The decision in brief
The 70% rule says a flipper should pay no more than 70% of a property's after repair value (ARV) minus the cost of repairs. The formula is: maximum offer = (ARV x 0.70) - repairs. It is a quick screening tool that leaves room for financing, holding, selling costs, and profit, not a guarantee of profit.
View Fix and Flip Loans →Where does the 70% come from?
The 30% gap between your all-in purchase and ARV is meant to cover everything that is not the house and the renovation: closing costs on both ends, loan costs, interest, taxes, insurance, utilities, agent commissions, and your profit. Seventy is a convention, not a law. In expensive or very competitive markets, investors sometimes stretch higher; with heavy rehabs or slow markets, they go lower.
The 70% rule formula
Maximum allowable offer (MAO) = (ARV x 0.70) - estimated repairs
- ARV (after repair value): the expected market value after the renovation.
- Repairs: your full rehab budget, including a contingency.
Calculator walkthrough: three worked examples
All three are examples with hypothetical numbers.
| Example | ARV | x 70% | - Repairs | = Maximum offer |
|---|---|---|---|---|
| A: cosmetic | $250,000 | $175,000 | $25,000 | $150,000 |
| B: full gut | $400,000 | $280,000 | $110,000 | $170,000 |
| C: thin market | $180,000 | $126,000 | $40,000 | $86,000 |
Notice Example B. The ARV is 60% higher than Example A's, but the maximum offer is only $20,000 higher because the repairs eat the difference. Big rehabs need big discounts.
Does the 70% rule really leave a profit?
Sometimes not. Check Example A in full, with every cost written out.
Example (hypothetical numbers): buy at $150,000, rehab $25,000, ARV $250,000.
| Cost line | Amount |
|---|---|
| Purchase | $150,000 |
| Rehab | $25,000 |
| Buy-side closing costs | $4,000 |
| Loan costs (points and fees) | $3,500 |
| Interest, 6 months | $8,000 |
| Taxes, insurance, utilities, 6 months | $4,500 |
| Selling costs (commissions, concessions, closing) | $17,500 |
| Total cost | $212,500 |
| Profit before tax | $37,500 |
That is a workable result. Now stretch the hold to 10 months and take $10,000 off the sale price, and the profit falls by more than a third. The rule screens deals; your full budget decides them.
How does the 70% rule relate to lender ARV caps?
They are different numbers that point in the same direction. The 70% rule is your offer discipline. A lender's ARV cap limits the loan. Caps vary by lender, program, and borrower experience; see Axelrad's fix-and-flip page for current terms.
Example (hypothetical lender limit, not an Axelrad term): in Example A, a 70% ARV cap would allow a loan of up to $175,000 against a $175,000 purchase-plus-rehab cost. But a lender's percentage-of-purchase limit also applies, so the loan would still be smaller than total cost and you would bring cash. Run both limits.
What does the 70% rule leave out?
The rule is a shortcut, so it hides several things that can sink a flip.
- Hold length. The formula treats a 4-month flip and a 12-month flip the same. Interest, taxes, insurance, and utilities don't.
- Financing structure. Points, fees, and whether you pay interest on the full loan or only on drawn funds change your costs. Axelrad's fix-and-flip page says borrowers pay interest only on funds drawn, which affects the holding math.
- Selling costs in your market. Commissions and seller concessions vary. A wholetail or rental exit has a different cost profile from a full retail listing.
- The accuracy of your inputs. A 70% rule run on an inflated ARV or an optimistic rehab number gives a confident wrong answer.
- Your cash. The rule says nothing about how much money you need to bring to closing or carry during the rehab.
Treat the 70% result as a ceiling for negotiation, never as a target price.
A quick reverse check: what ARV do you need?
You can also run the rule backward to see whether a seller's asking price can work. Example (hypothetical numbers): asking price $190,000, rehab $45,000. Add them and divide by 0.70: ($190,000 + $45,000) / 0.70 = about $335,700. If your supported ARV is $300,000, the asking price is too high for a 70% deal, and you know it before writing an offer.
When should you go below 70%?
- Heavy structural, foundation, or roof work, where surprises are common
- Markets where homes sit longer before selling
- First flips, where your budget is less tested
- Properties with permit or title questions still open
When might investors go above 70%?
- Very light cosmetic work with firm bids
- Markets with strong, fast resale demand
- Plans where the exit is a rental refinance, not a sale (the selling costs change)
Going above 70% is a decision to accept less margin for error. Make it on purpose, with a full cost sheet.
How should you use the 70% rule when you make an offer?
Run it before you call the seller or agent, not after. Write down your MAO, then open below it so you have room to negotiate repairs found during inspection. If the seller's counter lands above your MAO, either find evidence that your ARV or repair number was wrong, or walk away. A deal you pass on costs you nothing.
Maximum allowable offer calculator
Maximum allowable offer = (ARV x multiplier) - rehab budget. Enter your own numbers below; the multiplier starts at 70% and you can change it.
Maximum allowable offer (70% rule)
Your entries stay in your browser and are not sent anywhere. They reset when you reload.
Key takeaways
- MAO = (ARV x 0.70) - repairs.
- The 30% gap has to cover transaction, financing, holding, and selling costs plus profit.
- Use the rule to screen, then build a full cost sheet before you commit.
- A lender's ARV cap and purchase-price limit are separate from your offer rule; check both.
Screen it, then size it
Got a deal that passes the 70% test? Run the full numbers in the calculator on the fix-and-flip loan page, and when it holds up, submit it for review.
Frequently asked questions
What is the 70% rule in house flipping?
It is a screening guideline: pay no more than 70% of the after repair value minus repair costs, so there is room for costs and profit.
How do you calculate the 70% rule?
Multiply the ARV by 0.70, then subtract your estimated repair budget. The result is your maximum allowable offer.
Does the 70% rule include closing costs?
Not directly. Closing, holding, financing, and selling costs are meant to come out of the 30% gap, along with profit. Check them with a full budget.
Is the 70% rule still realistic?
In some markets it is hard to buy at 70%. Many investors adjust the multiplier by market and project, but lowering margin raises risk.
Does a lender use the 70% rule?
Lenders use their own limits, such as a maximum loan as a percentage of ARV. Those limits vary by lender and borrower, so check the current terms on the product page.
Plan your next step
Comments
Sign in to our portal to leave a comment. Comments are reviewed before they appear.
Sign in to comment