If you spend any time around house flippers, you will hear the 70% rule within the first five minutes. A flipper looks at a listing, does some quick math out loud, and tells you whether the deal is "in the box" or not. That quick math is almost always some version of the 70% rule.
For an agent, the rule is worth understanding for two reasons. First, it helps you screen deals before you send them, so you stop wasting your investor clients' time. Second, it shows you how flippers think about price, which makes your conversations with them faster and more credible.
The catch is that the 70% rule is a shortcut. It works well as a first filter and poorly as a final offer. Agents who know the difference earn trust. Agents who treat it as gospel end up sending deals that fall apart once the real numbers come in.
This is education, not financial, legal, or tax advice. Every flipper has their own criteria, and your client's numbers are always the ones that matter.
What the 70% Rule Says
The 70% rule is a rule of thumb for the most a flipper should pay for a property they plan to renovate and resell:
Maximum offer ≈ (ARV × 0.70) − estimated repairs
There are only two inputs:
- ARV (after-repair value): what the home should sell for once the renovation is done, based on recent sales of comparable renovated homes. If you need a refresher on doing this well, see how to calculate ARV the way flippers expect.
- Estimated repairs: the full renovation budget, ideally with a contingency built in. Our guide on how agents can estimate rehab costs without being contractors walks through a practical approach.
Put another way, the purchase price plus the repairs should add up to no more than about 70% of what the finished house will sell for.
A Quick Example (Illustrative Math Only)
Say a house should sell for $300,000 after renovation and needs an estimated $45,000 of work. These numbers are made up to show the mechanics, not drawn from any real deal or market.
- 70% of $300,000 is $210,000.
- $210,000 minus $45,000 is $165,000.
Under the 70% rule, the flipper's rough ceiling is about $165,000. If the seller wants $185,000, the deal is outside the rule, and you already know the conversation will be about price, terms, or walking away.
That is the appeal: in under a minute, the rule tells you whether a deal deserves a deeper look.
What the Other 30% Is Actually Covering
The most common misunderstanding, from new flippers and agents alike, is assuming the 30% is profit. It is not. That 30% of ARV has to pay for a long list of costs that the formula never names:
- Buying costs: closing costs on the purchase, and often lender points and fees.
- Holding costs: loan interest, property taxes, insurance, utilities, and any other carrying costs for every month the flipper owns the property.
- Selling costs: agent commissions, seller closing costs, and any concessions to the buyer.
- Financing costs: if the flipper uses a lender, the cost of that money. Our guide to hard money loans for real estate agents explains why this can move the numbers quickly.
- Profit: whatever is left after all of the above.
When you explain this to a seller or a newer investor, it changes the tone of the conversation. A price at 70% of ARV minus repairs can sound like a lowball. Once you show that the gap has to cover months of carrying costs, two sets of closing costs, and the resale commission before the flipper earns anything, the number makes more sense.
Why Flippers Adjust the Percentage
The 70% figure is a starting point, not a law. Experienced flippers move it up or down depending on the deal. You will hear people talk about a "65% deal" or a "75% deal," and the reasoning usually comes down to risk and time.
When flippers go lower than 70%
- Lower-priced homes. Many costs, like closing fees and some fixed rehab expenses, do not shrink in proportion to the sale price. On a cheaper house, they eat a bigger share of the margin.
- Heavy rehabs. Full guts, structural work, roofs, and major systems carry more unknowns. More risk usually means a lower percentage.
- Slow resale markets. If finished homes sit longer, every extra month adds holding costs.
- Newer flippers. People without a track record often need more room for mistakes, and their financing may cost more.
When flippers go higher than 70%
- Light cosmetic work with predictable costs, like paint, flooring, and fixtures.
- Fast markets where renovated homes sell quickly, which cuts holding time.
- Higher price points, where fixed costs are a smaller share of the sale price.
- Cash buyers who avoid lender fees and interest.
The right percentage for your client is the one they tell you. That is exactly why it belongs in their buy box. If you have not asked yet, our guide on what a buy box is covers the questions to start with.
Where the 70% Rule Fails
The rule breaks down in predictable ways. Knowing them is what separates an agent who understands flips from one who just repeats the formula.
