What is The 70% Rule?
The 70% rule is a flipper's underwriting heuristic: total all-in cost (purchase + rehab + carry + closing) should not exceed 70% of the property's After Repair Value. The remaining 30% covers profit, slippage, and the cost of being wrong.
The 70% rule isn't a law of physics — it's a buffer. The 30% spread between all-in cost and ARV absorbs rehab overruns (which average 15-25% over budget), ARV slippage if comps soften, longer-than-expected hold periods, agent commissions on the exit, and the flipper's actual profit margin.
When markets are appreciating quickly and rehabs are predictable, operators stretch to 72-75%. When markets are softening or rehabs are deep/uncertain, they tighten to 65-67%. The 70% number is the median operating environment.
The rule fails — silently — when ARV is wrong. Many failed flips have textbook 70% math built on a fantasy ARV. Stress-test ARV at -5% before applying the rule.
ARV $300,000. 70% × $300,000 = $210,000 maximum all-in. Rehab budget $40,000, carry/closing $8,000. MAO purchase price = $210,000 − $48,000 = $162,000.
Concepts that connect.
After Repair Value (ARV) is the projected market value of a property after all planned renovations are complete, based on recently-sold comparable properties in similar condition within a half-mile radius. It is the single most important number in any flip or BRRRR underwrite.
Maximum Allowable Offer (MAO) is the highest price a wholesaler or flipper can pay for a property and still hit their required profit margin. Derived from the 70% rule: MAO = (ARV × 0.70) − repair costs − assignment fee.
Flipping is the strategy of buying a distressed property, renovating it to retail standard, and reselling at full market value within 4-9 months. Profit comes from the spread between all-in cost (purchase + rehab + carry + closing) and net sale proceeds.
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