The 70% Rule for House Flipping Explained

If there’s one rule that new house flippers need tattooed on their foreheads, it’s this one. The 70% rule has saved more investors from disastrous deals than any other guideline I know. Whether you are doing a straight flip or running the BRRRR method for long-term wealth, this formula is where every deal analysis starts. It’s simple, it’s conservative, and it works.

Here’s the basic idea: never pay more than 70% of a property’s after-repair value minus your repair costs. Follow this rule, and you’ll build in enough margin to cover your transaction costs, your carrying costs, and still make a profit. Ignore it, and you’re gambling.

Let me show you exactly how it works and why it matters.

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The Formula That Protects Your Profits

The math is straightforward:

Maximum Purchase Price = (ARV × 70%) - Repair Costs

Let’s break that down with a real example. Say you find a property that will be worth $300,000 after you renovate it (that’s your After-Repair Value or ARV). Your contractor estimates $40,000 in renovation costs.

Here’s your calculation:

$300,000 × 70% = $210,000
$210,000 - $40,000 = $170,000

Your maximum purchase price is $170,000. Pay more than that, and you’re eating into your profit margin or eliminating it entirely. When you’re ready to finance the deal, Fix & Flip Mortgage Financing.

Component	Amount	Purpose
ARV	$300,000	What you’ll sell for
70% of ARV	$210,000	Your cushion
Repair costs	-$40,000	Renovation budget
Max purchase	$170,000	Highest you should pay
Built-in margin	$90,000	For costs and profit

That $90,000 margin (the 30% you’re keeping) covers your Closing Costs when you buy, your holding costs while you renovate, your selling costs including agent commissions, and your actual profit.

Why 70% and Not 80% or 75%?

New flippers often ask why the rule isn’t more aggressive. After all, 70% seems conservative. Can’t you squeeze more deals by using 75% or 80%?

You can—and experienced investors sometimes do. But here’s what happens to beginners who get aggressive:

The 30% margin typically breaks down roughly like this: 5% for buying closing costs, 5% for holding costs during renovation, 10% for selling costs (agent commissions, closing, etc.), and 10% for profit.

Notice anything? There’s almost no cushion there. If your ARV estimate is off by 5%, there goes half your profit. If your renovation runs 20% over budget (which happens constantly), you’re now working for free or losing money.

The 70% rule isn’t conservative—it’s realistic. It accounts for the fact that estimates are never perfect and surprises always happen. If you want proof, read about the lessons learned from 30 real flip deals — the investors who stuck to this rule came out ahead.

With only about 10 percent of the deal set aside for profit, having your financing locked in before you start keeps surprises from wiping out your margin — book a free strategy call with LendCity to line up your flip mortgage early.

Getting Your ARV Right

The whole formula depends on accurate ARV estimation. Get this wrong, and nothing else matters.

Here’s how to nail it:

Find truly comparable sales. You need properties that match what yours will look like after renovation—similar size, similar location, similar condition, similar features. A renovated four-bedroom colonial doesn’t compare to a renovated two-bedroom ranch.

Use recent sales. Markets move. A comp from eighteen months ago might not reflect current values. Focus on sales from the last three to six months. Understanding how automated property appraisals work can also help you validate your own ARV estimates against what lenders will see.

Be conservative. When in doubt, use the lower number. If comparable sales range from $295,000 to $315,000, use $295,000 or even $290,000 for your analysis. Upside surprises are better than downside disasters.

Don’t assume premium prices. Your renovation might be gorgeous, but buyers won’t pay significantly more than other renovated homes in the area. If similar renovated houses sell for $300,000, don’t assume yours will fetch $340,000 because you picked nicer countertops.

Estimating Repair Costs Without Getting Burned

Underestimating repairs kills more flips than overpaying for properties. Here’s how to avoid that trap:

Walk through with a contractor before you buy. Don’t guess at repair costs from photos or a quick drive-by. Get inside, look at everything, and have someone who does this work give you numbers.

Check everything. Roof, foundation, HVAC, electrical, plumbing, windows, water heater, appliances—everything. The stuff you don’t look at is the stuff that bites you later. Many of these problems are covered in our guide to common issues when buying distressed properties.

Build in contingency. Add 15-20% to your repair estimate for surprises. When you open walls, you find things. When you pull up flooring, you discover problems. Assume you’ll spend more than estimated. Learning to avoid smart renovation mistakes will help keep your budget from spiralling out of control.

