If you've been thinking about buying and selling houses, you've probably heard someone use the term "the 70% rule." It sounds like one of those strict, official rules. No, it's not. It's more like a guardrail that lets you quickly check if a deal could make you money or drain your savings account.
The rule is simple: take the home's value after repairs, multiply it by 0.70, and then take away the estimated cost of repairs. The number you come up with is the highest amount you should offer for the property. That last 30% isn't all profit. It should cover all the other costs that come with flipping a house, such as closing costs, insurance, property taxes while you own the house, and the commission you'll pay a real estate agent when you sell it. Flippers who have been doing it for a while sometimes divide that 30% into 15% for costs and 15% for profit, but the exact split varies from deal to deal.
House flipping can look glamorous on TV. Buy something ugly, fix it up, sell it for a pile of money. But the reality is that your margin for error is razor-thin. ATTOM Data Solutions reports that the typical return on investment for a flipped home has fallen to about 23%, which is the lowest it's been since the last recession. Flipping volume has been sliding too. The number of flipped homes fell to about 72,000 in a recent quarter, the lowest quarterly total in several years. That means the 70% rule matters more now than it did when returns were running above 50%, because there's so much less room to recover if your estimates miss the mark.
The rule has been around for decades. Nobody can pin down exactly who coined it, but it became a standard piece of real estate investor vocabulary because it works as a quick litmus test. It doesn't replace careful deal analysis. It doesn't account for every variable. But it can keep you from chasing a bad deal with your gut instead of your calculator.
What makes the 70% rule especially relevant right now is the gap between what a lot of people think flipping looks like and what the numbers actually show. According to ATTOM's year-end report, the median purchase price that flippers paid for homes recently hit a record high of about $260,000. At the same time, the median sale price of a flipped home sat around $325,000. That's a gross profit of $65,000 before you subtract renovation costs, holding costs, and closing expenses. A decade ago, flippers were routinely seeing returns above 50%. The landscape has changed. You need a formula that keeps your finances grounded, and that's what this rule is for.
The formula itself is simple. It has three moving pieces, and if you can get each one close to accurate, you can decide in about five minutes whether a property deserves a closer look or a hard pass.
Maximum Allowable Offer = (After-Repair Value x 0.70) minus Repair Costs
The Maximum Allowable Offer, sometimes shortened to MAO, is the ceiling price you should pay for the property. Go above it, and you're gambling that everything will break in your favor. That's not a strategy. That's hope. The beauty of this formula is its speed. You can run it on the back of a napkin while you're driving through a neighborhood looking at potential deals. If the numbers don't work at 70%, you move on. No hours of analysis wasted on a property that was never going to pencil out.
ARV is what the house can sell for once you've fixed it up and put it back on the market. You figure this out by looking at comparable sales in the neighborhood. If similar homes in good condition sold for around $300,000, that's a reasonable starting ARV. This is where a lot of new flippers get into trouble, though. They see the nicest house on the block and use that as their comp. Don't do that. Look at the middle of the pack. A good real estate agent who knows the area can help you pull realistic comps from the Multiple Listing Service.
AmeriSave works with buyers at all stages of the homeownership process, and understanding how property values are determined is just as relevant whether you're buying your first home or looking at an investment property. Getting your ARV right is the single most important step in the entire 70% rule calculation.
This is the full cost of everything you need to do to get the house ready for ARV. Roof, plumbing, HVAC, electrical, cosmetic updates, landscaping, and permits. If you're not sure what to do, hire a licensed contractor to walk through the property with you and give you a written estimate. Experienced flippers can usually guess a range, but they are sometimes surprised. Adding 10% to 15% to your best repair estimate is a good idea to cover any unexpected costs. There was water damage behind the drywall, old wiring that didn't meet code, and a crack in the foundation that wasn't visible during the walkthrough. These things happen, and they cost a lot of money.
