Investors
What is the 70 percent rule in flipping?
By Steve Lockhart
The short answer
The 70 percent rule works like this: estimate what the finished, renovated house will sell for, the after-repair value or ARV, multiply it by 0.70, and subtract your estimated repair costs. The result is your maximum offer price.
Full answer
The 70 percent rule works like this: estimate what the finished, renovated house will sell for, the after-repair value or ARV, multiply it by 0.70, and subtract your estimated repair costs. The result is your maximum offer price. For example, if a renovated home should sell for $400,000 and the repairs are $60,000, the rule says offer no more than 70 percent of $400,000 minus $60,000, which is $280,000 minus... let me write that correctly: $400,000 times 0.70 equals $280,000, minus $60,000 in repairs, leaves a maximum offer of $220,000.
The 30 percent you subtract is meant to cover your profit plus holding costs, financing, selling costs, and the reality that rehabs run over budget. That is why the rule is popular with hard money lenders, who want the deal to have enough room that even a rougher exit still pays them back. It keeps investors from overpaying on the front end, which is where flips are lost.
The honest caveat: the rule is a screen, not a magic number. In markets where prices and rents behave differently, some disciplined investors adjust it, and the quality of your ARV estimate matters more than the ratio. But for a new flipper, the rule's real gift is discipline: it forces you to know the finished value and the true repair costs before you negotiate, and that discipline is what actually protects you, not the arithmetic.
A note from Steve: nothing on this page is investment, legal, or tax advice. Markets move, and every property is different. Run your own numbers on the specific deal, and talk to your CPA and attorney before you commit.
Go a little deeper
Frequently asked
Questions investors often follow up on
Does the 70 percent rule work in Las Vegas?
It works as a screening discipline everywhere, including Las Vegas, but the ratio is adjustable. What never changes is the logic: the offer has to leave room for profit, financing, holding, selling costs, and overruns. Conservative buyers bend the rule down, not up.
What if no deals fit the 70 percent rule?
Then it is a seller's market for flippers, and the honest move is to wait, widen your search area, or look for value-add properties others overlook. Lowering your standards to buy a marginal deal is how flippers lose money.
Is the ARV or the repair estimate more important?
The ARV, because it is the bigger number and easier to get wrong. An optimistic ARV makes every other number look fine; a realistic one exposes the deal. Verify the finished value with actual sold homes, never with hope.
The Lockhart Method
The Lockhart Method
Your Home | My Strategy | Proven Results
My strategy: we use the rule as the entry screen, then verify the two numbers it depends on with real data, a conservative ARV and a bid-based repair budget. The rule filters the noise, and the verification makes the decision you can defend.
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