The 70% rule is one of the fastest ways fix and flip investors estimate whether a potential deal is worth a closer look. When a property hits the market, investors often need to move quickly. A simple back-of-the-napkin formula can help you avoid wasting time on deals that do not leave enough room for profit, renovation costs, and selling expenses.
In simple terms, the 70% rule helps estimate the maximum offer an investor may want to make on a distressed property. If you are comparing hard money loans, fix and flip financing, or renovation loan options, ProAlpha Capital can help you review the numbers and financing structure before you move forward.
In this guide
- What Is the 70% Rule?
- Watch Devin Explain the 70% Rule
- The 70% Rule Formula
- The Three Numbers You Need
- 70% Rule Example: $300,000 ARV and $40,000 Repairs
- What the 30% Haircut Is Supposed to Cover
- When the 70% Rule Can Help
- Limitations of the 70% Rule
- Fix & Flip Investor Checklist
- Frequently Asked Questions
What Is the 70% Rule?
The 70% rule is a simple real estate investing formula used by fix and flip investors to estimate the maximum purchase price they may be willing to offer on a property.
The rule starts with the property’s after-repair value, also called ARV. Then it multiplies that number by 70%. After that, the investor subtracts the estimated renovation budget. The result is a quick estimate of the maximum offer.
This rule is not a full underwriting model. It is a fast screening tool. It helps investors decide whether a deal deserves more detailed analysis before spending time on contractor bids, financing quotes, inspections, and final due diligence.
Watch Devin Explain the 70% Rule
Devin Peterson from ProAlpha Capital explains how to analyze a potential flip in under 60 seconds using after-repair value, renovation budget, purchase price, and the 70% rule.
Analyze Your Next Flip in 60 Seconds | The 70% RuleThe 70% Rule Formula
The basic 70% rule formula is:
70% Rule Formula
The formula is designed to create a margin between the projected resale value and the investor’s total cost basis. That margin may help cover profit, holding costs, closing costs, selling costs, financing costs, and unexpected issues.
Because every market is different, the 70% rule should not be treated as a fixed law. In some markets, investors may need tighter margins. In other markets, the numbers may need to be adjusted based on competition, property type, and local buyer demand.
The Three Numbers You Need
To use the 70% rule, investors need three key numbers. Devin highlights these as the numbers that help you analyze a flip quickly before the opportunity disappears.
If one of these numbers is wrong, the formula can give a misleading answer. A bad ARV estimate or an underestimated renovation budget can make a weak deal look much stronger than it really is.
70% Rule Example: $300,000 ARV and $40,000 Repairs
Here is the simple example Devin uses in the video. Assume the property has an estimated after-repair value of $300,000 and a renovation budget of $40,000.
Simple 70% Rule Example
In this example, the investor multiplies the ARV by 70%, then subtracts the renovation budget to estimate the maximum offer.
| Step | Calculation | Result | What It Means |
|---|---|---|---|
| After-repair value | Estimated completed value | $300,000 | The projected value after repairs are complete. |
| Apply 70% | $300,000 × 70% | $210,000 | The starting point before repairs are subtracted. |
| Subtract repairs | $210,000 − $40,000 | $170,000 | The renovation budget is removed from the offer calculation. |
| Maximum offer | ($300,000 × 70%) − $40,000 | $170,000 | The estimated maximum offer using the 70% rule. |
Important: This is only a simplified example. Real fix and flip analysis should also review financing costs, holding costs, resale costs, taxes, insurance, utilities, permits, contractor risk, and local market conditions.
What the 30% Haircut Is Supposed to Cover
The reason the formula uses 70% of ARV is because the remaining 30% is meant to create room for the costs and risk that come with a flip. That does not mean the investor automatically profits 30%. It means the investor is trying to protect the deal from being too tight.
The investor needs enough room for the deal to be worth the risk.
Taxes, insurance, utilities, financing, and time on market can reduce profit.
Buying and selling the property may create transaction costs.
Agent commissions, concessions, staging, and resale expenses may apply.
Renovation budgets can change once walls are opened or issues are discovered.
Prices, buyer demand, rates, and local competition can shift during the project.
The 70% rule is popular because it forces investors to build in a margin of safety before making an offer.
Looking at a fix & flip deal?
ProAlpha Capital can help investors review hard money, fix and flip, bridge, and renovation financing options based on the purchase price, repair budget, ARV, and exit plan.
