The 70% rule states that an investor should not pay more than 70% of a property's after-repair value, minus the cost of repairs, when buying a house to flip. The formula is: (ARV × 0.70) − Repair Costs = Maximum Offer. A property with a $300,000 ARV and $50,000 in estimated repairs produces a maximum offer of $160,000. The rule exists to protect the margin every flip needs to absorb financing, holding, and selling costs, not just the renovation itself.

What the 70% Rule Means

The rule gives real estate investors a fast way to screen a deal before running full numbers. Instead of guessing at a purchase price, an investor works backward from the property's future value.

ARV stands for after-repair value: what the property will sell for once renovations are complete, based on recent comparable sales in the same condition. The 70% figure is not a legal limit or a lender requirement. It is an underwriting shortcut investors use to decide whether a deal is worth pursuing before completing a rehab loan application, ordering an appraisal, or submitting an offer.

The 70% Rule Formula

Both inputs need to be conservative. If the ARV is too high, the investor is assuming a resale price the property may not reach. If the repair estimate is too low, the deal may not have enough room to absorb the actual renovation cost. Either mistake can make a deal look profitable before closing and turn it into a loss after the work begins. 

Worked Example: Calculating a Maximum Offer

Estimate the ARV

An investor identifies a distressed property in a neighborhood where fully renovated three-bedroom homes recently sold between $280,000 and $320,000. Before setting the ARV, the investor should compare the subject property against the closest sold comps, including layout, square footage, condition, garage, pool, lot size, bedroom and bathroom count, and overall finish level.

Based on the most relevant sold comps, the investor sets the ARV at $300,000. That estimate is based on what comparable renovated homes actually sold for, not the current listing price of the distressed property.

Estimate Repair Costs

A contractor walkthrough estimates the rehab at $45,000, including new flooring, kitchen and bathroom updates, and exterior paint. The investor adds a 10% contingency, bringing the working repair estimate to roughly $50,000. 

Apply the Formula

$300,000 × 0.70 = $210,000
$210,000 − $50,000 = $160,000

The maximum offer is $160,000. If the seller wants $180,000, the deal falls outside the rule. At that point, the investor either renegotiates or moves on. 

Where the Other 30% Actually Goes

The remaining 30% is not profit. It covers the costs of buying, holding, and selling the property.

• Selling costs (6-8% of ARV): Agent commission, staging and closing costs on the resale.
• Holding and financing costs (5-7% of ARV): Interest, points, property taxes, insurance, and utilities during the renovation and selling period.
• Buying costs (2-3% of ARV): Title insurance, escrow fees, and recording fees at purchase.
• Net profit (12-15% of ARV): What the investor keeps after every other cost is paid.

An investor who treats the full 30% as profit will overpay and still think the deal works on paper. 

When Investors Adjust the Percentage

The 70% rule is a starting point, not a fixed number. Investors may adjust the percentage based on the deal size, market conditions, exit strategy, property risk, and their own track record.

• Deal size: A higher ARV can create more dollar cushion, even at a higher percentage. For example, a $600,000 ARV deal at 75% leaves $150,000 before repair costs, while a $200,000 ARV deal at 70% leaves only $60,000. The larger deal still carries more risk if the ARV is wrong, so the extra room should not be treated as automatic profit.
• Market conditions: In a slower market, staying near 70% helps preserve margin for longer holding time, price reductions, and buyer concessions. In a competitive market for flipping houses with limited inventory, some investors may move closer to 75% or 80%, usually for lighter rehab projects with a faster resale path.
• Real estate license: An investor who represents themselves may reduce part of the commission expense, depending on the transaction structure. That savings can create additional margin and may support a modestly higher offer without lowering the target profit.
• Exit strategy: The 70% rule is built for resale flips. A BRRRR method investor is solving a different problem. For a refinance exit, the key question is whether the finished property can support the new loan, meet DSCR requirements, and leave enough equity after the refinance.
• Property uniqueness: If the property has few close comps, the ARV is less reliable. That uncertainty is a reason to keep the percentage conservative, not to stretch the offer.
• Investor experience: Experienced flippers may operate closer to 75% or 80% when they have a proven track record in the same market. Beginner flippers should usually stay more conservative until they have real project data. The key is actual performance: completed projects, accurate repair budgets, realistic resale pricing, and predictable timelines. 

How the 70% Rule Connects to Lender Financing

The 70% rule and a lender’s loan-to-ARV limit are different tools, but they both start with the same input: the property’s after-repair value.

Ridge Street Capital’s fix-and-flip loan programs can finance up to 90% of the purchase price and 100% of the rehab budget, as long as the total loan amount stays under 75% of ARV. If a deal already fits within the 70% rule, the investor is usually buying with enough room to stay inside the same ARV-based ceiling a lender uses to size the loan.

That overlap matters. The investor uses the 70% rule to protect profit margin. The lender uses the ARV cap to protect leverage. Both are designed to keep enough equity in the deal if repair costs increase, the resale price comes in lower, or the project takes longer than expected.

Frequently Asked Questions

Is it 70% of the asking price or the ARV?

‍Always the ARV, never the asking price. The asking price reflects the seller's expectation, not the property's future value. Using the asking price as the base number leads to overpaying.

Does the 70% rule include closing costs?

‍Yes. The 30% margin is built to cover closing costs, holding costs, financing costs, and profit together. None of those costs get subtracted separately from the formula.

Can the 70% rule apply to a rental or BRRRR deal?

‍It applies most directly to the refinance step of a BRRRR deal. Lenders typically cap cash-out refinances at 70-75% of appraised value, which mirrors the same math an investor used to buy the property.

What if the market is too competitive for 70%?

‍Investors in low-inventory markets often adjust to 75-80% of ARV to stay competitive, accepting a smaller margin for error. Going above 80% removes most of the buffer the rule is designed to provide.

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