The 70% Rule in Real Estate Investing, Explained
Updated June 17, 2026
The 70% rule says an investor should pay no more than 70% of a property's after-repair value, minus the cost of repairs. The formula is (ARV × 0.70) − repairs = maximum offer. The 30% spread covers your profit, holding costs, closing costs, and selling fees. It's a fast screening tool for flips, not a precise appraisal — adjust the percentage to your market and strategy.
The 70% rule is the most-quoted heuristic in fix-and-flip investing, and for good reason: it compresses a complicated profit calculation into a single line of arithmetic you can run in your head at a property. (ARV × 0.70) − repairs gives you a maximum offer in seconds.
But a rule that simple hides a lot. The 70% isn't magic — it's a bundle of assumptions about costs, profit, and risk that may or may not match your deal. Understanding what's inside the number is what lets you use it correctly, and break it deliberately when the math says to.
The formula and a worked example
The rule is: maximum offer = (ARV × 0.70) − estimated repairs. Suppose a property's ARV is $300,000 and it needs $50,000 in repairs. Then 70% of ARV is $210,000, minus $50,000 in repairs, gives a maximum offer of $160,000.
That $160,000 is your ceiling, not your target — you'd love to buy lower. The $90,000 gap between the $210,000 (70% of ARV) and the $300,000 ARV is the buffer the rule reserves, and understanding what that buffer pays for is the whole point.
| Line item | Amount | Note |
|---|---|---|
| After-repair value (ARV) | $300,000 | From your comps |
| 70% of ARV | $210,000 | ARV × 0.70 |
| Estimated repairs | $50,000 | Your rehab budget |
| Maximum offer | $160,000 | 70% of ARV minus repairs |
| Reserved buffer | $90,000 | Profit, holding, closing, selling |
The 70% rule worked through, $300K ARV example
What the 30% buffer actually covers
The 30% you're holding back isn't all profit. It absorbs holding costs (loan interest, taxes, insurance, utilities while you renovate and sell), closing costs on both the buy and the sale, agent commissions on the resale, and the inevitable repair overruns. Only what's left after all of that is your actual profit.
This is why the buffer feels large until you flip a house and watch it evaporate. Six months of hard-money interest, a 6% sales commission, a roof that turned out worse than the inspection suggested — the 30% is doing real work. Investors who treat it as pure margin and bid it away learn the buffer's purpose the expensive way.
When to adjust or break the rule
70% is a default, not a law. In hot, low-inventory markets where deals are scarce and resale is fast, experienced investors flex to 75% or even 80% because holding times are short and competition forces it. In slow or declining markets, they tighten to 65% to protect against a falling ARV and longer holds.
Strategy changes the number too. A wholesaler reselling the contract needs room for an assignment fee, so they buy further below the rule. A BRRRR investor cares more about the refinance appraisal and rent than the flip resale, so the 70% rule is only a rough first screen. Know why you're using the percentage you chose.
Frequently asked
What is the 70% rule in real estate?
It's a screening formula: pay no more than 70% of a property's after-repair value minus estimated repairs. Written out, maximum offer = (ARV × 0.70) − repairs. The 30% you hold back covers profit, holding costs, closing costs, and resale commissions on a fix-and-flip.
Why 70% specifically?
The 30% spread is a rough bundle of the costs a flip incurs beyond the purchase and rehab: holding, closing, selling, overruns, and target profit. 70% is a convention that works in average markets. It's a starting default you should adjust to your actual costs and market, not a fixed law.
When should I not use the 70% rule?
It's built for fix-and-flips. For rentals or BRRRR, cash flow and the refinance appraisal matter more than resale, so the rule is only a first screen. In hot markets investors flex to 75–80%; in slow markets they tighten to 65%. Match the percentage to your strategy and conditions.
Does the 70% rule include closing and holding costs?
Yes — that's exactly what the 30% buffer is for. Holding costs, closing costs on both ends, resale commissions, and repair overruns all come out of that spread before your profit. That's why bidding the buffer away to win a deal usually means flipping a house for nearly nothing.
The takeaway
The 70% rule — (ARV × 0.70) − repairs — is a fast ceiling for fix-and-flip offers, and the 30% it reserves pays for holding, closing, selling, overruns, and profit, not pure margin. Treat it as an adjustable default: tighten in slow markets, flex in hot ones, rework it for rentals. Then turn your number into an offer and send it.