1. A bad ARV breaks everything
The formula multiplies ARV first, so any error there gets carried straight into the offer. If the ARV is based on list prices, unrenovated comps, or the nicest sale in a different neighborhood, the rule will produce a ceiling that is too high. The flipper finds out at resale, when it is too late.
2. A one-number rehab guess
"About forty grand" is not a rehab budget. If the estimate misses a roof, a sewer line, or an electrical upgrade, the rule's output is wrong by the full amount of the miss. A rough category-by-category estimate with a contingency is far more reliable than a single round number.
3. It ignores time
The rule assumes a "typical" flip. A project that takes twice as long as planned carries twice the holding costs, but the formula gives the same answer either way. That is why permits, contractor availability, and resale market speed matter so much.
4. It ignores the exit
The 70% rule is built for buy, renovate, and resell. If your client plans to keep the property as a rental or refinance it, the math is different. Rental buyers usually care more about rents, expenses, and refinance value than a resale percentage.
5. It hides financing differences
Two flippers looking at the same house can reach different conclusions because one is paying cash and the other is paying lender points and interest. The rule treats them the same.
The 70% Rule vs. a Full Maximum Allowable Offer
The 70% rule is a screen. A full maximum allowable offer (MAO) is the analysis. MAO starts from ARV and subtracts each cost line by line: selling costs, rehab and contingency, holding costs, financing and purchase costs, and the flipper's target profit.
A good workflow for agents looks like this:
- Use the 70% rule to decide whether a lead is worth more time.
- If it passes, or is close, build a full MAO with your client's real numbers.
- Present the full math, not just the shortcut, when you recommend an offer.
We cover the full formula and how to present it in maximum allowable offer explained for real estate agents.
How Agents Should Use the 70% Rule in Practice
Screen before you send
Before you forward a listing or an off-market lead to a flipper, run the quick math. If the asking price is far above the rule's ceiling and there is no obvious reason the seller would move, think twice about sending it. Flippers notice which agents send deals that fit and which ones send everything. If you are building a pipeline of off-market deals for flipper clients, this screen helps you prioritize.
Show your inputs
When you share a deal, include the ARV comps you used and how you estimated repairs. A flipper can disagree with your inputs and still trust you, because they can see your reasoning. A bare "it's a 70% deal" invites skepticism.
Ask each client how they use it
Some flippers rely on the rule heavily; others run a full spreadsheet on every lead. Ask what percentage they use, what makes them go higher or lower, whether they pay cash or use a lender, and whether they want you to screen with it at all.
Say no early when the numbers do not work
If a deal is far outside the rule and the full numbers confirm it, tell your client plainly. Our guide on how to tell a flipper the deal doesn't work covers how to do that without hurting the relationship.
Explain it to sellers with care
When you present an investor offer to a seller, explain where the price comes from in plain language: the renovation, the months of carrying costs, the resale costs, and the buyer's risk. Sellers do not have to like the number, but they should understand it.
FAQ
What is the 70% rule in house flipping?
It is a rule of thumb that says a flipper should pay no more than about 70% of the after-repair value, minus the estimated cost of repairs. It is meant as a quick first screen, not a final offer.
Is the 30% in the 70% rule all profit?
No. The remaining 30% of ARV has to cover buying costs, holding costs, financing costs, and selling costs before any profit is left. That is why the rule can look conservative but still be tight on some deals.
Do all flippers use 70%?
No. Many adjust the percentage based on price point, rehab scope, market speed, financing, and their own experience. Some do not use the rule at all and run a full analysis instead. Ask each client.
Should agents use the 70% rule to set offer prices?
Use it to screen deals and to understand how flippers think. When it is time to recommend an offer, use your client's full numbers through a maximum allowable offer analysis, and follow your client's instructions on price.
Does the 70% rule work for rentals or BRRRR deals?
Not well. The rule is built for buying, renovating, and reselling. If the plan is to rent or refinance, rents, expenses, and refinance value usually matter more than a resale percentage.
Soft next step
Flip Engineers helps agents become the go-to agent for flippers and developers in their market, and a big part of that is speaking the deal math flippers use every day. If you want help building that skill set and the systems around it, book a call.