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The 70 rule in house flipping is the most commonly used rule of thumb for making investment decisions on a flip. The formula is simple: take 70% of a property's after repair value (ARV), then subtract the estimated repair costs. The result is the maximum purchase price you should offer. If you buy at or below that number, you leave room for closing costs, holding costs, profit, and unexpected expenses. Whether you are thinking about your first flip or your fiftieth, this 70 rule house flipping guide explains the formula in detail, walks through worked examples at multiple ARVs, shows when to break the rule, and clarifies how the 70 rule differs from a lender's 75% ARV limit.
What the 70 Rule States and Why It Matters for Flipping Houses
The 70 rule is a percentage based rule of thumb that tells real estate investors the maximum purchase price to pay for a flip property before renovating and reselling it. It is considered the most important guideline in real estate because it accounts for every cost that eats into profit: selling expenses (real estate agent commissions, title insurance), carrying costs (property taxes, insurance, mortgage payments), and a reasonable margin for the investor. Successful flippers apply the 70 rule as a good starting point and then adjust based on local market conditions, their experience, and the type of property they are flipping. Understanding the 70 rule is important for making good choices on any flip, whether you are flipping houses in Houston, Dallas, or any other market in Texas.
The 70 Rule Formula
Maximum Purchase Price = (ARV x 0.70) less Estimated Repair Costs
Three figures drive the calculation. First, determine the home's after repair value (the property's ARV) by pulling comparable sales in the area. Second, get an accurate estimate of all needed repairs from a contractor or from your own scope of work. Third, plug both numbers into the formula and you know the maximum amount you should offer for the property. The 70 rule only works when your ARV estimate is right and your rehab costs are based on real bids, not a guess. Knowing how to calculate each input requires experience and knowledge of the local market.
70 Rule Worked Examples for House Flipping
Example 1: Standard Flip in Houston
A house has an ARV of $300,000. The property needs $50,000 in repairs: roof, updated kitchen, two bathrooms, paint, and flooring.
Maximum Purchase Price = ($300,000 x 0.70) minus $50,000 = $210,000 minus $50,000 = $160,000
Buy the house at $160,000, invest $50,000 in renovations, and sell for $300,000. Gross margin is $90,000. Then take away selling costs on buy and sell side (roughly $18,000), holding expenses over five months (roughly $10,000 in interest and insurance), and agent commissions ($18,000 at 6%). The estimated net profit is about $44,000. That is a good deal with room for unexpected costs. At times, flippers earn even more when repairs come in under budget and the home sells quickly.
Example 2: Light Rehab Flip
A home in San Antonio has a $400,000 ARV but requires only $20,000 in cosmetic repairs: paint, carpet, landscaping, and staging.
Maximum Purchase Price = ($400,000 x 0.70) minus $20,000 = $280,000 minus $20,000 = $260,000
This flip closes faster because less work is needed on the property. The profit potential is strong. Many house flippers choose to pay slightly above the 70 rule on a light rehab because the shorter timeline means lower expenses and fewer things go wrong. In these situations, flexibility in how you apply the rule of thumb makes good sense for investors with experience.
Example 3: Heavy Rehab Flip
A house in Dallas has an ARV of $250,000 but requires $80,000 in major repairs: foundation, plumbing, electrical, HVAC, and a full renovation of the interior.
Maximum Purchase Price = ($250,000 x 0.70) minus $80,000 = $175,000 minus $80,000 = $95,000
Heavy renovating projects carry higher risk. Repair costs increase at times when contractors find a surprise behind walls, and you should expect that to happen at least once. The 70 rule protects the investor from losing money if rehab runs 15% over or the home takes two extra months to sell. In this case, stick to the rule of thumb or go even more conservative. The importance of the 70 rule holds especially true on heavy renovations where the potential for cost overruns is higher. It is worth every bit of caution.
How to Apply the 70 Rule to Any Property
Applying the 70 rule quickly to every property you consider is a vital part of real estate investing. Whether you are looking at a home on MLS, a property from a wholesale deal, or a house listed at a foreclosure auction, run the numbers before making an offer. Here is the process good investors follow to find the right property at the right price:
- Estimate the home's after repair value. Pull three to five comparable home sales within half a mile. Adjust for square footage, lot size, and unique features. A property's ARV should be based on what similar homes actually sold for in recent months, not what people are listing at. Work with a real estate agent or appraiser if you need a second opinion.
- Calculate repair costs. Walk the property with a contractor and bid every needed item line by line. Factor in materials, labor, permits, and a 10% to 15% contingency for unexpected costs. Other costs like dumpster rental, property cleanup, and staging also apply. Never estimate repair costs from photos alone.
- Calculate your offer. Plug the property's value (ARV) and repair costs into the formula. If the maximum allowable offer is below the asking price, you know your offer needs to be lower, or you should move to the next property. A good estimate requires work and attention to detail, but it is the foundation of every profitable flip investment.
