The 70% Rule in Real Estate, Explained
The 70% rule says a real estate investor should pay no more than 70% of a property's After Repair Value (ARV), minus repair costs. If a house will be worth $300,000 fixed up and needs $40,000 of work, the rule caps your purchase price at $300,000 x 0.70 - $40,000 = $170,000. The other 30% of ARV is not arbitrary. It is the cushion that covers the buyer's transaction costs, holding costs, selling costs, and profit. Pay more than the rule allows and that cushion is what disappears.
That is the whole rule. The rest of this article covers where it comes from, why the number is 30% and not something else, how to run it when all you know is the property's condition, when 70% is the wrong percentage, and where the rule stops being useful.
If you want to skip the theory and just run a number, the free MAO calculator does the math for you.
What the 70% Rule Actually Calculates
The 70% rule is a fast way to find your Maximum Allowable Offer (MAO): the most you can pay for a property and still leave enough margin for everyone in the deal to make money.
The standard form:
Maximum offer = (ARV x 70%) - Repair Costs
Wholesalers add one more subtraction, because their fee has to come out of the same margin:
MAO = (ARV x 70%) - Repair Costs - Assignment Fee
Two definitions matter here:
ARV (After Repair Value) is what the property will sell for once fully renovated, based on comparable sales of similar renovated homes nearby. It is a forecast, not the current value.
Repair costs are the full budget to get the property to that renovated condition, not just the obvious cosmetics.
Notice what the rule is doing: it starts from the finished value of the property and works backward to today's price. That direction matters. Investors who start from the asking price and negotiate down are anchored to a number the seller picked. Investors who start from ARV and subtract are anchored to what the deal can actually support.
Where the 70% Rule Comes From
The rule was not handed down by an economist. It grew out of two overlapping conventions in the fix-and-flip world.
Hard money lending. Private and hard money lenders who finance flips have long capped loans at roughly 65-70% of a property's after-repair value. At that level, if the borrower defaults mid-project, the lender can take the property back, finish or liquidate it, and still recover the loan. A purchase price at or below 70% of ARV minus repairs is, in effect, a price a lender would underwrite.
Flipper survival math. Independently, experienced flippers noticed that deals bought above that line kept losing money once every real cost was tallied, and deals bought below it kept working even when something went wrong. The 70% figure stuck because it repeatedly matched the actual, all-in cost of flipping a house plus a margin worth the risk.
So the rule is best understood as compressed experience: a one-line stand-in for a full flip budget. Which raises the obvious question. What exactly is in that 30%?
The Margin Math: Why 30% and Not 20%?
Take the buyer's side of a typical flip and add up everything that comes out of the sale price besides the purchase and the rehab. These are typical ranges, expressed as a percentage of ARV:
Buying costs (closing costs, lender points and fees, inspections, insurance at purchase): 2-3% of ARV
Holding costs (loan interest, property taxes, insurance, utilities over a 4-6 month project): 3-5% of ARV
Selling costs (agent commissions, seller-side closing costs, buyer concessions): 7-9% of ARV
Profit margin (the reason the buyer does the deal at all): 10-15% of ARV
Stack those and you land almost exactly on 30% of ARV. That is the entire logic of the rule: 70% is what remains after the deal pays for itself and pays the person doing the work.
Two things follow from seeing the math laid out:
The 30% is mostly costs, not profit. Roughly half of the cushion is consumed by transaction and carrying costs before the buyer earns anything. An offer at 80% of ARV does not mean the buyer makes 10% less profit. It can mean the buyer makes nothing.
The percentage is a function of those cost assumptions. Change the assumptions (faster resale, cheaper money, thinner acceptable profit) and the right percentage changes with them. That is why the market adjustments later in this article are principled, not arbitrary.
A Worked Example
A $300,000 ARV property needing a medium rehab (kitchen, bath, systems, estimated at 12% of ARV, or $36,000), wholesaled with a $15,000 assignment fee:
Step 1: Take 70% of ARV.
$300,000 x 0.70 = $210,000
Step 2: Subtract repairs.
$210,000 - $36,000 = $174,000
Step 3: Subtract the assignment fee.
$174,000 - $15,000 = $159,000 MAO
Now check it from the end buyer's side. They pay $159,000 plus the $15,000 fee, so $174,000 all-in, spend $36,000 on the rehab, and sell at $300,000. That leaves $90,000, exactly 30% of ARV, to absorb buying costs (about $7,500), holding costs (about $12,000), and selling costs (about $24,000), and still clear roughly $46,000 of profit. Every party's math works, which is precisely what the rule is for.
Now run the same deal at a contract price of $210,000, which is "just 70% of ARV, ignoring repairs," the most common misreading of the rule. The end buyer is all in at $261,000 on a house that sells for $300,000. After transaction and holding costs, there is nothing left, and that is before a single surprise. The subtraction of repairs is not optional.
Running the Rule When You Only Know the Condition
The formula needs a repair number, and early on that is the number you least trust. A practical shortcut: estimate repairs as a percentage of ARV based on the property's overall condition.
Light rehab (paint, carpet, cosmetics): 5% of ARV
Medium rehab (kitchen, bath, systems): 12% of ARV
Heavy rehab (full gut renovation): 20% of ARV
On a $300,000 ARV house, that is $15,000, $36,000, and $60,000. Close enough to reality to decide whether a deal is worth pursuing, which is all a screening formula needs to do. The free MAO calculator applies these tiers for you: pick the condition and it sets the repair estimate.
One more discipline worth adopting: treat the output as an offer range, not a single number. A percentage-based estimate carries real uncertainty, and pretending the answer is exact to the dollar hides that. Take the calculated MAO and work plus or minus 5% around it. On the $159,000 example above, that is roughly $151,100 to $167,000. The low end is where you open. The high end is where you walk.
