The 70% Rule for Flipping Houses: How to Calculate Max Offer
What Is the 70% Rule?
The 70% rule is the standard formula house flippers use to calculate the maximum price they should pay for a property. It builds in a margin for closing costs, holding costs, and profit — so you don’t end up flipping a house just to break even.
The formula:
Maximum Offer = After Repair Value (ARV) x 0.70 – Estimated Repair Costs
The 70% multiplier reserves 30% of the ARV for all the costs that come between buying and selling, plus your profit. If you pay more than the formula allows, your margin shrinks. Pay too much and there’s no profit left at all.
Every experienced flipper has a version of this calculation running in their head when they look at a deal. It takes about 15 seconds to apply, and it kills bad deals before you waste time on inspections and contractor bids.
The rule originates from the house flipping community and has been used for decades. It’s not a precise tool — it’s a guard rail that keeps you from overpaying in the heat of a bidding war or the excitement of finding a “great” property. For context on how flipping fits into the broader market, the beginner’s guide to real estate investing covers all major strategies.
The Formula With a Full Example
Let’s work through a real scenario.
The property: A 3-bedroom, 2-bathroom house in a suburban neighborhood. Structurally sound but outdated — needs a full kitchen remodel, bathroom updates, new flooring, paint, and landscaping.
Step 1: Determine the After Repair Value
The ARV is what the house will sell for after you complete all renovations. You estimate this by looking at recent sales of similar, updated homes in the same neighborhood. This is the most critical number in the equation — get it wrong and everything falls apart.
Comparable sales in this neighborhood show updated 3/2 homes selling for $280,000-$320,000. You set a conservative ARV of $300,000.
Step 2: Estimate Repair Costs
Get contractor bids or use your own experience to estimate the renovation budget:
- Kitchen remodel: $15,000
- Two bathroom updates: $8,000
- New flooring throughout: $7,000
- Interior/exterior paint: $5,000
- Landscaping and curb appeal: $3,000
- Contingency (10%): $3,800
Total estimated repairs: $41,800 (round to $42,000)
Step 3: Apply the 70% Rule
Max Offer = $300,000 x 0.70 – $42,000 = $210,000 – $42,000 = $168,000
You should offer no more than $168,000 for this property. At that price, you have a $300,000 ARV with $42,000 in repairs and $90,000 (30% of ARV) covering your closing costs, holding costs, and profit.
If the property is listed at $195,000, it doesn’t meet the 70% rule. That doesn’t mean it’s automatically a bad deal — but it means your margin is thinner, and you need to be more precise with your numbers to make sure profit is still there.
Why 70%? Where the 30% Goes
That 30% isn’t arbitrary. It covers real costs that many beginner flippers underestimate or forget entirely.
| Cost Category | Typical % of ARV | On $300K ARV |
|---|---|---|
| Buy-Side Closing Costs (title, escrow, inspections) | 2% – 3% | $6,000 – $9,000 |
| Sell-Side Closing Costs (agent commissions, title, escrow, transfer tax) | 8% – 10% | $24,000 – $30,000 |
| Holding Costs (mortgage/hard money interest, taxes, insurance, utilities) | 5% – 8% | $15,000 – $24,000 |
| Profit | 10% – 15% | $30,000 – $45,000 |
| Total | 25% – 36% | $75,000 – $108,000 |
That range of 25%-36% explains why 30% (the 70% rule) is a reasonable midpoint. In markets with lower agent commissions or when the flip goes quickly (short holding period), the costs fall toward the low end. When the project drags on or you’re using expensive hard money loans, they push to the high end.
Sell-side costs are the biggest line item most people underestimate. Real estate agent commissions of 5%-6%, plus closing costs and prep work, easily consume 8%-10% of the sale price. That’s $24,000-$30,000 on a $300,000 sale — gone before you see a dollar of profit.