Many investors write the 70 rule on paper and calculate it by hand for every property they consider. The math is easy. The hard part is getting accurate estimates of the property's ARV and the needed repair costs. You can also post your deal to an investor community forum or share it with a mentor to get a second look. However you choose to do your due diligence, do not skip this step. Investing in property without running the 70 rule is considered one of the biggest mistakes new house flippers make. The people who consistently flip houses at a profit are the ones who hold to the numbers and avoid emotional offers. Understanding how the 70 rule applies to each type of property, in each location, is considered essential knowledge for continuing to grow your investments over the years. Good investors leave no dollars on the table by making smart choices quickly, whether the property is a $150,000 rental or a $500,000 flip in an area with strong appreciation potential. A property you bankroll without running the figures first to ensure a good return can end up costing pennies on the dollar in profit, or worse: the kind of losses that push people out of the business entirely.
Quick Reference Table: 70 Rule at Multiple ARVs
| ARV | 70% of ARV | Repair Costs | Max Purchase Price | Estimated Profit |
|---|---|---|---|---|
| $200,000 | $140,000 | $30,000 | $110,000 | $25,000 to $35,000 |
| $250,000 | $175,000 | $40,000 | $135,000 | $30,000 to $42,000 |
| $300,000 | $210,000 | $50,000 | $160,000 | $38,000 to $50,000 |
| $400,000 | $280,000 | $60,000 | $220,000 | $48,000 to $65,000 |
| $500,000 | $350,000 | $75,000 | $275,000 | $55,000 to $80,000 |
Estimated profit assumes typical costs, five months of holding, and a standard interest rate. Your figures depend on location, how quickly you turn the property, and how accurately you estimate repairs. Adjusted based on your strategy and financing, the actual profit on each property could increase or decrease. The aim is to pay the right price so you leave enough room to cover expenses and still bring home a good profit. Use our flip calculator to run your own deal numbers.
When to Break the 70 Rule in House Flipping
The 70 rule is a guideline, not a rigid law. It is considered a helpful tool, and investors with experience deviate at times when market conditions justify it. The key is understanding why the rule of thumb exists and knowing when it makes sense to adjust. Here is when investors pay more than 70 percent of ARV. As mentioned, the rule depends on your individual situation, but these are the most common cases where investors with experience adjust based on value (ARV), market conditions, and holding times. Whether you plan to flip or rent long term, most investors agree that the 70 rule ensures your investments start at the right price. The value ARV of every property on your list should be verified before you subscribe to any deal that comes your way.
Hot Markets and High Demand Areas
In a market where homes sell fast, some flippers apply a 75% or even 80% rule of thumb. The idea: if you can sell the property in 30 days instead of 120, your holding expenses drop, and the risk of losing value is lower. In high demand areas, flipping homes at 75% can still produce good profit margins. But watch out. If you rely on appreciation and the market shifts, you risk losses. Do your research on recent sales and market value before you deviate. Of course, many investors in hot markets like Arizona, Austin, and Dallas still hold to the 70 rule and never pay more than 70 percent of ARV because they know that discipline is the key to long term success in real estate. Even when the market is moving quickly, making a higher offer to "win" the deal can end up costing more than the profit is worth. Good investors have seen these situations play out many times. They know that the property you do not buy is sometimes the one that saves your business.
Light Rehabs and Low Repair Costs
When the renovation plan is cosmetic (paint, flooring, landscaping), the repair costs and timeline are both small. Lower rehab costs mean less exposure to cost overruns and fewer months making loan payments. The 70 rule already accounts for heavy renovations, so a light project can pencil at 75% and still ensure profitability. Professionals who focus on these flip projects earn strong returns by moving through more deals per year instead of chasing bigger margins on one home. It is a volume strategy, and it works well for investors with the expertise to estimate rehab costs accurately and turn a property in 60 to 90 days.
Cash Buyers vs. Financed Flips
Investors buying with cash eliminate interest rates, origination points, and other loan fees. Without monthly payments, the 30% margin in the 70 rule provides more than enough buffer. If you are paying cash, you can sometimes offer at 75% or 78% of the value ARV and still make money on the flip. But most house flippers use financing to scale their investments, and the 70 rule is calibrated for financed deals. If you are exploring fix and flip loans or other financing options, build the debt costs into your plan and stay closer to the 70 rule. You can also save on interest by choosing a lender with flexible terms and a process that closes in days. The type of financing you choose depends on your strategy, your credit profile, and the deal itself. Explore your options, weigh the pros and cons, and take action on the choice that ensures you pay the least in total cost. If you are an owner of an LLC, you can apply for a hard money loan through a quick application. That experience pays off long term.
70 Rule vs. Lender's 75% ARV Cap: Different Tools
New investors sometimes confuse the 70 rule in house flipping with a hard money lender's loan-to-value limit. These are different tools. The 70 rule is the investor's purchase guideline, designed to maximize profits and avoid losing money. The lender's 75% ARV cap is the maximum allowable loan as a percentage of the property's after repair value. One protects your profit and ensures your investments stay on track, the other limits lender risk.
