The 70% Rule in House Flipping: How It Works and When It Fails

The formula

Maximum purchase price = (ARV × 0.70) − renovation costs. For a house worth $300,000 after repairs that needs $40,000 of work: $300,000 × 0.70 − $40,000 = $170,000. Pay more than that and your margin starts shrinking below what the risks justify.

What the 30% actually covers

The 30% discount is not profit. It has to cover everything between purchase and sale:

• Buying costs — closing, inspection, transfer taxes: typically 2–3%.
• Holding costs — loan interest, property tax, insurance, and utilities for the duration of the project: often 4–6% over six months.
• Selling costs — agent commission and closing: 6–8%.
• Profit — what remains, usually 12–18% of ARV if the estimates held.

A worked example

Buy at $170,000 (following the rule) with a $40,000 rehab on a $300,000 ARV. Add $5,000 buying costs, $12,000 of holding costs over six months, and $21,000 in selling costs (7%). Total costs: $248,000. Sale at ARV leaves a $52,000 pre-tax profit — roughly 17% of ARV and a healthy buffer if the sale price lands 5% under estimate.

Now run the same numbers having paid $200,000 instead: profit drops to $22,000, and a 5% miss on ARV cuts it nearly in half. That sensitivity is why disciplined flippers walk away from deals that fail the rule — the downside grows faster than the upside.

When 70% is the wrong number

In expensive, fast-moving markets, experienced flippers work at 75–85% because dollar margins are large even at thinner percentages, and holding periods are short. In cheap or slow markets, 65% is safer: a $15,000 margin on a $100,000 ARV disappears with one surprise. The rule also assumes you sell — if your exit is a BRRRR-style refinance and hold, the refinance loan-to-value matters more than the 70% threshold.

Treat the rule as a screening tool: it filters out obvious overpayment in seconds. Any deal that passes still deserves the full cost breakdown before you sign.