What Is the 70% Rule for Flipping Houses? 2026 Guide

Table of Contents

• The 70% Rule Explained (And Why It's Your Maximum Offer)
  • The Formula: MAO = (ARV x 0.70) - Repairs
• How to Calculate After-Repair Value (ARV) With an ARV Calculator
  • Pulling Comparable Sales and Adjusting for Condition
• A Real 70% Rule Real Estate Example, Step by Step
  • The Same Deal With Financing and Holding Costs Added
  • What Changes If You Pay Cash
  • The Number That Actually Matters
• House Flipping Costs and Expenses the Rule Doesn't Show
  • Holding Costs, Closing Costs, and Capital Gains
• The Fix-and-Flip Loan Costs That Change Your Offer Price
• Where the 70% Rule Breaks Down (And What to Use Instead)
  • Market-Specific Adjustments: The Percentage Isn't Fixed
  • Exit Strategy Changes the Math Entirely
  • The Bias That Makes the Rule Fail
  • What to Use Instead
• Conclusion: Run the Numbers Before You Make the Offer
• Frequently Asked Questions

Last Updated: October 13, 2026

The 70% Rule Explained (And Why It's Your Maximum Offer)

The 70% rule is a quick screening formula investors use to decide the highest price they should pay for a fix-and-flip property. It caps your offer at 70% of the home's after-repair value, minus the cost of repairs.

Here's why it matters: the remaining 30% has to cover your profit, closing costs, holding costs, and financing. Skip that cushion and a flip can turn into a loss even when the renovation goes well.

The Formula: MAO = (ARV x 0.70) - Repairs

Maximum allowable offer (MAO) is the highest price you can pay for a property and still hit your target profit. The formula is simple:

MAO = (After-Repair Value x 0.70) - Estimated Repairs

Run it on a house worth $300,000 after repairs with $40,000 in work:

• $300,000 x 0.70 = $210,000
• $210,000 - $40,000 = $170,000 maximum offer

That $170,000 is your ceiling, not your target. Offer less and your margin gets safer.

How to Calculate After-Repair Value (ARV) With an ARV Calculator

After-repair value (ARV) is what a property will be worth once renovations are finished, based on what similar updated homes have actually sold for. Get this number wrong and every calculation after it is wrong too.

An ARV calculator works from comparable sales, or comps. The Consumer Financial Protection Bureau guide to appraisals explains how appraisers weigh these factors, and it's worth reading before you trust any online estimate.

Pulling Comparable Sales and Adjusting for Condition

Good comps share three traits:

• Sold within the last six months
• Within roughly a mile of your property
• Similar square footage, bed and bath count, and lot size

Then adjust for condition. A comp that already has a new kitchen isn't equal to your tired fixer. If your finished house will match that comp, use its sale price. If it will fall short, trim your ARV.

A common mistake is pulling comps from a nicer neighborhood because they support a higher number. That's not analysis. That's wishful thinking with a spreadsheet.

A Real 70% Rule Real Estate Example, Step by Step

Say you find a three-bedroom house listed at $185,000.

Step 1: Set your ARV. Four updated comps nearby sold between $295,000 and $310,000.

Step 2: Estimate repairs. Kitchen, two baths, roof, flooring, paint, and landscaping come to $45,000.

Step 3: Run the formula. $300,000 x 0.70 = $210,000.

Step 4: Compare to the list price. The seller wants $185,000. That's $20,000 over your ceiling.

The Same Deal With Financing and Holding Costs Added

The raw formula says $165,000. Now run the deal as a real budget. Assume a hard money loan at 12% interest-only on a $132,000 loan (80% of the $165,000 purchase), two origination points, and a four-month hold:

• Origination points: 2% of $132,000 = $2,640
• Monthly interest: $132,000 x 12% / 12 = $1,320, times four months = $5,280
• Draw fees: roughly $150 per draw, four draws = $600
• Property taxes and insurance: about $400 per month, four months = $1,600
• Utilities and lawn care during rehab: about $250 per month, four months = $1,000
• Buying closing costs: title, escrow, and recording, roughly $2,500

Add it up: about $33,120 in costs the 70% rule silently bundled into its 30% cushion. On a $300,000 ARV, that cushion is $90,000. Subtract the $45,000 in repairs and the $33,120 in financing, holding, and transaction costs, and your remaining profit before tax is roughly $11,880, not the $45,000 the raw formula implies.

What Changes If You Pay Cash

If you fund the purchase and rehab with your own capital, you strip out the origination points, monthly interest, and draw fees, roughly $8,520 in this example. That extra cushion is real, but it comes with an opportunity cost: the same cash could be earning a return elsewhere, and tying it up in one property for four months limits how many deals you can run at once. Most practitioners find the sweet spot is a mix, cash for the purchase, a line of credit for the rehab draws, so interest only accrues on the money actually spent.

The Number That Actually Matters

Once you've itemized, back into your true maximum offer. Take your target profit, say $25,000 on this deal, add repairs ($45,000) and all-in costs ($33,120), then subtract that total from ARV ($300,000). Your real ceiling is $196,880, which is higher than the 70% rule's $165,000. That's not a reason to pay more. It's a reason to know which number you're negotiating against, and why.

House Flipping Costs and Expenses the Rule Doesn't Show

The 70% rule bundles profit, closing costs, holding costs, and financing into one 30% cushion, but it never separates them. That's the flaw. On a $300,000 ARV, that cushion is $90,000. Sounds generous until you itemize.

