Idaho real estate glossary

What is the 70% Rule in Real Estate House Flipping?

The 70% rule is a widely used benchmark in real estate investing that helps house flippers determine the Maximum Allowable Offer (MAO) for a distressed or fixer-upper property. The rule dictates that an investor should pay no more than 70% of the property's After Repair Value (ARV), minus the estimated repair costs.

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

The short answer

The 70% rule in house flipping is a quick screening formula used by real estate investors to calculate the Maximum Allowable Offer (MAO) on a property requiring renovation. Under this guideline, an investor pays no more than 70% of the home's anticipated After Repair Value (ARV) after subtracting estimated renovation costs, leaving a 30% margin to cover holding costs, financing fees, transaction expenses, and profit.

Key facts

Formula
Maximum Allowable Offer (MAO) = (After Repair Value × 0.70) - Estimated Repair Costs
30% Margin Allocation
The remaining 30% buffer absorbs closing costs, financing interest/points, property taxes, utilities, insurance, real estate agent commissions, and net profit.
Standard Example
For a home with a $300,000 ARV needing $40,000 in repairs, the maximum offer is ($300,000 × 0.70) - $40,000 = $170,000.

How the 70% Rule Formula Works

The 70% rule provides a fast baseline evaluation when screening prospective fix-and-flip deals. By applying a 30% deduction to the project's projected end value (ARV) and subtracting construction costs, investors establish a firm price ceiling before making an offer.

  • Step 1: Estimate the After Repair Value (ARV) based on recent sales of comparable renovated properties in the market.
  • Step 2: Multiply the ARV by 70% (0.70).
  • Step 3: Subtract estimated contractor costs and material expenses to determine the Maximum Allowable Offer (MAO).

What the 30% Margin Covers

A common misconception among beginner investors is that the 30% margin represents pure profit. In practice, transaction fees and carrying expenses consume a significant portion of this reserve during the purchase, renovation, and resale phases.

  • Acquisition and resale closing fees (title, escrow, transfer taxes).
  • Financing costs, including hard money loan origination points and interest rates.
  • Holding costs such as property taxes, home insurance, and monthly utilities.
  • Real estate agent listing and buyer-side commission fees upon resale.
  • Investor profit margin and unexpected renovation cost overruns.

Market Adjustments and Limitations

While useful for initial screening, the 70% rule is a rough rule of thumb rather than a complete financial analysis. In tight markets with limited housing inventory, low profit margins or high acquisition prices often lead flippers to adjust their target percentage to 75% or 80%. Conversely, on heavy structural rehabilitations or lower-priced homes, investors may lower the ratio to 60-65% to protect against higher relative risk.

  • Does not replace a line-item budget that factors in specific loan terms, holding schedules, or local tax rates.
  • Highly dependent on accurate estimates for both contractor labor and local resale comparables.
  • Requires adjustment in high-priced luxury markets or highly competitive submarkets.

Common questions

What is After Repair Value (ARV)?

After Repair Value (ARV) is the estimated fair market value of a property after all planned renovations, repairs, and cosmetic upgrades are fully completed.

Does the 70% rule include closing costs and interest?

No. The formula itself only subtracts repair costs from 70% of the ARV. Closing costs, loan interest, property taxes, and selling fees are meant to be absorbed by the remaining 30% margin.

When should an investor adjust the 70% percentage?

Investors often increase the percentage to 75%-80% in low-inventory, high-demand markets or on light cosmetic flips. They decrease it to 60%-65% on heavy structural renovations or low-value properties where unforeseen costs carry higher proportional risk.

Related Idaho questions

  • What is After Repair Value (ARV) and how is it calculated?
  • What is Maximum Allowable Offer (MAO) in real estate wholesaling?
  • How do holding costs impact a house flip's net return on investment?

Sources and verification