Short version: the seventy percent rule is the back-of-the-envelope formula flippers use to set a maximum offer on a property. You take the after-repair value, multiply by seventy percent, and subtract your rehab budget. What is left is roughly the most you can pay and still leave room for financing costs and profit. It is not a law and it is not precise, but it is a fast filter that keeps you from overpaying, and once you understand what the thirty percent haircut is actually covering, you can adjust it intelligently instead of following it blindly.
We are a Pittsburgh-based mortgage brokerage, NMLS #1840537, and we finance fix and flip and bridge loans for real estate investors across Pennsylvania and additional states. Investors quote the seventy percent rule constantly, but a lot of them do not know what the thirty percent is for, which means they cannot tell when to bend it. Here is the whole formula, the math behind it, and where it breaks.
The formula, stated plainly
The rule is a single line. Maximum allowable offer equals after-repair value times seventy percent, minus the rehab budget. The after-repair value, or ARV, is what the finished house will sell for, established by comparable sales of similar renovated homes nearby. The rehab budget is your honest all-in cost to get the house to that finished condition. The seventy percent is the multiplier that leaves a cushion. Whatever the formula spits out is your ceiling on the purchase price, the number above which the deal stops making sense.
So if a house will be worth three hundred thousand dollars after repairs and needs fifty thousand dollars of work, the math is three hundred thousand times seventy percent, which is two hundred ten thousand dollars, minus the fifty thousand dollar rehab, which leaves a maximum allowable offer of one hundred sixty thousand dollars. Pay more than that and you are eating into the cushion the rule is designed to protect.
What the thirty percent is really covering
This is the part most investors miss. The thirty percent you subtract from ARV is not your profit. It is profit plus everything else that is not the purchase price or the rehab. Walk through what actually comes out of that gap. You have financing costs, the interest, origination points, and fees on your fix and flip loan. You have holding costs, the taxes, insurance, and utilities you pay every month you own the house. You have buying and selling transaction costs, the title, closing, and agent commissions on both ends. And only after all of that is covered does your profit come out of what remains. The seventy percent rule bundles all of those into one round number so you can screen a deal in ten seconds, but if you do not know what is inside the thirty percent, you cannot tell whether a given deal has a thin cushion or a fat one. Our guide to fix and flip closing costs, the full breakdown itemizes the transaction side, and our guide to interest reserves on fix and flip loans covers the financing carry, so you can see exactly what the thirty percent has to absorb.
A worked example with the full math
Take the deal above all the way through, because the point of the rule is what happens after you buy at the number it gives you. You buy at the maximum allowable offer of one hundred sixty thousand dollars, spend fifty thousand dollars on the rehab, and sell at the after-repair value of three hundred thousand dollars. Your gross spread is ninety thousand dollars. Now subtract what the thirty percent was covering.
Say your fix and flip loan carries the purchase and most of the rehab. Interest and points over a six-month hold run about fourteen thousand dollars. Holding costs, taxes, insurance, and utilities, run about four thousand dollars over those six months. Buying costs are about three thousand dollars. Selling costs, mostly agent commissions and transfer taxes on a three hundred thousand dollar sale, run about eighteen thousand dollars. Add those up and your total non-rehab, non-purchase costs are about thirty-nine thousand dollars. Subtract that from the ninety thousand dollar gross spread and your profit is about fifty-one thousand dollars. That is a real, healthy flip, and it works precisely because you paid at or under the number the seventy percent rule gave you. Pay ten thousand dollars over that offer and your profit drops to about forty-one thousand. Pay thirty thousand over and you are down near twenty-one thousand and taking most of the risk for a slim reward. Run your own version on our deal calculator before you write an offer.
Where the seventy percent rule breaks
The rule is a blunt instrument, and it is wrong in predictable directions. It is too conservative on high-value homes, because the fixed costs inside the thirty percent do not scale up with price. On a six hundred thousand dollar ARV, thirty percent is one hundred eighty thousand dollars of cushion, far more than the actual costs and a reasonable profit require, so a strict seventy percent offer will lose you deals you should win. Experienced flippers often move to seventy-two or seventy-five percent on higher-value properties for exactly this reason.
It is too aggressive on low-value homes, because the fixed costs are a bigger share of a small deal. On a hundred thousand dollar ARV, the same title, closing, and minimum loan interest eat a much larger slice, so seventy percent may not leave enough, and a disciplined flipper tightens to sixty-five percent or lower on cheap houses. The floor on a small loan is a real factor here, which we cover in our guide to how draws and inspections work and which shows up as minimum interest on small balances. And the rule assumes a normal market with a predictable resale, so in a soft or falling market you widen the haircut to protect against a lower final sale price and a longer hold.
ARV is the input that actually decides the deal
Every number in the rule hangs off the after-repair value, and ARV is the one you can fool yourself on. It is not what you hope the house sells for, it is what genuinely comparable renovated homes have actually sold for nearby and recently. Get the ARV wrong on the high side and the entire formula gives you a maximum offer that is too high, and you overpay while believing you followed the rule. This is why lenders order an independent appraisal that establishes the ARV rather than taking your word for it, and why your number and the appraiser’s number need to be close for the loan to work. Discipline on comps is the whole game, and it is worth being harder on your ARV than on any other input.
How financing interacts with the rule
The seventy percent rule assumes you are financing the deal, which is what makes the cushion necessary. A fix and flip loan typically advances a large share of the purchase and funds the rehab through draws, so your actual cash in the deal is far smaller than the purchase price, and the leverage is what makes the profit meaningful on your cash. Understanding your day-one cash requirement, the down payment plus the initial costs the loan does not cover, is the difference between a deal you can actually fund and one that only works on paper, which we lay out in our guide to how much cash you bring day one. And because leverage magnifies the return, the seventy percent rule is really protecting your cash-on-cash outcome, which we cover in our guide to fix and flip cash-on-cash return. If you flip through an LLC, the entity mechanics do not change the formula but they do change how the loan is written, which we cover in our guide to financing flips through your entity.
How to use the rule without being ruled by it
The disciplined approach is to treat the seventy percent rule as a first-pass filter, not a final decision. Use it to screen a hundred listings down to the handful worth analyzing in detail, then run the real numbers, actual financing costs, actual holding period, actual transaction costs, and a conservative ARV, on the survivors. Adjust the multiplier for price tier and market, tighter on cheap houses and soft markets, looser on expensive houses in strong markets. And never let a clean formula talk you out of verifying the ARV with real comps, because that is the input the whole thing rests on. The rule keeps you from overpaying. The detailed math keeps you from mistaking a marginal deal for a good one.
Where FMC fits
Part of our job is pressure-testing a deal before you write the offer, looking at your ARV, your rehab budget, and the real financing and holding costs, and telling you whether the number you are about to pay leaves a cushion or eats it. We finance fix and flip and bridge loans for investors across Pennsylvania and additional states, and we are a Pittsburgh-based brokerage serving that whole footprint. Send us a deal through our contact page or call 412-990-2941, see the terms on our fix and flip and bridge loan product page, and run the numbers on our deal calculator. When you are ready to read the offer the lender puts back, our guide to how to read a fix and flip loan term sheet walks you through every line.
FMC Capital is a Pittsburgh-based mortgage brokerage, NMLS #1840537, serving real estate investors across Pennsylvania and additional states. This article is for educational purposes only and is not a commitment to lend, an offer of credit, or financial advice. Rates, points, loan-to-value and loan-to-cost limits, holding costs, and resale outcomes vary by lender, property, borrower, and market, and are subject to change.