The 70% Rule for Flips and BRRRR
The rule sets your maximum offer. Whether it leaves you a profit depends entirely on two numbers you have to estimate yourself.
70% of ARV
Minus repairs. And the 30% is not profit — it is costs first, profit last.
The formula
Maximum allowable offer = (ARV × 0.70) − Repairs
ARV is what the property is worth finished. Repairs is the full rehab budget including contingency.
A typical flip
- After-repair value
- $270,000
- × 70%
- $189,000
- Less estimated repairs
- −$45,000
Maximum offer: $144,000
What the 30% is actually for
The rule is often described as “30% profit”, which is wrong and is why people misapply it. The 30% has to cover a long list before any of it is yours:
| Cost | Typical size on a $270,000 ARV |
|---|---|
| Purchase closing costs | $3,000 – $5,000 |
| Holding costs — taxes, insurance, utilities, interest for 4–8 months | $8,000 – $16,000 |
| Selling costs — agent commission, transfer tax, concessions | $16,000 – $22,000 |
| Financing points and fees on short-term money | $3,000 – $8,000 |
| Contingency for the overrun you have not found yet | $5,000 – $10,000 |
| What is left — the profit | The remainder, often $20,000 – $35,000 |
Selling costs are the biggest single line
Adjust the percentage — it is not a constant
| Situation | Use | Why |
|---|---|---|
| Standard flip, $150k–$400k ARV | 70% | The figure the rule was calibrated for. Fixed and percentage costs balance out here. |
| High-priced flip, $600k+ ARV | 75% – 80% | 30% of $800,000 is $240,000 of buffer — far more than the costs require. Sticking to 70% means never buying. |
| Low-priced, under $100k ARV | 60% – 65% | Fixed costs do not shrink with price. 30% of $80,000 is $24,000 and will not cover them. |
| BRRRR — refinance and hold | 75% – 80% | No selling costs, and you keep the asset. See the BRRRR guide for the refinance math. |
| Hot market, fast sale, cosmetic rehab | 72% – 75% | Shorter hold means lower carrying costs and less risk. |
| Heavy structural rehab, permits required | 60% – 65% | Longer timeline, higher overrun probability, more can go wrong. |
| Wholesaling | 65% minus your fee | Your buyer needs their own margin, and it comes out of the same 30%. |
The underlying logic is simple: the 30% is a proxy for “costs plus profit”. Where costs are a larger share of ARV — cheap properties, long timelines — you need a bigger buffer. Where they are smaller, a rigid 70% just prices you out of every deal.
The two estimates that decide everything
| Estimate | How it goes wrong | How to control it |
|---|---|---|
| ARV | Comping against listings instead of sales, ignoring condition differences, or assuming your finish level commands a premium the neighbourhood does not pay. | Use closed sales within 90 days, under a mile, same style and size. Get a second opinion from an agent who does not want the listing. |
| Repair budget | Estimating from a walkthrough rather than a scope, missing systems (electrical, plumbing, roof) and forgetting the permitting timeline. | Written scope, itemised. Add 15–20% contingency inside the budget, not as an afterthought. |
What a modest miss on each does — same deal as above
- Planned: ARV $270,000, repairs $45,000, bought at $144,000
- As modelled
- ARV comes in 8% low: $248,400
- Max offer was $128,880 — you overpaid by $15,120
- Repairs run 20% over: $54,000
- Max offer was $135,000 — you overpaid by $9,000
- Both
- You overpaid by roughly $24,000
Two ordinary misses consume most of a typical flip profit.
This is the honest reason the buffer exists. It is not greed — it is that both of your inputs are estimates, both tend to err in the same direction, and the 30% is what stands between an ordinary estimating error and a loss.
What the rule does not tell you
It sets a ceiling on price. It says nothing about whether the deal is worth doing at that price: your timeline, your financing cost, whether the finished product actually sells in that neighbourhood, or — for a hold — whether the property covers its own debt afterwards. A property can pass the 70% rule and still be a bad BRRRR because the refinanced loan is larger than the rent supports — which is the central problem in BRRRR at current rates.
Use it as it was intended: a fast filter that tells you the most you can pay, applied before you spend an hour on anything else. Then do the real analysis. See how it ranks against the other rules of thumb.
Frequently asked questions
What is the 70% rule in real estate?
It sets a maximum purchase price at 70% of the after-repair value minus the cost of repairs. The remaining 30% is not profit — it covers closing costs, holding costs, financing fees, selling costs and a contingency, with whatever is left over as the margin.
Does the 70% rule still work?
It remains a useful ceiling, but the percentage should shift with the price band and the strategy. Around 70% suits a mid-priced flip; high-value properties can support 75 to 80% because fixed costs are a smaller share of value, while properties under about $100,000 usually need 60 to 65%.
What percentage should I use for a BRRRR instead of 70%?
Commonly 75 to 80%, because a BRRRR does not incur selling costs — typically the largest single item inside the 30% buffer — and you keep the asset. The binding constraint becomes the refinance loan-to-value and whether the property covers its payment afterwards, not the acquisition percentage.
How do I estimate ARV accurately?
Use closed sales rather than active listings, within roughly 90 days and a mile, matched on style, size and bedroom count, and adjust for condition against your planned finish level. Getting a second opinion from an agent with no stake in the transaction is the cheapest error-check available.