Holding Costs, Closing Costs, and Capital Gains

House flipping costs and expenses add up fast:

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• Buying closing costs: title, escrow, and lender fees
• Holding costs: property taxes, insurance, utilities, and loan interest for every month you own it
• Selling costs: agent commission and seller-side closing fees
• Capital gains: profit above your basis can be taxed, and short-term gains are taxed as ordinary income (Topic no. 409, Capital gains and losses)

The Fix-and-Flip Loan Costs That Change Your Offer Price

Fix-and-flip loan costs come straight out of your 30% cushion, so they change what you can actually pay. Most flips use a hard money lender or private capital source rather than a bank, because banks rarely fund distressed properties on a fast timeline.

Typical fix-and-flip loan costs include:

• Origination points, often a percentage of the loan amount
• Interest, frequently charged monthly on the full draw
• Draw fees each time you request money for repairs

Here's the part most guides skip: financing costs scale with how long you hold the property. A loan that costs the same per month punishes a slow rehab twice, once in interest and once in lost time.

If speed matters, a lender that can close in days instead of weeks keeps your holding period short. That's the whole game.

Where the 70% Rule Breaks Down (And What to Use Instead)

The 70% rule fails in hot markets, on high-end homes, and on light renovations, because a flat 30% cushion doesn't fit every deal. It's a screening tool, not an appraisal. Here's where it breaks, and what to run instead.

Market-Specific Adjustments: The Percentage Isn't Fixed

The 70% figure assumes a normal market with normal competition and normal holding periods. Change any of those and the number should move.

• Fast-appreciating, low-inventory markets: Competition pushes purchase prices above MAO, and investors who hold the line at 70% lose every deal. In these markets, practitioners often stretch to 75%-80% on light-cosmetic flips where the rehab is fast and the resale window is short. The trade-off is thinner margin and less room for a surprise.
• Slow or declining markets: You can often buy below 70%, and you should. A 65% ceiling gives you room to cut price if the property sits.
• High-price-point homes: On a $900,000 ARV, a 30% cushion is $270,000, far more than the deal needs. Many investors use a flat dollar profit target (say $60,000-$80,000) instead of a percentage on higher-end flips, because the percentage over-reserves.
• Low-price-point homes: On a $120,000 ARV, a 30% cushion is $36,000. After repairs, financing, and selling costs, that's often not enough. On cheap properties, the percentage needs to go down, not up, because fixed costs eat a larger share.

The takeaway: the 70% rule is a default, not a constant. Adjust it to the market, the price point, and the rehab scope, and write down why you adjusted it, so you can review the decision later.

Exit Strategy Changes the Math Entirely

If you plan to hold the property as a rental instead of selling, the 70% rule doesn't apply at all.

Run the numbers both ways before you decide. A house that screens poorly as a flip may screen well as a rental, and vice versa.

If you plan to wholesale the contract, your margin comes from the assignment fee, not a renovation.

The Bias That Makes the Rule Fail

The 70% rule doesn't usually fail because the math is wrong. It fails because the inputs are wrong, and the biggest culprit is optimism bias.

Investors consistently underestimate repair costs and overestimate ARV. A common pattern: the rehab is budgeted at $40,000, comes in at $58,000, and the ARV was set from the two best comps instead of the four most similar ones.

Three habits cut the bias:

1. Get a contractor walkthrough before you make an offer. A written scope beats a mental estimate every time.
2. Add a contingency line, 10% to 15% of the repair budget is a common range, and treat it as a real cost, not a buffer you hope to keep.
3. Use the median comp, not the highest. If four comps sold at $295,000, $300,000, $305,000, and $310,000, use $302,500, not $310,000. The highest comp is the one most likely to be an outlier.

What to Use Instead

For a flip, replace the single 70% screen with a full line-item budget: purchase price, repairs with contingency, financing, holding costs, selling costs, and target profit. The 70% rule gets you to the shortlist.

For a rental, use DSCR and cash-on-cash return. For a wholesale, use the assignment spread. Each strategy has its own underwriting math, and the 70% rule is only the right tool for one of them.

Conclusion: Run the Numbers Before You Make the Offer

The 70% rule won't tell you whether a deal is good. It tells you the most you can pay before the deal stops working.

When your numbers say go, the next constraint is capital. Biscayne Lending connects fix-and-flip investors to private and specialty funding through a single application, with fast closings and no tax returns or income verification required for most files.

Run the formula. Then apply with Biscayne Lending and get the capital moving.

Frequently Asked Questions

How do you calculate the 70% rule in real estate?

Multiply the property's after-repair value (ARV) by 0.70, then subtract your estimated repair costs. The result is your maximum allowable offer. For example, if ARV is $300,000 and repairs run $40,000, your max offer is ($300,000 x 0.70) - $40,000 = $170,000. That 30% cushion is meant to cover holding costs, closing costs, financing fees, and your profit margin.

Does the 70% rule include renovation costs?

The formula subtracts renovation costs from the 70% of ARV, so repairs are accounted for but not included inside the 30% cushion. That 30% is reserved for holding costs, closing costs, realtor commissions, and profit. If you fold repairs into the 30% instead of subtracting them separately, you will overpay and likely wipe out your margin on the flip.

Is flipping houses still profitable in 2026?

Profitability depends on your purchase price, rehab budget, and how fast you can sell. The 70% rule exists precisely because margins compress when holding costs, fix-and-flip loan costs, and capital gains taxes are factored in. Investors who stick to the formula and budget accurately still find deals, but the margin of safety shrinks fast when you overpay on the front end.

What is the 75% rule in real estate?

The 75% rule is a looser version of the same formula: max offer equals 75% of ARV minus repairs. It leaves a thinner cushion, so it works best in markets with fast sales, low holding costs, and minimal rehab surprises. In slower markets or on properties needing major work, the 70% rule gives you more room to absorb delays and cost overruns.