The 70% rule in real estate: the formula, worked examples, and when it fails

What is the 70% rule formula?

The formula has two inputs and one operation order: maximum offer = ARV x 0.70 - repairs. ARV is what the house will sell for after the work is done, estimated from renovated comparable sales. Repairs is your full rehab budget, including a contingency for surprises.

Multiply first, then subtract. A common mistake is subtracting repairs first and then taking 70 percent. On the $300,000 example with $50,000 of work, ($300,000 - $50,000) x 0.70 = $175,000, which is $15,000 too high. That error alone can wipe out a third of a typical flip's profit.

If you are wholesaling, subtract your assignment fee too. The end buyer still wants their 70 percent number, so your contract price has to sit below it. That version is called the maximum allowable offer, covered in our guide to calculating MAO.

70% rule examples at six price points

Here is the rule applied across the range of US prices. The margin column is the 30 percent of ARV the rule reserves for costs and profit. Notice how small it is in dollars at the low end and how large it is at the high end. That gap is why the rule bends in both directions.

Where does the 30 percent go?

The rule works because the 30 percent covers the real costs of a flip and still leaves a profit. Here is the $250,000 example itemized. The assumptions are stated so you can swap in your own: 8 percent of ARV for agent commissions and seller closing costs, 2 percent of the price for buying costs, $1,200 a month to hold the house for six months, and a hard money loan at 10 percent interest plus 2 points on the purchase and rehab.

When does the 70% rule fail?

Cheap houses. Some costs barely shrink with price. Take an $80,000 ARV with $25,000 of repairs. The rule allows $31,000. The margin is $24,000, and the costs (8 percent selling, about $1,500 to buy, $800 a month to hold, plus interest and points) come to about $16,620. Profit is about $7,380, and a $10,000 repair surprise turns it into a loss. Many investors use 60 to 65 percent on low-price houses for this reason.

Expensive markets. At a $1,000,000 ARV the same cost assumptions leave about $134,600 of profit at 70 percent, which is more than most investors need. Competing buyers bid higher. At 75 percent the example still clears about $80,100. At 80 percent it drops to about $25,600, which is thin for a six-figure rehab. In high-cost metros, 75 percent is a common working number.

Light rehabs. A paint-and-carpet job held for two months carries far less risk than a gut renovation. The rule does not know the difference, so it understates what you can pay on cosmetic deals.

Rentals. The rule is built for a resale. If you plan to hold, judge the deal on rent: cash flow after debt, taxes, insurance, repairs and vacancy. A house can fail the 70% rule and still be a strong rental, or pass it and lose money every month.

The 70% rule ignores the seller's mortgage

The rule tells you the most you can pay. It does not tell you whether the seller can accept it. If the owner owes more than your maximum offer, the deal is dead at any discount, because the loan must be paid at closing.

Example: ARV $250,000, repairs $40,000, 70% rule offer $135,000. The owner owes $150,000. Even a motivated owner cannot sign that contract without bringing money they do not have. The options are a short sale (the lender agrees to take less), creative terms, or walking away.

LowBaller handles this with an equity cap: every suggested offer is capped so it still clears the owner's estimated mortgage and closing costs. Run any property through the lowball offer calculator to see a start bid and likely close side by side with your 70% number.

How to run the 70% rule in five minutes

1. 1

   Estimate ARV from renovated comps

   Pull three to five renovated sales near the property from the last few months and adjust them to match it. Our ARV guide walks through the adjustments.

2. 2

   Build the repair budget

   List the work room by room and add a 10 to 15 percent contingency. Underestimated repairs break more flips than overpaying does.

3. 3

   Multiply ARV by your percentage

   Use 0.70 by default, lower for cheap or heavy-rehab houses, higher for expensive or light-rehab houses.

4. 4

   Subtract the repairs

   The result is your maximum offer as a flipper. If you are wholesaling, subtract your assignment fee as well.

5. 5

   Check the seller's payoff

   Compare your number with the recorded mortgage and liens plus selling costs. If the payoff is higher, the deal cannot close at your price.

6. 6

   Open below your maximum

   Your maximum is a ceiling, not an opening bid. Start lower so you can move up without crossing it.

Is the 70% rule still useful in 2026?

Yes, as a screen. It is fast, easy to explain to a partner or a cash buyer, and conservative enough to keep beginners out of the worst deals. It is not a pricing model. Professionals run a full cost sheet on every deal that passes the screen.

The bigger risk is not the percentage. It is the inputs. A 70% rule built on an optimistic ARV or a guessed repair budget is just a confident wrong number. Get the ARV from sold, renovated comps, get the repair number from a contractor walk-through, and the rule does its job. Then find sellers who can actually say yes, which in practice means owners with real distress and real equity. LowBaller ranks every owner in a 25-mile radius by Deal Score, pressure times equity, so the owners who can accept a 70% rule number come first.