In house flipping, you make your money when you buy, not when you sell. Overpaying for a property is the #1 reason flippers fail. The 70% Rule is the industry-standard formula to prevent this mistake and ensure you bake in enough profit margin from day one.

What is the 70% Rule?

The rule states that an investor should pay no more than 70% of the After Repair Value (ARV) of a property minus the estimated repair costs.

Breaking Down the Components

1. After Repair Value (ARV)

This is what the home will be worth after you completely renovate it. To find this, look at "comps"—similar homes in the neighborhood that have sold in the last 3-6 months and are fully renovated. Do not guess on ARV.

2. Estimated Repair Costs

This is your budget for labor and materials. Be realistic. If a contractor quotes $30,000, budget $35,000. Underestimating rehab costs is the fastest way to lose money.

Real-World Example

Let's say you simply find a distressed property. Fully renovated homes in the area sell for $300,000 (ARV). Your contractor estimates repairs will cost $40,000.

  • Step 1: $300,000 × 0.70 = $210,000
  • Step 2: $210,000 − $40,000 = $170,000

Your Maximum Offer: $170,000.

If the seller wants $200,000, you walk away. The numbers don't work.

What Does the Other 30% Cover?

The 30% discount isn't just pure profit. It has to cover:

  • Holding Costs: Property taxes, insurance, utilities, and loan interest during the flip.
  • Closing Costs: Buying and selling fees (approx. 2-5%).
  • Realtor Commissions: Typically 5-6% when you sell.
  • Risk/Profit: What's left over is your net profit.

When Should You Adjust the Rule?

The 70% rule is a guideline, not a law of physics. In highly competitive hot markets, you might need to adjust to 75% or even 80% to win deals. However, this shrinks your margin for error.

  • Use 70% for standard flips with average risk.
  • Use 75% in very hot markets or if you are doing the work yourself.
  • Use 65% in declining markets or for high-risk, complex renovations.

Tool Recommendation

Don't do the math on a napkin. Use our professional Fix & Flip Calculator to factor in holding costs, financing, and exact profit margins.