Say you find a three-bedroom house that needs a full kitchen renovation, new flooring, and some plumbing work. You've done your homework. Comparable homes in good shape in that neighborhood have sold recently for around $280,000. You get two contractor bids, and they come in at $38,000 and $42,000. You go with the higher estimate to be safe.
Here's the math:
ARV: $280,000
$280,000 x 0.70 = $196,000
$196,000 minus $42,000 in repairs = $154,000
So $154,000 is the most you should offer for this property.
Now let's see what happens after the flip. You buy at $154,000, spend $42,000 on repairs, and sell for $280,000. Your gross profit before closing costs and fees is $84,000. But you still have to pay for things like real estate agent commissions (usually around 5% to 6% of the sale price), closing costs on both the purchase and the sale, holding costs while you own the property, and potentially interest on a hard money loan if you borrowed to fund the project. Those expenses can easily run $30,000 to $45,000 on a home at this price point.
After all of that, you might walk away with $39,000 to $54,000 in actual profit. That's a solid return, but it shows why the 30% buffer exists. Without it, unexpected costs can wipe out your profit entirely.
Let's turn the example around. Same house, same $280,000 ARV, and the same $42,000 in repairs. But this time you're excited about the area and offer $185,000 instead of $154,000. You have now put in $227,000. If you sell for $280,000, your gross profit goes down to $53,000. You have $8,000 to $23,000 left after paying the same $30,000 to $45,000 in fees and holding costs. If something goes wrong with the renovation or the sale takes longer than expected, you could lose money or break even. The $31,000 difference in the price of the house is the whole thing.
Think about a property that costs more now. If your home needs $65,000 in repairs and has an ARV of $450,000, your MAO is $250,000. You could make $135,000 in gross profit at that price. You could still make $70,000 to $87,000 in net profit, even after paying closing costs and commissions that could add up to $40,000 to $55,000, plus $8,000 to $10,000 in holding costs. The dollar amounts seem bigger, but so does the amount of risk you're taking. If you guess the ARV wrong by $30,000 on a more expensive home, it will hurt your bottom line a lot more than if you guess wrong on a $280,000 home.
If you're getting a loan from AmeriSave to buy an investment property, their loan team can help you figure out how your borrowing costs fit into these calculations before you make an offer.
ARV is the foundation of the 70% rule. If you get it wrong, everything else falls apart, no matter how carefully you estimated repair costs. There's a reason experienced investors obsess over this number.
Start with recently sold homes in the same neighborhood that are similar in size, age, layout, and condition to what your property will look like after renovations. Most real estate professionals use three to five comps for a reliable analysis. The National Association of REALTORS® recommends that comps come from sales within the past 30 to 90 days, from the same subdivision or a nearby comparable area. If the market is moving fast, lean toward the most recent sales.
Look for properties with similar square footage, the same number of bedrooms and bathrooms, and a comparable lot size. Adjustments are normal. If one comp has a finished basement and your property won't, that's a feature difference you need to account for. A local real estate agent can help you make those adjustments, and most agents are happy to run a comparable market analysis for you at no charge, especially if they think you might list the property with them later.
You can get a professional estimate of the property's current value from an independent appraiser. Some lenders that specialize in renovation loans will even order an appraisal based on the improvements you plan to make. This gives you a sense of what the finished product might be worth in the eyes of a buyer's lender. It costs more, but for someone who is flipping for the first time, it can be worth every penny to get a reality check from someone who isn't emotionally involved in the deal. Remember that appraisers may not agree with your estimates. If the appraised value is lower than your expected ARV, that's a warning sign you should pay attention to. Appraisers use standard forms made by Fannie Mae and Freddie Mac, and they come to the same conclusions based on the same comparable sales data that you should be looking at. Listen to a licensed appraiser if they say the house isn't going to sell for the price you wanted.
