What the 70 percent rule actually calculates
The formula is straightforward: multiply the after-repair value (ARV) by 0.70, then subtract your estimated rehab cost. The result is the maximum allowable offer (MAO) — the highest price at which a deal still leaves enough room for profit, holding costs, and closing fees. Example: a home with a $200,000 ARV and $30,000 in rehab work yields an MAO of $110,000 ($200,000 × 0.70 = $140,000 − $30,000 = $110,000).
The 30% buffer is not arbitrary. It is meant to absorb a fix-and-flip investor's transaction costs (roughly 2–4% each side), holding costs during rehab (financing, insurance, taxes), a wholesale fee if the deal is being assigned, and a profit margin for the end buyer. Stack all of those together and 30% disappears faster than most beginners expect, which is why the rule exists as a floor, not a target.
- ARV must be based on closed comps, not list prices
- Rehab estimate should come from a contractor walk-through or detailed scope, not a per-square-foot guess
- The 30% cushion covers costs on both ends, not just profit
- MAO is a ceiling — negotiating below it increases margin
The 70% rule is a pre-screening filter, not a substitute for a full rehab estimate and verified ARV.
