Glossary

What is the 70% Rule in Real Estate?

The 70% rule is a quick formula used by fix-and-flip investors and wholesalers to determine the maximum price they should pay for a property. The rule states: don't pay more than 70% of the property's After Repair Value (ARV) minus estimated repair costs.

The 70% Rule Formula

Max Offer = (ARV × 0.70) − Estimated Repairs

Example: ARV $300k, Repairs $40k → Max offer = ($300k × 0.70) − $40k = $170k

Why 70%?

The remaining 30% covers all transaction costs, holding costs, and profit margin. Breaking it down: ~6–8% selling costs, ~2–4% purchase closing costs, ~2–6% holding costs, ~5–10% profit. The 30% buffer creates enough margin that cost overruns don't kill the deal.

Adjustments to the 70% Rule

Use 65% in slow markets or on large rehabs. Use 75–80% on light cosmetic deals with predictable scopes. The 70% number is a starting heuristic — skilled investors adjust based on local market conditions and their specific cost structure.

Frequently Asked Questions

Does the 70% rule apply to rentals?
Not directly. Rentals are evaluated on cash flow and cap rate. The 70% rule is specifically for fix-and-flip and wholesale deals.
Is the 70% rule always right?
It's a screening tool, not a guarantee. High-cost markets with thin margins may require 65%; low-cost markets with cheap labor may allow 75%. Verify with local comps and actual contractor bids.
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