The 70% Rule for Flipping Houses: How to Calculate Your Maximum Offer

Every successful house flipper has a number — a maximum purchase price above which they will not buy, no matter how good the property looks or how excited they are about the deal. That number keeps you profitable when your gut says to stretch and your emotions say to keep bidding. For most flippers, that number comes from the 70% rule — the most widely used formula in the house flipping business.

The 70% rule is simple, fast, and effective. It gives you a quick maximum allowable offer (MAO) that, if followed with discipline, ensures you have enough margin to cover your holding costs, selling costs, and profit. Ignore it, and you are gambling. Follow it, and you are running a business.

What Is the 70% Rule?

The 70% rule states that you should pay no more than 70% of a property's after-repair value (ARV) minus the estimated rehab costs. The ARV is what the property will be worth after all renovations are complete. The rehab cost is your total estimated renovation budget. The 30% margin that remains is designed to cover your holding costs, selling costs, and profit.

Maximum Offer Price = ARV x 70% - Rehab Costs

The formula works because it builds in a predictable profit margin regardless of the property price point. Whether you are flipping a $150,000 starter home or a $500,000 suburban house, the math scales proportionally. The 30% cushion accounts for the expenses that eat into every flip's profit — and trust us, those expenses are higher than most new flippers expect.

Worked Example: Calculating Your Maximum Offer

Let us walk through a real-world example. You find a distressed three-bedroom, two-bathroom ranch in a neighborhood where renovated homes sell for $250,000. Your contractor estimates the property needs $40,000 in renovation: new kitchen ($15,000), two updated bathrooms ($10,000), flooring throughout ($6,000), paint and fixtures ($4,000), and HVAC replacement ($5,000).

Applying the 70% rule: $250,000 (ARV) x 70% = $175,000 minus $40,000 (rehab) = $135,000. Your maximum offer is $135,000. If the seller wants $160,000, you walk away. If you can negotiate to $130,000, you have a deal with extra cushion built in.

Let us verify the profit margin. You buy at $135,000 and spend $40,000 on rehab, so you are all in at $175,000. You sell at $250,000. Selling costs at 8% (agent commissions plus closing costs): $20,000. Holding costs over four months (mortgage payments, taxes, insurance, utilities): $5,000. Your profit: $250,000 minus $175,000 minus $20,000 minus $5,000 = $50,000. That is a 28.6% return on your $175,000 investment in four months.

Why 70% and Not 80% or 60%?

The 70% figure exists because decades of house flipping experience have shown that the remaining 30% reliably covers the three categories of costs that come out of every deal. Selling costs typically run 8-10% of the sale price (real estate agent commissions, closing costs, transfer taxes, title insurance). Holding costs add 3-5% (mortgage payments, property taxes, insurance, utilities, and lawn care during renovation and the sales period). That leaves 15-19% for your profit.

Seventy percent is the sweet spot that balances profitability with deal flow. If you use 60%, you will rarely find deals because your offers will be too low. If you use 80%, you will win more deals but your margins will be razor-thin, leaving no room for the inevitable surprises that every flip brings — the hidden water damage, the electrical panel that needs replacing, the two extra months it takes to sell.

What Is Actually in the 30% Margin?

Selling Costs (8-10%)

Real estate agent commissions are typically 5-6% of the sale price (split between buyer's and seller's agents). Closing costs for the seller add another 1-2%, including title insurance, transfer taxes, recording fees, and attorney fees in states that require them. Staging costs, photography, and any buyer concessions (like paying for a home warranty or covering some closing costs) can add another 1%. On a $250,000 sale, total selling costs are typically $20,000 to $25,000.

Holding Costs (3-5%)

Holding costs are the expenses you pay for every day you own the property. Hard money or private money loan payments (often 10-14% interest, interest-only) are the biggest line item. Property taxes are prorated daily. Insurance on a vacant renovation project costs more than standard homeowner's insurance. Utilities (electric, water, gas) must stay on during construction. Lawn care and snow removal keep the property looking maintained. On a $175,000 all-in deal, holding costs of $1,500 to $2,000 per month add up fast if your rehab or sales timeline extends.

Profit (15-19%)

The remaining margin is your profit, and it needs to be meaningful to justify the risk. House flipping carries real risk — market downturns, cost overruns, extended hold times, and unexpected issues are part of the business. A minimum acceptable profit of $25,000 per flip is a reasonable threshold for most investors. Some experienced flippers target $40,000 to $50,000 minimum. If the 70% rule shows a projected profit below your minimum threshold, pass on the deal.

When to Use a Different Percentage

The 70% rule is a guideline, not a law. Market conditions, property price point, and your experience level should all influence whether you adjust the percentage up or down.

Use a lower percentage (60-65%) when the rehab is extensive and risky (structural issues, foundation work, fire damage), when the property is in a slow-moving market where homes sit for months, when you are new and cannot afford a mistake, or when the ARV is uncertain (limited comparable sales, unique property). The extra margin compensates for higher risk and uncertainty.

Use a higher percentage (75-80%) when the property is in a hot market where renovated homes sell within days, when the rehab is cosmetic only (paint, flooring, fixtures), when the ARV is highly certain based on multiple recent comparable sales, or when you are experienced and have reliable contractors who deliver on time and on budget. In these scenarios, the lower risk justifies a thinner margin.

Common 70% Rule Mistakes

The most common mistake is inflating the ARV to make the numbers work. Wishful thinking kills flips. Use the most conservative comparable sales, not the highest. If three comps sold for $240,000, $250,000, and $270,000, use $245,000 as your ARV — not $270,000. The second most common mistake is underestimating rehab costs. Always get a detailed contractor bid before making an offer, and add 10-15% contingency for surprises.

Other mistakes include forgetting to factor in holding costs during the sales period (the property is finished but might take two to three months to sell), ignoring seasonal market patterns (listing in January is different from listing in May), not accounting for financing costs in the rehab budget, and emotional attachment — falling in love with a property and paying more than the formula dictates. The numbers do not care about your feelings. Follow them.

Advanced: Building Your Own Deal Formula

As you gain experience, you should develop your own deal formula that reflects your specific market, cost structure, and profit requirements. Start with the ARV and work backward, accounting for every cost explicitly rather than relying on a single percentage.

Here is how to build your custom formula. Start with ARV (use conservative comps). Subtract selling costs (calculate precisely based on your market — commissions, closing costs, concessions). Subtract holding costs (calculate monthly and multiply by your expected hold time). Subtract your minimum required profit (your personal threshold). Subtract rehab costs (detailed contractor bid plus contingency). What remains is your maximum purchase price.

Custom MAO = ARV - Selling Costs - Holding Costs - Minimum Profit - Rehab Costs

This approach is more work than the 70% rule, but it is more accurate for your specific situation. Use the 70% rule as a quick screening tool when you first see a property, then run your custom formula for a detailed analysis before making an offer. Use our free fix-flip calculator at /calculators/fix-flip to run both analyses in seconds.