The 70% rule is the best-known screening heuristic in house flipping, and like all heuristics it encodes a set of assumptions that were true somewhere, once. It is genuinely useful for rejecting deals quickly. It is not a substitute for knowing your own costs, and in several common situations it is materially too loose.
The arithmetic
Maximum Offer = (ARV × 0.70) − Rehab Cost. A property with a $400,000 ARV needing $60,000 of work: $400,000 × 0.70 = $280,000, minus $60,000, giving a maximum offer of $220,000. Everything turns on the ARV and the rehab estimate, and both are estimates rather than facts.
What the 30% is supposed to cover
Not profit alone. The 30% haircut absorbs purchase closing costs, financing costs on the acquisition and rehab, holding costs across the project (taxes, insurance, utilities, loan interest), selling costs including agent commission and transfer taxes, a contingency for the overrun that almost always happens, and only then the profit. On a $400,000 ARV, 30% is $120,000 — which stops sounding generous once six months of hard money interest and 6% in selling costs come out of it.
Where the rule is too loose
High transfer tax jurisdictions, where the state takes 1–2% at sale. Slow markets where the hold is nine months rather than four and holding costs double. Expensive money — a hard money loan at 12% with three points is a different cost structure from the environment the rule was coined in. High-price properties, where 30% of a $900,000 ARV is far more cushion than the deal needs, and low-price ones, where 30% of $120,000 does not cover fixed costs at all. Experienced flippers in tight markets frequently use 65%, or abandon the rule and model the actual cash flows.
Why it persists anyway
Because it is fast and it is directionally right. Screening twenty listings properly takes a day; screening them with the 70% rule takes twenty minutes and eliminates the fifteen that were never going to work. The correct use is as a filter at the top of the funnel, followed by a real underwrite — line-item rehab budget, actual financing quotes, realistic hold period, actual selling costs — on the few that survive.
The rule does not apply to rentals
It is a resale metric. If you are buying to hold, the constraint is whether the property covers its payment and whether you can recover your capital at refinance — that is DSCR and ARV against a cash-out refinance, not a flip margin. A BRRRR investor applying the 70% rule will reject perfectly good rental acquisitions, because a property that cash-flows at 80% of ARV can be an excellent long-term hold and a poor flip at the same time.
The 70% Rule FAQ
As a screening filter, yes. As an underwriting standard it depends on your financing cost, hold period, market and price point — all of which have moved since the rule became popular.
75% leaves less cushion and suits experienced operators with cheap capital, fast crews and reliable comps. 65% is safer in slow or high-cost markets. The percentage should reflect your actual cost structure.
It is meant to, along with financing, holding and selling costs plus profit. That is why the haircut is as large as it is.
Walk the property with a contractor and price it line by line. Per-square-foot rules of thumb are fine for screening and unreliable for committing.
Not really. Rental acquisitions are constrained by rent coverage and refinance value rather than by flip margin, so the rule rejects deals that would perform well as holds.
That is information. It usually means the market is priced for appreciation rather than flip margin, and the answer is a different strategy — or a different market — rather than a looser percentage.