Ask any house flipper how to calculate a maximum offer price and they'll recite the 70% rule: never pay more than 70% of the After Repair Value minus repair costs. It's the first formula every new flipper learns, and for good reason — it builds in a margin for profit and unexpected costs. But in 2026's market, applying it blindly is a mistake.
How the 70% Rule Works
ARV: $350,000
Estimated Repairs: $55,000
Max Offer: ($350,000 × 0.70) − $55,000 = $190,000
The idea is simple: the 30% gap between your all-in cost and the ARV covers closing costs on the buy (1-3%), holding costs during rehab (loan interest, taxes, insurance, utilities — typically 3-6%), selling costs including agent commissions (7-9%), a contingency for unexpected expenses (5-10%), and your profit (whatever's left).
What the 30% Actually Covers
Let's break down where that 30% margin goes on a $350,000 ARV flip:
| Cost Category | Typical % | Dollar Amount |
|---|---|---|
| Purchase Closing Costs | 2% | $7,000 |
| Holding Costs (4 months) | 3-4% | $10,500-$14,000 |
| Selling Closing Costs + Commissions | 8-9% | $28,000-$31,500 |
| Contingency / Overruns | 3-5% | $10,500-$17,500 |
| Profit (what's left) | 12-14% | $42,000-$49,000 |
On a $350K ARV with $55K in repairs, the 70% rule leaves roughly $42,000-$49,000 in profit. That's a solid margin — but it assumes everything goes according to plan.
When to Adjust the 70% Rule
Tighten to 65% in high-risk situations
Use a lower percentage (more conservative) when you're new to flipping and still learning to estimate costs, the property needs structural work (foundation, roof, plumbing), the market is slowing or showing signs of declining prices, or the property has been sitting unsold in the area and comps are stale.
Loosen to 75-80% in specific scenarios
Experienced flippers in competitive, high-priced markets regularly work on tighter margins. You might justify 75% when the property is in a very hot market with fast appreciation and bidding wars, the rehab is purely cosmetic (paint, flooring, fixtures — low risk of surprises), you're selling without an agent (FSBO) saving 5-6% in commissions, or the ARV is high enough that even a smaller percentage yields a solid dollar profit. A 15% margin on a $600K ARV is $90,000 — still a great flip.
If you're adjusting above 75%, you have very little room for error. One budget overrun, one extra month of holding costs, or one price reduction to sell can wipe out your entire profit. Only experienced flippers with reliable contractors and strong market knowledge should work on these margins.
Why the 70% Rule Falls Short
The rule is a useful filter but it has real limitations:
It doesn't account for financing costs. A flipper using a hard money loan at 12% interest pays significantly more in holding costs than someone using a HELOC at 8% or buying with cash. The 70% rule treats all financing the same.
It ignores time. A 3-month flip has much lower holding costs than a 6-month flip. The rule doesn't differentiate, but your wallet does.
Commissions vary. Selling FSBO eliminates 5-6% in agent commissions. Selling with a discount broker or flat-fee MLS saves 2-3%. These savings can turn a "doesn't meet the 70% rule" deal into a profitable one.
It's backward-looking. The 70% rule uses today's ARV, but you're selling 4-6 months from now. In an appreciating market, the actual selling price may be higher. In a declining market, lower. The rule can't account for this.
Use the 70% rule as a quick screening tool to filter deals in 30 seconds. Then run a detailed analysis with your actual financing, realistic rehab timeline, and local selling costs to determine your true profit. The rule tells you if a deal is worth investigating — not whether you should write an offer.
Run the Real Numbers
CapRateKit's fix-and-flip calculator goes beyond the 70% rule — enter your actual purchase price, rehab budget, financing terms, and holding period to see your projected profit, ROI, and break-even point.
Try CapRateKit Free →Frequently Asked Questions
What is a good profit margin for a house flip?
Most experienced flippers target a minimum profit of $25,000-$30,000 or 10-15% of ARV, whichever is greater. On higher-priced properties, a 10% margin might yield $60K+ in profit. On cheaper properties, you need a higher percentage to make the time and risk worthwhile.
Should I use the 70% rule for BRRRR deals too?
Yes — the 70% rule works well for BRRRR deals because you're also buying below market and renovating. The difference is your "exit" is a refinance rather than a sale, so you don't have selling commissions. Some BRRRR investors use the 75% rule since they save on selling costs. See our BRRRR guide for details.
How do I find the ARV for a property?
ARV is determined by analyzing comparable sales — renovated homes of similar size, age, and style that sold recently in the same neighborhood. Look at 3-5 comps from the last 3-6 months within a half-mile radius. Adjust for differences in square footage (~$100-150/sqft depending on market), bedroom/bathroom count, lot size, and specific features. Read our full guide on how to estimate ARV.