The 70% Rule in Real Estate: The Ultimate Guide for Flippers
It is the most famous rule in house flipping, but is it still relevant in 2025? Here is how to use the 70% rule to avoid bad deals and lock in profit.
In the high-stakes world of house flipping, emotion is your enemy and math is your only friend. If you pay too much for a property, no amount of beautiful renovation work, granite countertops, or subway tile will save your profit margin.
New investors often ask: "How much should I offer for this house?"
The answer isn't a guess. It's a formula. Enter the **70% Rule**. It is the most widely recognized "napkin math" formula used by investors to determine the Maximum Allowable Offer (MAO) for a fix-and-flip property.
However, the market has changed. Interest rates are higher, labor costs are up, and inventory is tight. Does the 70% rule still work? In this comprehensive guide, we will break down the formula, when to break the rules, and walk through a real-world case study.
# What You Will Learn
- What is the 70% Rule?
- The MAO Formula Breakdown
- Real World Case Study
- Why the Rule Exists (The Safety Wedge)
- When to BREAK the 70% Rule
- The 'Rural vs. Urban' Adjustments
What is the 70% Rule?
The 70% Rule states that an investor should pay no more than **70% of the After Repair Value (ARV)** of a property, **minus the cost of repairs**.
"You don't make money when you sell. You make money when you buy."
The 30% margin that you are "leaving on the table" isn't just pure profit. It is a safety wedge designed to absorb the inevitable costs of doing business.
Where does the 30% go?
- Buying & Selling Costs (~8-10%)
Agent commissions (5-6%), closing costs, title insurance, and transfer taxes.
- Holding Costs (~4-6%)
Loan interest (hard money is expensive), property taxes, insurance, and utilities during the Reno.
- Contingency
The "Oops" fund. Because you will find mold, termites, or a cracked foundation.
- Your Target Profit (~12-15%)
What is left over is your payday. On a $300k flip, this is ~$40k.
The MAO Formula
The result of this calculation is your **MAO (Maximum Allowable Offer)**. This is your "line in the sand." If a seller wants a penny more, you walk away.
The Golden Formula
Case Study: "The Main Street Bungalow"
Let's verify a real deal to see if it passes the 70% test.
The Deal Details
You find a distressed bungalow. It smells like cats and hasn't been updated since 1974.
- Asking Price:$180,000
- ARV (Comps):$300,000
- Est. Repairs:$40,000
"The agent says $180k is a steal because Zillow says it's worth $210k. Ignore Zillow. Trust your math."
Running the Numbers
Result: The asking price ($180k) is too high. You need to negotiate at least $10k off to be safe.
Calculate Your MAO in Seconds
Don't risk your capital on napkin math. Our advanced Fix & Flip Calculator runs the 70% rule automatically and factors in holding costs.
When to BREAK the 70% Rule
Real estate is local. A rule that works in rural Ohio might make it impossible to buy a house in Los Angeles. Professional investors adjust their percentage based on **market heat** and **price point**.
65% Rule
High Risk / Rural
Use this for rural properties, luxury homes (where holding costs are massive), or unknown markets. If the house might sit on the market for 6 months, you need a bigger cushion.
70-75% Rule
The Standard
The sweet spot for most suburban 3 bed / 2 bath starter homes. It balances safety with competitiveness.
80-82% Rule
Hot Markets / Cosmetic
In A-Class neighborhoods or for "paint & carpet" cosmetic flips, risk is lower. You can pay more because the exit is faster and more guaranteed.
Pro Tips for 2025
Don't fake the ARV
The biggest mistake I see? Investors falling in love with a deal and deciding the ARV is $320k instead of $300k just to make the formula work. The market doesn't care about your feelings.
Repairs always cost more
If your contractor quotes $30k, budget $35k. If you budget $30k, you'll spend $35k. It's a law of renovation physics.
Use it as a negotiation tool
Show the seller your math. "Mr. Seller, I'd love to pay $180k, but here are the comps ($300k) and here are the repairs ($40k). For me to make a modest profit, I can only offer $170k." It moves the conversation from opinion to fact.
Deal Pencils Out?
If your deal fits the 70% rule, we want to fund it. Get up to 90% LTV on purchase and 100% on rehab with our partner lenders.
Disclosure: We may earn a commission from this link. No extra cost to you.
Final Thoughts
The 70% rule isn't perfect, but it is the best shield you have against a bad investment. It forces discipline in a business driven by salesmanship and hype.
Use it to filter 100 deals down to 5. Then, use a detailed calculator to filter those 5 down to the 1 you actually buy.
Related Tools
View allReady to Close Your First Zero-Down Deal?
Get a pre-approval letter for your next project in minutes.