Idaho real estate glossary

70% Rule in Real Estate Investing

The 70% rule is a quick deal-screening benchmark used by real estate flippers and wholesalers to estimate the Maximum Allowable Offer (MAO) for a property. Under this rule, an investor offers no more than 70% of a home's projected After-Repair Value (ARV) minus estimated renovation costs.

Updated with grounded research as of 2026-07-24.

The short answer

The 70% rule in real estate investing is a rapid evaluation tool used by house flippers and wholesalers to calculate the Maximum Allowable Offer (MAO) for a distressed property. The standard formula—MAO = (ARV × 0.70) − Estimated Repair Costs—ensures an investor holds back a 30% margin. This 30% buffer is designed to cover acquisition expenses, financing fees, holding costs (such as property taxes, insurance, and interest), selling commissions, and the investor's targeted profit.

Key facts

Core MAO Formula
Maximum Allowable Offer (MAO) = (After-Repair Value × 0.70) − Estimated Renovation Budget.
Purpose of the 30% Margin
The 30% discount accounts for loan interest, closing fees, holding expenses, realtor commissions, and investor profit margin.
Calculation Example
For a home with an ARV of $300,000 needing $50,000 in repairs: $300,000 × 0.70 = $210,000; minus $50,000 yields an MAO of $160,000.

How the 70% Formula Works Step-by-Step

To apply the 70% rule, real estate investors complete three core steps to calculate their purchase ceiling, known as the Maximum Allowable Offer (MAO):

1. Determine the After-Repair Value (ARV): Estimate the home's potential sale price once fully renovated, based on recent sales of comparable properties (comps) in the immediate neighborhood.

2. Apply the 70% Multiplier: Multiply the estimated ARV by 0.70. This automatically sets aside a 30% margin for project overhead and target profit.

3. Subtract Estimated Repairs: Deduct the full contractor scope-of-work estimate from the result to determine the highest offer price.

What the 30% Margin Covers

Beginner investors often mistake the 30% discount for pure profit, but it actually covers all non-renovation expenses incurred during purchase, hold, and resale.

  • Acquisition & Closing Costs: Lender points, title policy fees, escrow charges, and inspection costs.
  • Holding Expenses: Monthly debt service (interest), property taxes, hazard insurance, and utilities during the build out.
  • Disposition Costs: Real estate agent listing commissions (typically 5% to 6%) and buyer closing concessions.
  • Net Profit Margin: The net return earned by the investor after every fixed and variable expense is paid.

Applying the Rule in Idaho Markets

In competitive Idaho real estate markets, strictly adhering to a 70% rule can make winning offers difficult on public MLS listings.

In high-demand submarkets like Ada County, Idaho, where the median home sales price was reported at $525,000 as of December 2025, investors frequently adjust their threshold to 75% or 80% for minor cosmetic projects. Conversely, for heavy structural rehabs or in lower-priced markets like Canyon County, Idaho, where the median home price was reported at $435,000 as of December 2025, maintaining a conservative 65% to 70% margin remains essential to manage labor, material, and holding cost risks.

Common questions

What is After-Repair Value (ARV) and why is it critical?

After-Repair Value (ARV) is the estimated market value of a property after all planned renovations are completed. It is critical because overestimating ARV inflates the Maximum Allowable Offer, directly shrinking or eliminating the project's profit margin.

When should an investor adjust or bypass the 70% rule?

Investors often adjust the percentage to 75% or 80% in high-demand markets with low inventory, or for light cosmetic renovations requiring fast turnarounds. Conversely, investors lower the ratio to 60% or 65% for major structural work, high interest rates, or long holding periods.

Does the 70% rule apply to long-term rental property investing?

While the 70% rule can screen distressed rental purchases (to ensure instant equity upon refinance), long-term buy-and-hold landlords typically rely more on cash-flow metrics like the 1% rule, cap rate, and cash-on-cash return.

Related Idaho questions

  • What is After-Repair Value (ARV) and how is it calculated?
  • How does the 70% rule differ between house flipping and long-term rental investing?
  • What extra holding and closing costs should flippers account for beyond repair budgets?

Sources and verification