Holding costs are the silent killer. If you’re using a hard money loan at 12% annual interest on a $168,000 purchase, that’s $1,680/month in interest alone. Add property taxes ($300/month), insurance ($150/month), and utilities ($200/month), and you’re burning $2,330/month while the house sits. A six-month flip costs $13,980 just in holding. Speed matters. Use the mortgage payment calculator to model different financing scenarios and their impact on your holding costs.
When to Adjust the Percentage
The 70% rule is a starting point. Experienced flippers adjust the multiplier based on market conditions and deal specifics.
75%-80%: Tight, Competitive Markets
In hot markets where finding a deal is the hard part, some flippers work with thinner margins. Paying 75% or even 80% of ARV minus repairs reduces profit per deal but keeps deal flow moving. This only works if you have:
- Accurate ARV estimates (within 3%-5%)
- Tight contractor relationships with reliable pricing
- Fast renovation timelines (under 90 days)
- Low-cost financing or cash
If any of those slip, your margin disappears. Working at 80% leaves almost no room for surprises.
60%-65%: High-Risk Deals and Wholesaling
For riskier deals — properties with structural issues, unclear title, or in unstable markets — drop to 60%-65%. The extra margin cushions against unexpected costs.
Wholesalers also use 60%-65% because they need to leave room for the end buyer (the flipper) to still make money at 70%. If a wholesaler contracts at 70%, the flipper has no margin. Smart wholesale deals are built at 60%-65% of ARV minus repairs, with the wholesaler’s assignment fee eating 5%-10% of the difference.
65%: Luxury or High-ARV Properties
On a $800,000 ARV property, 30% margin is $240,000. That sounds like a huge profit, but sell-side costs alone could be $60,000-$80,000, and luxury flips tend to take longer (higher-end finishes, pickier buyers). The 70% rule still works here, but some investors apply a slightly tighter margin because the absolute dollar amounts are larger and the percentage-based costs (holding, closing) are roughly the same.
Common Mistakes Using the 70% Rule
The formula is simple. The mistakes people make using it are not.
Getting the ARV Wrong
This is the #1 reason flips lose money. If you set the ARV at $300,000 but the house actually sells for $265,000, your entire profit evaporates. ARV is not a wish — it’s what comparable properties actually sold for in the last 3-6 months. Not listed for. Sold for. Use 3-5 recent comps within a half-mile, similar in size, condition, and style. Don’t cherry-pick the highest sale. If your real estate agent and appraiser can’t support your ARV, lower it.
Underestimating Repairs
Renovation costs almost always exceed initial estimates. Foundation issues hiding behind drywall. Plumbing that looks fine until you open a wall. Electrical that doesn’t meet code. Always include a 10%-20% contingency on top of your contractor bids. If the deal only works with exact-to-the-dollar renovation costs, it’s too tight. Negotiating the purchase price down gives you more breathing room.
Forgetting Holding Costs
A six-month flip at $2,000/month in holding costs is $12,000. That comes straight out of your profit. Many beginners calculate purchase + rehab + sale costs but completely forget that the clock is ticking every day they own the property. Hard money interest, property taxes, insurance, and utilities add up fast — especially when the project takes longer than planned (it almost always does).
Using the 70% Rule as Sole Analysis
The formula gives you a maximum offer price. It does not tell you whether the deal is actually good. You still need to verify the ARV with comps, get multiple contractor bids, calculate actual holding costs based on your financing, and project a realistic timeline. The 70% rule is the first filter, not the last step.
Full Flip Analysis Beyond the 70% Rule
Here’s what a complete flip analysis looks like — more detail than the 70% rule provides, but the discipline that separates profitable flippers from those who break even (or worse).
Property: 3BR/2BA ranch, purchased at $168,000. ARV: $300,000.
| Cost Item | Amount |
|---|---|
| Purchase Price | $168,000 |
| Buy-Side Closing Costs | $4,200 |
| Renovation Costs | $42,000 |
| Holding Costs (5 months) | $11,650 |
| Staging and Photography | $2,500 |
| Total Cost Basis | $228,350 |
| Sale Item | Amount |
|---|---|
| Sale Price (ARV) | $300,000 |
| Agent Commission (5.5%) | -$16,500 |
| Sell-Side Closing Costs (2%) | -$6,000 |
| Seller Concessions | -$3,000 |
| Net Proceeds | $274,500 |
Profit: $274,500 – $228,350 = $46,150
That’s a 20.2% return on total investment and a 27.5% return on the purchase price. Healthy, and right in line with what the 70% rule was designed to produce.
