What is the 70% rule?

The 70% rule is a screening formula used in the fix-and-flip trade to put a quick ceiling on what an investor will offer for a property that needs work. The formula is: multiply the ARV — the price the property is expected to sell for after renovation — by 70 percent, then subtract the estimated repair cost. The result is treated as the most the investor will pay, a figure often called the maximum allowable offer, or MAO.

It is important to say what kind of thing this is. The 70% rule is not a valuation method, an appraisal technique, or a statement about what any property is worth. It is a back-of-the-envelope filter that practitioners compute to decide, in seconds, whether a deal is worth a closer look. The number it produces describes the investor's own cost structure and appetite, not the property.

The rule earns its place by being fast. A flipper screening twenty leads a day cannot build a line-item budget for each one. Two inputs — an ARV and a repair estimate — and one multiplication produce a yes-or-no answer that is roughly right often enough to be useful, which is all a first-pass filter has to be.

The formula holds back 30 percent of the ARV, and that holdback is doing several jobs at once. In the way practitioners explain it, the allowance is meant to cover the costs of buying and selling the property — closing costs, and the commissions or fees on the eventual resale; the cost of carrying it during the renovation — loan interest, taxes, insurance, utilities; a cushion for the surprises every renovation produces; and, after all of that, the compensation the investor requires for taking the project on at all.

Bundling all of that into one blunt percentage is the rule's whole design. It trades precision for speed: no single line item is estimated, but the total allowance is large enough that, on a typical project, the categories it must cover fit inside it. Whether they actually fit on a given project is exactly what the full budget — built later, only for deals that pass the screen — is for.

Because the holdback bundles the investor's own compensation with their costs, the same house can pass one investor's screen and fail another's. An investor with cheaper financing, a lower cost of selling, or a smaller required margin can justify a higher multiplier; an investor in an expensive-to-transact situation needs a lower one. The 70 figure is a convention, not a constant.

The numbers below are invented round figures for illustration — they describe no real property, no real market and no listing on this site.

An investor is screening a house that needs a full renovation. Comparable renovated sales suggest an ARV of $200,000, and a contractor's walkthrough prices the needed work at $40,000. The screen: $200,000 × 0.70 = $140,000, minus $40,000 of repairs, gives a maximum allowable offer of $100,000.

If the seller is asking $95,000, the deal passes the screen and moves to a real budget. If the seller needs $130,000, this investor passes without spending an afternoon on it — which is the point. The rule did not say the house is worth $100,000; it said this buyer's arithmetic stops there.

A wholesaler runs the same formula from the other direction. To sell a contract to flippers who screen at 70 percent, the wholesaler's asking price has to land at or under their MAO — and the contract with the owner has to be signed below that asking price by at least the intended fee. In the example, a wholesaler who wants a $10,000 fee needs the owner under contract at $90,000 or less.

The multiplier moves with the project and the practitioner. Many investors screen bigger projects more conservatively and smaller ones less so, on the reasoning that fixed transaction costs weigh heavier on a cheap house — a $12,000 cost load is a much larger share of a $100,000 ARV than of a $400,000 one. For that reason some practitioners use a lower multiplier at low price points and a higher one at high price points, and others abandon the percentage entirely below a certain price and screen against a fixed dollar margin instead.

Landlords screening rental purchases often do not use the rule at all, because their economics are different: they are not reselling after the renovation, so a resale-cost allowance makes less sense than a rent-based measure. The 70% rule is native to flipping, and its holdback is shaped by a flip's cost structure.

There are also investors who reject the rule as too blunt in either direction — passing on projects a full budget would have approved, and approving projects a full budget would have killed. The consistent practice among experienced operators is to use it only as a first screen and to re-underwrite every surviving deal line by line.

The formula is only as good as its two inputs, and both are estimates. An ARV is an opinion built from comparable sales, and a repair number from a quick walkthrough can miss a roof or a foundation. An error in either input passes straight through the arithmetic into the offer ceiling. The multiplication is never the weak link; the inputs are.

The rule also says nothing about whether a deal exists at the answer it produces. It computes what one buyer will pay, not what any seller will accept, and the two frequently do not meet. A market where sellers routinely get more than screened buyers will pay is not evidence the rule is broken — it is evidence those buyers are choosing not to compete there.

Finally, the output is not a market figure and should never be quoted as one. Describing a house as worth its MAO, or describing the gap between an ARV and a purchase price as anyone's profit, confuses a screening heuristic with a valuation. Everything on this page describes what practitioners compute; no figure here is a valuation of any property.