Why the 70 percent rule undercounts the real costs
The 70 percent rule — offer no more than 70 percent of ARV minus repair costs — works as a quick napkin check. It assumes the missing 30 percent covers the buyer's profit margin, closing costs, holding costs, and commissions. In markets and timelines where those are well-behaved, that's roughly true. In markets where any of those drift, the 70 percent rule overestimates the safe offer by 5 to 15 percent.
The line-item version splits the 30 percent so each cost is sized to the specific deal. A two-month flip in a low-tax market with a flat holding cost has different math than a six-month flip in a high-tax market. Same ARV, same repair budget, different MAO by several thousand dollars.
The classic 70 percent rule covers ARV and repairs but leaves out four costs that compress real margin.
The five line items, in order
Start from ARV. Subtract repairs (the rehab estimate, with contingency already added). Subtract holding costs — property taxes, insurance, utilities, and loan interest accrued across the expected hold timeline. Subtract selling costs — agent commission, closing costs, transfer taxes — that come off the back end of the sale. Subtract the buyer's target profit margin. What's left is the wholesale buyer's maximum offer.
For a wholesaler stacking an assignment fee on top, the maximum allowable offer the wholesaler can pay is that number minus the assignment fee. This is where most wholesale deals collapse: the wholesaler picks an assignment fee first and tries to back into a buy price that's higher than any flipper will accept after stacking everything else. The order matters.
- 1. Start with ARV (sale price after rehab, not asking price)