This is the part nobody likes hearing. Overestimating ARV is the fastest way to lose money on a flip. I've seen colleagues on the lending side watch deals fall apart because the investor assumed their renovation would push a home into a price bracket the neighborhood couldn't support. If the best comp in the area sold for $285,000, your freshly renovated three-bedroom probably isn't going to fetch $340,000. Be honest about what the market will pay. You can't renovate a house into a different neighborhood.
New flippers tend to focus on the purchase price and the renovation budget. Those are the big, visible numbers. But there's a whole layer of costs that can quietly chip away at your margin if you don't account for them from the very start.
Every month you own the property, you're paying for it. Property taxes, homeowners insurance, utilities, and lawn maintenance don't stop just because the house is sitting empty during renovation. ATTOM Data Solutions reports that the average time to flip a house is about 161 days. That's over five months of carrying costs. If you're paying $1,200 a month in holding expenses, that adds up to roughly $6,400 before you even list the property. And that's assuming everything stays on schedule. Permit delays, contractor availability issues, or a slow selling season can easily add another month or two to that timeline.
Not every flipper pays cash upfront. According to ATTOM, about 63% of flipped properties are purchased with all cash, but the rest rely on some form of financing. Hard money loans, which are common in the fix-and-flip world, can carry interest rates well above what you'd see on a traditional mortgage. If you're borrowing at 10% to 12% interest on a $154,000 purchase, that's $1,283 to $1,540 in interest alone every month. Over a five-month renovation and sales timeline, financing costs can easily reach $6,400 to $7,700. Add in origination fees, which can run 1% to 3% of the loan amount, and your financing tab grows fast. This is one area where having a clear picture of your loan options matters. AmeriSave can help you compare different financing paths so you're not guessing at what your money will cost.
There will be closing costs on both the buying and selling sides. You will have to pay for recording fees, title insurance, and transfer taxes. And when you sell, both your listing agent and the buyer's agent will want their share. Most of the time, commissions are between 5% and 6% of the sale price. That's $14,000 to $16,800 in agent commissions on a $280,000 sale. When you add in other closing costs, the total cost of the project is between $18,000 and $22,000.
The 30% buffer in the 70% rule is meant to cover all of this and still leave you with a profit. That's why people who flip houses a lot say you make your money when you buy, not when you sell. If you pay too much for the property, no amount of renovation genius can save you.
There are also costs that don't fit into any of the categories. Depending on the city and the size of the renovation, municipal permit fees can be anywhere from a few hundred to several thousand dollars. If the house needs a survey, it will cost an extra $300 to $800. Pest control, testing the environment, and renting a dumpster to get rid of trash. None of these costs are big enough to scare anyone away on their own, but when you add them all up, they add up quickly. These extra costs can add up to $3,000 to $7,000 on a normal flip. The 70% rule takes these into account with the 30% buffer, but only if you were strict about the price you paid in the first place.
No rule of thumb works perfectly in every situation. The 70% rule is built for a specific type of deal, and you should know when it fits and when it doesn't.
In competitive markets where inventory is tight, finding a property at 70% of ARV minus repairs can feel close to impossible. Sellers in hot neighborhoods know what their homes are worth, and they're not going to accept a steep discount just because your formula says so. Some experienced investors in these areas adjust upward to 75% or even 80% of ARV, but doing that shrinks your margin for error. If renovation costs come in $10,000 higher than expected, or if the house sits on the market an extra two months, you could end up breaking even or losing money. You have to be very honest with yourself about whether a thinner margin is worth the risk. AmeriSave can help you run the financing numbers so you know exactly how much your borrowing costs will be before you decide to stretch your budget.
The rule also doesn't translate well to long-term hold strategies. If you're buying a property to rent it out for years, your return comes from monthly cash flow and long-term appreciation, not a quick resale. The buy-and-hold math is completely different, and the 70% formula wasn't built for it. Some landlords buy properties at 76% to 80% of ARV because their strategy doesn't depend on flipping for a lump-sum profit.