Now run the pessimistic scenario: ARV comes in at $280,000 (not $300K), rehab runs $50,000 (not $42K), and it takes 7 months instead of 5. Profit drops to roughly $13,000 — thin, but still positive. That stress test is why the 70% rule builds in margin. Without it, the pessimistic scenario puts you at a loss.
For a full walkthrough of getting started, read the house flipping beginner’s guide. Understanding how to calculate ARV accurately is the single most important skill in flipping.
The 70% Rule at Different ARV Levels
| ARV | 70% of ARV | Repair Budget | Max Offer | Available for Costs + Profit |
|---|---|---|---|---|
| $150,000 | $105,000 | $20,000 | $85,000 | $45,000 |
| $200,000 | $140,000 | $25,000 | $115,000 | $60,000 |
| $300,000 | $210,000 | $42,000 | $168,000 | $90,000 |
| $400,000 | $280,000 | $55,000 | $225,000 | $120,000 |
| $500,000 | $350,000 | $65,000 | $285,000 | $150,000 |
| $750,000 | $525,000 | $90,000 | $435,000 | $225,000 |
Higher ARV properties produce larger absolute profit potential but also carry more risk (bigger numbers = bigger losses if something goes wrong). For newer investors, the $200,000-$350,000 ARV range offers a balanced risk/reward profile. You can find opportunities in this range at the best places to flip in 2026.
Frequently Asked Questions
Can I use 80% instead of 70%?
You can, but you’re cutting your margin in half. At 80%, you have just 20% of ARV to cover closing costs, holding costs, and profit. If closing and holding consume 15% (which they often do), your profit is only 5% of ARV — $15,000 on a $300,000 flip. One budget overrun or price reduction wipes it out. Experienced flippers who work at 80% do very high volume with extremely tight processes. Beginners should stick to 70% or even 65%.
How do wholesalers use the 70% rule?
Wholesalers use it backward. They know the end buyer (flipper) needs a deal at 70% of ARV minus repairs. So the wholesaler needs to contract the property at 60%-65% of ARV minus repairs, keeping the 5%-10% gap as their assignment fee. If the ARV is $300,000 and repairs are $40,000, the flipper’s max is $170,000. The wholesaler needs to contract it at $150,000-$160,000. Learn more in the wholesale real estate guide.
What if every deal in my market fails the 70% rule?
Welcome to most hot markets. When inventory is tight and competition is fierce, deals at 70% are rare. Options: expand your search area, look at off-market deals (direct mail, driving for dollars, probate), find as-is properties where sellers are motivated, or accept thinner margins while maintaining disciplined expense tracking. Never stretch the rule because you’re “excited about a deal.” That’s how losses happen.
Does the 70% rule account for financing costs?
Indirectly. The 30% margin is designed to cover holding costs, which include financing interest. But if you’re using hard money at 12%-14% interest, the holding costs eat into margin faster. Run a separate holding cost calculation based on your actual loan terms. If holding costs exceed 8% of ARV, you may need to tighten to 65%.
Should I use contractor bids or my own estimates for repairs?
Always get at least two contractor bids for major work before making an offer. Your own estimates are fine for the initial screening pass (using the 70% rule to decide if the deal is worth pursuing). But before you finalize an offer, get real bids. Experienced flippers develop per-square-foot benchmarks for common work: $3-5/sq ft for paint, $4-8/sq ft for flooring, $100-200/linear ft for kitchen cabinets. Build your own cost database as you do more deals. For your first deal, rely on contractors and add 15%-20% contingency. The real estate investing guide covers initial due diligence steps in detail.