For instance, on a home with a $300,000 ARV and $50,000 in needed repairs, the 70 rule says your offer should not exceed $160,000. A Texas hard money lender might lend up to $225,000 (75% of ARV) to cover the purchase and renovation. The lender's limit determines how much you can borrow. The 70 rule determines whether the flip is worth your investments. In this case, apply the 70 rule to decide if you should buy the property, then use financing to fund it. Confusing the two is a common pitfall that leads to overpaying for properties.
Common Pitfalls to Avoid When Flipping Houses
- Inaccurate ARV. The formula requires knowing what the home will sell for after repairs. If the value is wrong, the maximum price is wrong. Base your estimate on recent comparable sales and consult a real estate professional who knows the area. An accurate ARV is important for every flip.
- Underestimating rehab. Failing to accurately estimate repair costs is one of the fastest paths to losing money. Get contractor bids before you buy. Account for permits, contingency, and repairs needed that are not obvious. Read our guide on how to estimate rehab costs for a step by step process.
- Ignoring carry costs. Flipping houses means making monthly payments on property taxes, insurance, interest, and utilities every month the property sits unsold. A six-month flip at 12% on $200,000 costs $12,000 in interest alone. Mind these expenses or the 70 rule will overstate your profit potential. As one writer on real estate investing put it: if you cannot figure out the carry costs, you cannot figure out the deal.
- Skipping due diligence. The 70 rule is a screening tool, not a replacement for full due diligence. Inspect the property, determine title status, review comparable sales, and verify your exit. Investing in real estate requires more work than a simple formula. One thing to add: never sign a contract without walking the property first.
How the 70 Rule Fits Your Flip Financing Plan
The 70 rule works in conjunction with your financing strategy. If you purchase properties with bridge loans or flip loans, your interest rates, points, and terms all factor into the 30% the rule of thumb holds in reserve. At current hard money rates (9.9% to 13.5% in Texas), the 70 rule generally leaves enough room for interest, origination fees, selling costs, and a solid profit. In recent years, investors who chose to pay above 70% on financed deals watched their profit margins vanish. Updates in taxes, insurance, and rates can increase costs further, so it is needed to account for every item when running your project numbers.
Finally, remember that the 70 rule already assumes you are paying for a loan. The rule holds true whether you live in Houston or invest from out of state. If your costs are higher than average or the project timeline is long, adjust your offer downward. Keep this conclusion in mind: flipping homes is a business, not a creative hobby. The 70 rule is a vital tool that ensures profitability on every fix and flip deal. Treat it as a key part of your process and you will avoid the mistake of overpaying for any property. Contact us if you need help exploring financing options or want to share a deal for a free quote. We broker business-purpose loans on investment properties only. Continue your research with our best hard money lenders guide or email us at humberto@kestrellending.com.
Frequently Asked Questions About the 70 Rule in House Flipping
Is the 70 rule a hard law or a guideline?
The 70 rule is a guideline, a rule of thumb for real estate investors. It is a fast way to calculate the maximum purchase price on a flip. Most experts agree the 70 rule states you should pay no more than 70% of ARV less repairs. Experienced investors apply it and then adjust based on market conditions, repairs, and how fast a home will sell. Think of it as a starting point, not an absolute law.
Does the 70 rule account for closing costs and holding costs?
Yes. The 30% margin covers closing costs, carrying costs, commissions, and profit. On most deals that percentage is enough. On higher repair cost projects or longer timelines, account for each expense item and determine whether you need to buy below the 70 rule to ensure profitability.
Should I use the 70 rule when buying with cash?
The 70 rule still works as a conservative guideline when buying with cash. Without loan fees, you can afford thinner margins. Some cash buyers apply a 75% rule of thumb on cleaner deals. Either way, perform your research and run the full numbers before you purchase properties above the 70 rule.
What is the difference between the 70 rule and a lender's 75% ARV cap?
The 70 rule is an investor's formula to determine the maximum price for a profitable flip. The 75% ARV cap is the maximum a lender will fund. They serve different purposes. One is a profit guideline, the other is a lending limit. Do not confuse them when making investment decisions.
Can I earn a profit flipping houses above the 70 rule?
At times, yes. In high demand areas, light rehabs, or all-cash deals, profit is possible above the 70 rule. But the risk of losing money grows with every dollar above the guideline. Only break it when specific market conditions justify it, and do your research first.
How do I find deals that meet the 70 rule?
Look for distressed properties through foreclosures, a wholesaler, off-market lists, and MLS. Finding the right property at the right price is challenging in a competitive market, but investors who build relationships with sellers and professionals consistently find good deals. Focus on homes with needed renovations or unique features that turn away less experienced buyers.
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