Lower-priced markets present their own challenge. On a home with an ARV of $80,000, the fixed costs of closing, commissions, and insurance take up a larger percentage of the deal. You might need to adjust down to 65% or even 60% to protect your profit on cheaper properties. Higher-priced properties can sometimes tolerate a slightly higher buy-in. On a home with a $600,000 ARV, even paying 75% of ARV still leaves a dollar buffer large enough to absorb surprises. But larger deals carry larger risks, too, so extra cushion is never a bad idea.
The formula gives you a number. Flipping works for you or not, depending on what you do with it.
For every project, get bids from more than one contractor. An estimate is just a guess. Three estimates start to seem real. So that you can compare apples to apples, make sure that each contractor walks through the property with you and does the same amount of work. I talk to coworkers who work with investors all the time, and the ones who always make money on flips are the ones who have built real relationships with trustworthy contractors. It takes time to build that trust, but it always pays off.
Add a line for unexpected costs to your repair budget. Most experienced flippers add 10% to 15% to the cost of repairs. Houses that need work often hide problems behind walls, under floors, and in plumbing lines that looked fine when you walked through them. My kids always seem to find problems in our house that I didn't see coming. The same goes for investment properties. You don't want to find out that your sewer line is falling apart after you've already spent your renovation money on a new kitchen.
If you're trying to decide between different loan options for your project, AmeriSave's educational materials can help you understand how renovation financing works.
Before you buy, get to know the area. Take a drive at different times of the day. Talk to people who live near you. Check out how long homes that are for sale stay on the market. If homes that have been fixed up in the area are taking four or five months to sell, include that time in your cost estimates. If you can't sell a house quickly, it could turn out to be a costly lesson. In Louisville, I've seen neighborhoods go from slow-moving to hot in just a few months, and the opposite happens just as quickly. The market doesn't care when you want to buy.
Don't think of the 70% number as magic. It's a way to check. Use it to quickly get rid of properties that don't work, and then do more research on the ones that do. After the formula says "maybe," that's when the real work starts. A title search, a full inspection, a talk with a local agent about market trends, and an honest look at whether you have the time, money, and skills to finish the renovation on time should all be part of that deeper research.
Keep track of every dollar you make on your first few flips. Write down every cost, even the small ones. The dumpster rental, the permit fees, the extra trip to the hardware store, and the pizza you bought for the crew. When the project is done, look at your actual costs and compare them to your original budget. The difference between what you thought and what actually happened is the best lesson you can learn in this business. It tells you exactly what you got wrong and what you need to do to make the next deal better.
The market can change between the day you buy and the day you list, which can surprise people. If you bought in a strong seller's market and the local market gets weaker while you're fixing it up, your ARV can go down without you doing anything wrong. There is no way to completely protect against that, but the 70% rule gives you a built-in safety net for those kinds of surprises. You still have room if you bought at 70% of ARV and the market goes down 5%. If you bought at 80% and the market drops, the math can get messed up very quickly.
The 70% rule won't make you a successful house flipper by itself, but skipping it can definitely make you an unsuccessful one. Use it as your first filter. Get your ARV from real comps, not wishful thinking. Pad your repair budget. Account for every holding cost and transaction fee before you make an offer. With profit margins tighter than they've been in years, the investors who protect their downside are the ones who keep flipping. If you're thinking about getting into investment property or want help understanding your financing options, AmeriSave can walk you through what's available.
The 70% rule says you shouldn't pay more than 70% of a property's after-repair value (ARV) minus the cost of repairs. If a house's ARV is $250,000 and it needs $30,000 in repairs, the most you should offer is $145,000. The last 30% is for your profit, closing costs, holding costs, and agent commissions. It's a quick way to check, but it's not a sure thing. If you're looking for financing for an investment property, AmeriSave's loan options can help you find the right one for your project.
