
Slow or uncertain markets. Longer expected time-on-market argues for staying well under 70%, since holding costs and financing costs have more time to accumulate.

Treat 70% as a starting anchor, then adjust for your actual holding period, financing cost, and local selling costs — not as a number that's correct in every market at every price point.

Why it's a screen, not an underwriting model

The 70% rule tells you what to offer before you've done full diligence. It's not a substitute for actually itemizing rehab costs, holding costs, and selling costs against your specific numbers — which is what determines real net profit, not just whether the purchase price cleared a screen.

Run the full itemized numbers — rehab, financing, holding period, and selling costs — with the Fix & Flip calculator, which checks your purchase price against the 70% rule automatically.

This article is for general education and isn't financial or investment advice. Run your own numbers and talk to a qualified professional before committing capital to a project.