When the 70% Rule Can Help
The 70% rule is most useful as a quick screening tool. It can help investors avoid overanalyzing deals that are obviously too expensive or too risky.
It may be helpful when:
Good Uses for the 70% Rule
Use it to quickly decide whether a property deserves deeper analysis.
Use back-of-the-napkin math when you find a distressed property opportunity.
Quickly check whether an asking price leaves enough margin.
Use one formula to screen several opportunities quickly.
Create a starting point before negotiations or final underwriting.
Keep the decision tied to numbers instead of excitement.
The formula is simple on purpose. It helps investors move fast, but it should always be followed by deeper due diligence.
Limitations of the 70% Rule
The 70% rule can be useful, but it is not perfect. Some investors make the mistake of treating it like a guarantee. It is not. It is only as good as the ARV and renovation numbers used in the calculation.
What the rule does well
- Creates a quick maximum offer estimate
- Helps investors avoid overpaying
- Builds in a margin for costs and risk
- Works well for fast first-pass analysis
- Easy to explain and apply
What the rule can miss
- Local market differences
- Financing costs and points
- Permit delays and contractor risk
- Changing resale demand
- Incorrect ARV or repair estimates
As Devin mentions, every market and every climate is different. Investors may need to tighten or loosen assumptions depending on the deal, competition, and local conditions.
Fix & Flip Investor Checklist
Before relying on the 70% rule, investors should pressure-test the deal. A flip can look good on paper and still fail if the assumptions are weak.
Questions to Review Before Making an Offer
Check sold comps, property condition, square footage, location, and buyer demand.
Include labor, materials, permits, contingency, utilities, and unexpected repairs.
Review loan interest, taxes, insurance, utilities, and expected project timeline.
Estimate agent commissions, concessions, staging, marketing, and closing costs.
Hard money, bridge financing, private capital, or cash can all change the outcome.
Know whether the goal is resale, refinance, rental hold, or another strategy.
A strong flip is not just about buying low. It is about controlling renovation risk, financing costs, timelines, and resale assumptions.
How Financing Affects a Fix & Flip Deal
The 70% rule does not automatically include every financing detail. Loan interest, points, draws, inspection fees, closing costs, and extension fees can affect the final return.
This is why investors should review the financing structure before committing to a deal. A property may look profitable before financing but become too tight once the full cost of capital is included.
For fix and flip investors, financing options may include hard money loans, bridge loans, renovation financing, private money, or other investor-focused structures.
Need help structuring your next flip?
ProAlpha Capital can help investors compare fix and flip loans, hard money loans, renovation budgets, ARV assumptions, and exit strategies before moving forward.
Frequently Asked Questions About the 70% Rule
What is the 70% rule in real estate?
The 70% rule is a fix and flip formula used to estimate the maximum offer on a property. It takes 70% of the after-repair value and subtracts the renovation budget.
How do you calculate the 70% rule?
Multiply the after-repair value by 70%, then subtract the estimated renovation budget. The result is the estimated maximum offer.
What is the 70% rule formula?
The formula is: maximum offer equals after-repair value multiplied by 70%, minus renovation budget.
What is ARV in a fix and flip deal?
ARV means after-repair value. It is the estimated value of the property after renovations are complete.
Does the 70% rule include repair costs?
Yes. The formula subtracts the renovation budget after calculating 70% of the after-repair value.
Is the 70% rule always accurate?
No. The 70% rule is a quick screening tool, not a full underwriting model. Market conditions, financing costs, holding costs, and resale risk can change the final result.
Why do fix and flip investors use the 70% rule?
Investors use the 70% rule because it gives them a quick way to estimate whether a deal leaves enough room for repairs, costs, profit, and risk.
What does the 30% margin cover in the 70% rule?
The 30% margin is intended to help cover profit, holding costs, closing costs, selling costs, financing costs, and unexpected risk.
Can the 70% rule be used for rental properties?
The 70% rule is mainly used for fix and flip analysis. Rental investors may use other metrics such as cap rate, cash flow, DSCR, and cash-on-cash return.
Analyzing Your Next Flip?
The 70% rule can help you move fast, but the full deal depends on ARV, renovation budget, holding costs, financing, and your exit strategy. ProAlpha Capital can help you review creative financing options for your next fix and flip project.
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