Not all the time. The rule is best used as a general guide for standard flips in average markets. Some flippers push to 75% or 80% of ARV in neighborhoods where homes sell quickly and are in high demand. This gives them less room for error. You might have to go down to 65% or 60% in markets with lower prices because fixed costs take up more of the deal. ATTOM Data Solutions says that the average gross profit on a flipped home has recently dropped to about $60,000, so it's more important than ever to be accurate with your numbers. Always do research on the local market along with the formula.
To find the ARV, you look at how much similar renovated homes in the same neighborhood have sold for. Get three to five comps from sales that happened in the last 30 to 90 days. Look for homes that are the same size, have the same number of bedrooms, are the same age, and are in the same condition. To find your estimated ARV, add up the sale prices and divide by the number of sales. You can also hire an appraiser who isn't connected to the property or work with a real estate agent who has access to the MLS (Multiple Listing Service). Your 70% rule calculation will be more accurate if your ARV is more accurate.
That 30% is meant to cover all costs other than the price of the house and the cost of renovations. This includes the real estate agent's fee (which is usually 5% to 6% of the sale price), the closing costs for both the buyer and the seller, property taxes, homeowners insurance, utilities during the renovation, loan interest if you're financing the flip, and your profit. These costs can add up to $30,000 to $45,000 on a $280,000 sale. You can use AmeriSave's mortgage tools to learn about the costs of financing that are part of your total budget.
You can, but you need to be disciplined and have experience. ATTOM Data Solutions found that the average return on investment for a flipped home was around 23% recently, down from returns of more than 50% just a few years ago. That tighter margin means there isn't as much room for mistakes. Investors who do well in markets with thin margins usually have good relationships with contractors, know their neighborhood very well, and can give very accurate cost estimates. If your margins are small, it's even more important to get your money in order before you make an offer.
According to ATTOM Data Solutions, the average flip takes about 161 days from when you buy it to when you sell it. That's about five and a half months. The timeline will depend on how big the renovations are, when the contractor is free, what permits are needed, and how fast the local market is moving. You have to pay more for insurance, property taxes, utilities, and loan interest every month you keep the property. Smart flippers plan for at least one to two extra months of holding costs in case something goes wrong. AmeriSave can help you figure out how the time it takes to get a loan might affect your project.
Yes, and beginners should probably follow it more closely than people who have flipped before. The 70% rule protects you from things you don't know yet, like hidden repair costs, slow markets, or the difference between your projected ARV and what a buyer actually pays. Some people who flip houses for the first time use a 65% rule to give themselves more room. Start with safe deals, keep track of all your costs, and get more experience before you change the formula. Before you get started, AmeriSave's educational tools can help you learn the basics of financing.
The worst thing you can do is think that the value after repairs is higher than it is. You might think that your renovated property will sell for the same amount as the most expensive one on the block. But comps should show the market's middle, not the best case scenario. The second most common mistake is not thinking about how much repairs will cost. Problems that aren't obvious during a casual walkthrough can be hidden by walls and floors. Also, the cost of labor and materials can change between when you get a bid and when the work actually starts. Always leave 10% to 15% of your renovation budget as a buffer.
You don't need a real estate license to buy, fix up, and sell houses. You can get access to the MLS if you have a license or work closely with a licensed agent. This makes it easier to find off-market deals and pull comps. When you sell, having a license can also help you save money on commissions. Remember that flipping requires permits, inspections, and local zoning rules that are different in each area. You can focus on the renovation work while AmeriSave's resource center helps you understand the lending side of the process.
The rule was made for investors who buy, fix, and sell houses, but some people use a version of it with the BRRRR strategy, which stands for "Buy, Rehab, Rent, Refinance, Repeat." If your all-in costs (purchase plus repairs) are 70% or less of the ARV, you can refinance and get most or all of your money back. The math is the same, but the goals are different. Flippers want to sell quickly. BRRRR investors want to make money from renting out their properties for a long time. The 70% rule can help you avoid paying too much for a house in either case.
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