When 70% Is the Wrong Number
The 70% rule is a baseline, not a law. The percentage should move when the cost assumptions behind it move. This is what the investor percentage setting in the calculator is for: once you know which of these situations you are in, you run the deal at that percentage instead of the default 70%.
Hot metro markets: 75-80%
Properties resell fast, which lowers holding costs, competition is heavy, and end buyers accept thinner margins. A strict 70% offer never gets accepted, and it rarely needs to be that conservative.
Typical markets: 70%
The standard cost stack above applies. This is the default for a reason.
Slow or rural markets: 65% or lower
Longer days on market inflate holding costs, resale prices are less certain, and exit buyers are fewer. The cushion has to be bigger because more can go wrong for longer.
Higher-priced properties: 75% or more
The 30% cushion scales with price, but many of the costs inside it do not scale the same way. A flat 70% on a $900,000 house leaves an implausibly large margin, and loses every offer.
Low-priced properties: 60-65%
The inverse problem. 30% of an $80,000 ARV is $24,000, which barely covers commissions, closing, and holding, let alone profit. Cheap houses need a proportionally bigger cushion.
The pattern across all five is the same: the percentage is standing in for a cost structure. When the costs are proportionally smaller (fast resale, big price tag), the percentage rises. When they are proportionally larger (slow market, cheap house), it falls.
The Limits of the 70% Rule
Used honestly, the rule is a screen: a way to sort a stack of leads into "worth pursuing" and "not at that price" in under a minute. Its known failure modes are worth naming plainly.
It is only as good as your ARV. The formula multiplies ARV first, so any error there flows straight through at full size. Overestimate ARV by $30,000 and your "safe" maximum offer is $21,000 too high, with the discipline of the formula giving that wrong number an unearned air of precision. Bad comps, wishful comps, or one inflated comparable sale will quietly break the rule while it appears to be working.
Repair estimates carry the same risk. A condition-based percentage is a screening estimate. Foundation issues, a roof replacement, or code surprises can push a "medium" rehab past a "heavy" budget, and no percentage rule sees that coming from the street.
A flat percentage ignores your specific market. As the adjustments above show, the honest percentage ranges from about 60 to 80 depending on market speed and price point. Most people using "the 70% rule" are applying one national average to a local question.
It assumes a flip exit. The entire 30% cushion is built from flip costs: commissions, resale closing costs, flip profit. If the realistic end buyer is a landlord running rental numbers, the deal supports a different, often higher, maximum offer, and the 70% rule will tell you to walk away from deals a buy-and-hold analysis would take.
It screens deals, it does not underwrite them. Passing the 70% rule means a deal is worth real due diligence: pulling actual comps, walking the property, getting contractor eyes on the rehab. It is the beginning of the analysis, not the conclusion.
None of these are reasons to discard the rule. They are reasons to use it for what it is: a disciplined first filter that keeps emotion out of the initial offer. The failure mode is not using the 70% rule. It is stopping there.
That gap is what the full MyMAO product exists to close. It takes an address instead of an ARV, pulls real comparable sales, cross-checks the ARV against independent valuation data, prices the rehab for the actual property, and can evaluate a rental exit that raises the maximum offer when the income supports it. The free calculator runs the honest version of the rule. The full product replaces the rule's assumptions with data.
Frequently Asked Questions
What is the 70% rule in real estate?
The 70% rule says an investor should pay no more than 70% of a property's After Repair Value (ARV) minus repair costs. On a $300,000 ARV home needing $40,000 in repairs, the maximum purchase price is $300,000 x 0.70 - $40,000 = $170,000. The remaining 30% of ARV covers the buyer's purchase costs, holding costs, selling costs, and profit.
Why 70% and not some other number?
Because the typical costs of flipping a house add up to roughly 30% of ARV: buying costs at 2-3%, holding costs at 3-5%, selling costs at 7-9%, and a worthwhile profit margin at 10-15%. The 70% figure is what remains after the deal pays for itself and compensates the buyer.
Does the 70% rule include repair costs?
Repairs are subtracted after taking 70% of ARV, not included inside the 70%. The formula is (ARV x 70%) - repairs, not ARV x 70% alone. Skipping the repair subtraction is the most common misuse of the rule and erases the buyer's entire margin.
When should I use 65% instead of 70%?
Use 65% or lower in slow or rural markets where properties take longer to sell, and on low-priced properties where 30% of ARV is too few dollars to cover fixed costs like commissions and closing. Both situations need a bigger cushion than the standard rule provides.
When is 75% or 80% acceptable?
In hot metro markets where properties resell quickly and competition compresses margins, experienced investors run 75-80%, and on higher-priced properties sometimes more. Lower holding costs and dollar-large margins justify the thinner percentage. It is an adjustment for market reality, not a loosening of discipline.
Is the 70% rule still accurate?
As a screening tool, yes. The cost structure it summarizes, meaning transaction costs, carrying costs, and profit, still exists in every flip. As a final answer, it never was accurate: it is a rule of thumb built on estimated ARV and estimated repairs. Use it to decide which deals deserve real analysis, then verify the ARV with actual comparable sales before making an offer.
How do wholesalers use the 70% rule?
Wholesalers subtract their assignment fee as a third term: MAO = (ARV x 70%) - repairs - assignment fee. The subtraction keeps the end buyer's margin intact. The buyer's all-in price still lands at the standard 70%-minus-repairs line, which is what makes the contract assignable at all.
Run your next deal through the rule. The free MAO calculator takes your ARV and the property's condition and returns your offer range in seconds. The same disciplined math on every deal, every time.
