70% Rule
The 70% rule says a house flipper should pay no more than 70% of a property's after-repair value (ARV) minus repair costs. It builds in roughly a 30% margin to cover holding costs, selling costs, financing, and profit.
The formula is: Maximum purchase price = (ARV × 0.70) − estimated repair costs. The 30% that remains is not pure profit. It has to absorb agent commissions, closing costs on both ends, loan interest, taxes, insurance, and utilities during the hold, with profit being what's left.
It's a screening tool, not underwriting. In fast-appreciating or low-priced markets experienced flippers sometimes stretch to 75%. In slow or expensive markets they tighten to 65%. Always follow the rule-of-thumb screen with a full deal analysis.
Worked example
ARV = $300,000 and repairs = $40,000. Maximum offer = ($300,000 × 0.70) − $40,000 = $170,000. If the seller wants $195,000, the deal fails the screen unless repairs can be trimmed or the ARV is provably higher.
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