Most bad flips and failed BRRRR deals die at the same moment: the purchase. Not the rehab, not the market, not the tenant — the price you agreed to on day one. Every dollar you overpay comes straight out of your profit, and no amount of renovation skill gets it back. The 70% rule exists to make that mistake impossible.
It is a one-line formula that converts a property's after-repair value and rehab budget into a hard ceiling on what you can offer. Investors have used it for decades because it front-loads the margin: if you buy right, an average execution still makes money. If you buy wrong, a perfect execution just breaks even. Here is the formula, where the margin actually goes, and — just as important — the situations where 70% is the wrong number.
the formula, worked
MAO = ARV × 0.70 − rehab. MAO is your maximum allowable offer. ARV is the after-repair value — what the property will sell for once renovated. Rehab is your full renovation budget.
Take a house with a $150,000 ARV that needs $25,000 of work. Seventy percent of $150,000 is $105,000. Subtract the $25,000 rehab and your MAO is $80,000. If the seller wants $95,000, the deal fails — not "negotiate harder," not "maybe the rehab comes in light." It fails. The discipline is the entire point: the number is calculated before emotions enter the room, and you never bid past it. Run your own numbers with the 70% rule calculator — it takes about thirty seconds per property.
Where does the 30% you held back actually go? It is not all profit. On that $150,000 sale: selling costs run roughly 8–10% of ARV — agent commissions, closing costs, seller concessions — call it $12,000–15,000. Holding costs — taxes, insurance, utilities, lawn care over a 4–6 month project — take another few thousand. Financing costs, if you use hard money at double-digit rates plus points, take more. What is left as actual profit is typically 10–15% of ARV, or $15,000–22,500 on this deal. The 70% rule is not a greedy formula; it is roughly the minimum discount that leaves a real profit after real costs.
getting ARV right
The formula is only as good as the ARV you feed it, and ARV is where beginners lie to themselves. The standard for a defensible ARV is sold comps — not active listings, which are just asking prices nobody has agreed to yet.
- Same bed and bath count. A 3/2 comps against 3/2s, not against a 4/3 down the street.
- Within about 20% of the square footage. A 1,100 sqft house does not comp against a 1,700 sqft one.
- Within one mile — closer in dense areas, and never across a school-district or neighborhood boundary that changes values.
- Closed within the last six months. Older sales reflect a different market.
Pull three to five comps that meet those filters, adjust for condition and features — a comp with a renovated kitchen and yours without one are not equals — and take a conservative read of the range. If you find yourself reaching past a mile or past six months to justify a higher number, the market is telling you the ARV you want does not exist.
estimating rehab in buckets
You do not need a contractor's line-item bid to run the 70% rule — you need a walk-through estimate that is honest about scope. Per-square-foot buckets get you close enough to make an offer decision:
- Cosmetic: roughly $15–25/sqft. Paint, flooring, fixtures, landscaping. The bones, roof, and systems are fine.
- Medium: roughly $25–45/sqft. Kitchen and bath renovations, some drywall, maybe a roof or an HVAC unit.
- Gut: $45+/sqft. Down to the studs — plumbing, electrical, layout changes, everything.
A 1,200 sqft house needing a medium rehab pencils at $30,000–54,000 — a wide range, which is why you walk the property and price the big-ticket items (roof, HVAC, foundation, sewer line) individually. Then add a 10–15% contingency on top of whatever number you land on. Not optionally: every rehab uncovers something the walk-through missed, and the contingency is the difference between a surprise and a loss.
when 70% is the wrong number
The rule is a starting point calibrated to a typical mid-price flip. Three situations move the number:
Hot, competitive markets. Where inventory is thin and buyers are plentiful, experienced flippers routinely work at 75–80% of ARV and accept thinner margins in exchange for faster, more certain sales. That is a deliberate trade — make it knowingly or not at all.
Expensive markets. On a $600,000 ARV, fixed costs — permits, utilities, a survey — are proportionally tiny, and even 8% selling costs leave a large absolute profit at 75%. The percentage can flex up because the dollars still work.
Cheap houses. This is the one that catches people. On a $55,000 ARV, 70% is not conservative enough. Closing costs, utilities, insurance, and permit fees do not shrink just because the house is cheap — a $4,000 fixed-cost load is 7% of the whole ARV. Sub-$60k properties often need 60–65% minus rehab before the math leaves anything behind. Run the full profit-and-loss, not just the shortcut.
why BRRRR investors live by it
The 70% rule was born in flipping, but it maps almost perfectly onto the BRRRR strategy — and the reason is the refinance. DSCR and conventional lenders typically refinance at 75% of appraised value. If your purchase plus rehab lands at or under 70% of ARV, the 75% LTV loan pays back your entire all-in cost, sometimes with change. Buy at 70% all-in, refinance at 75%, and your capital comes back out to fund the next deal.
Miss the entry price and the same machine runs in reverse: all-in at 82% of ARV means the refi leaves 7% of the property's value trapped in the deal, and your "repeat" stage stalls. For a rental exit, pair the MAO check with a cash-flow check — the rental property analyzer runs rent, expenses, and debt service on the same property — because a great purchase price on a property that cannot carry its own mortgage is still a bad deal.
The rule's real value is not precision — it is speed and discipline. Thirty seconds of arithmetic tells you whether a listing deserves another hour of your attention, and a pre-committed ceiling keeps you from talking yourself into a bad buy. Calculate the MAO, make the offer, and when the seller says no — walk. The next deal is the one you did not overpay for.