The 70% rule is the most-quoted shortcut in fix-and-flip investing, and it is quoted far more often than it is understood. The rule itself fits on one line:
Maximum purchase price = 0.70 × ARV − Rehab costEquivalently, your all-in acquisition cost (purchase plus rehab) should stay at or under 70% of the after-repair value. If you are not sure how to build a defensible ARV, start with our ARV explainer and come back.
A quick example. A house should sell for $300,000 renovated and needs $40,000 of work:
0.70 × $300,000 = $210,000
$210,000 − $40,000 = $170,000 maximum offerPay $170,000, spend $40,000, and you are "all-in" at $210,000 against a $300,000 exit. That looks like a $90,000 profit. It is not.
Where the 30% actually goes
The 30% cushion, $90,000 in the example, is not profit. It has to absorb three things before any of it reaches you.
| Cost | Typical range | On a $300,000 ARV |
|---|---|---|
| Selling costs (agent commissions, closing, transfer taxes) | 6 to 10% of ARV | $18,000 to $30,000 |
| Holding and financing (hard-money interest and points, taxes, insurance, utilities over the project) | 5 to 10% of ARV | $15,000 to $30,000 |
| What is left for profit | $30,000 to $57,000 |
Take the middle of each range and the flip nets around $45,000 before income tax, roughly 15% of ARV. That is a healthy flip. Now watch how quickly it goes away:
- Rehab runs $15,000 over (most do): profit drops to about $30,000.
- The sale takes two extra months on hard money: another $5,000 to $8,000 gone.
- The market softens and you sell at $290,000: another $10,000.
All three at once and a deal that "passed the 70% rule" clears under $10,000 for six months of work and six figures of risk. That is why experienced flippers treat 70% as the ceiling, not the target, and why many drop to 65% in slower markets or on bigger rehabs.
What the rule ignores
The 70% rule is a screen. It exists so you can say no to a deal in ten seconds. It is not an underwrite, because it silently assumes:
- A generic cost of money. Cash, a 10% hard-money loan and a 13% loan with three points all produce very different profits from the same purchase price.
- A generic timeline. Holding costs scale with months, and the rule has no clock.
- No taxes. Flip profit is ordinary income for most investors, and after-tax is the number you actually keep.
- No exit risk. The rule does not tell you how far the sale price can fall before you only break even.
The precise version
REIzer's Fix-n-Flip analyzer runs the pass-or-fail 70% check as one input to the score, then computes the numbers the rule skips: after-tax profit, after-tax margin as a percentage of ARV, annualized return on the cash you put in, and the break-even cushion, which is how far the sale price can drop before the profit hits zero. The methodology is documented on the DSCR and 70% rule page.
The rule and the full underwrite answer different questions. The rule answers "is this worth an hour of my time?" The underwrite answers "what is the most I can pay and still hit my target?" For that second question, the MAO solver reverse-solves the whole analyzer instead of applying a percentage, so the ceiling it reports already includes your financing, your timeline and your taxes.
Use the rule to filter. Use the underwrite to offer.