Get multiple bids. One contractor’s estimate isn’t enough data. Get two or three bids for major work. It helps you understand both the real cost and which contractors actually want the job.

Adding a 15 to 20 percent contingency on top of contractor estimates is smart, but pairing that with the right financing product protects you even further — book a free strategy call with us and we will help you match the loan to the deal.

When the 70% Rule Doesn’t Work

I’m not going to pretend this rule works perfectly in every situation. Here’s when you might need to adjust:

Hot markets with limited inventory. In super-competitive markets, you might not find deals at 70%. You could adjust to 75%, but do so carefully and understand you’re accepting more risk.

Very high-value properties. On a $1 million flip, the percentages might shift because fixed costs are a smaller proportion of total deal size.

Quick, cosmetic flips. If you’re doing light work with fast turnarounds, your holding costs are lower and you might operate at tighter margins.

Experienced investors with efficient systems. Once you’ve done dozens of flips and have reliable contractors, tight processes, and deep market knowledge, you can operate at higher percentages—because your estimates are more accurate and your execution is more efficient.

The Mistakes That Kill Flip Profits

Even with the 70% rule, investors screw up in predictable ways:

Falling in love with a property. You find a house that feels perfect. It’s in a great neighborhood, it has good bones, and you can see exactly what you’d do with it. So you rationalize paying more than your formula says. Don’t. Properties don’t care about your feelings, and the market won’t pay more just because you’re emotionally attached.

Optimistic ARV projections. “Well, if I add this special feature, buyers will pay a premium.” Maybe. Probably not. Base your numbers on what comparable properties actually sold for, not what you hope yours might fetch.

Underestimating repair time. Your holding costs run every day you own that property. A renovation you thought would take three months stretches to six? That’s three extra months of mortgage payments, taxes, insurance, and utilities eating your profit. This is exactly why your debt ratios and carrying cost calculations need to account for a longer timeline than you expect.

Forgetting about carrying costs entirely. I’ve seen investors calculate purchase price plus repairs plus selling costs and completely forget they’ll be paying a mortgage for months. Don’t be that person.

Beyond the Quick Formula

The 70% rule is a screening tool—a quick way to eliminate bad deals before you waste time on detailed analysis. Properties that pass the 70% test deserve deeper evaluation.

For deals worth pursuing, build a complete pro forma with every income line and expense line itemized. The same discipline applies whether you are flipping or holding — How to Analyze a Rental Property: Cash Flow & Due Diligence so you can evaluate both exit strategies. Account for actual closing costs based on your market, realistic timelines based on your contractor relationships, and specific holding costs based on your financing.

The 70% rule gets you to the right ballpark. Detailed analysis tells you whether to swing.

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Frequently Asked Questions

What if no properties in my market meet the 70% rule?

Then your market might not be good for flipping right now, or you need better deal-finding strategies. Don't abandon the rule just because deals are hard to find. Find better deals or wait for the market to shift.

Can I use this rule for rental property analysis?

No. Rental properties need flip financing analysis focused on ongoing income versus expenses. The 70% rule is specifically for flip transactions where you're buying, improving, and selling within a short timeframe.

Should I ever pay more than the 70% rule suggests?

Very rarely, and only when you have specific, justifiable reasons. Maybe you have a buyer already lined up. Maybe you have zero holding costs because you're paying cash. Even then, be careful.

How do I get better at estimating ARV and repair costs?

Practice. Analyze deals even when you're not buying. Track your estimates against actual outcomes. Build relationships with contractors who give you straight numbers. After a few dozen analyses, your estimates get much sharper.

What does the 30% margin in the 70% rule actually cover?

The 30% margin typically breaks down into roughly four parts: about 5% for buying closing costs, 5% for holding costs during renovation including mortgage payments, taxes, insurance, and utilities, 10% for selling costs such as real estate agent commissions and closing fees, and 10% for your actual profit. This leaves very little room for error, which is exactly why using a more aggressive percentage like 75% or 80% is risky for newer investors.

How do I find comparable sales to determine after-repair value?

Focus on recently sold properties from the last three to six months that match what your property will look like after renovation. Look for similar size, location, condition, and features. When comparable sales give you a range, use the lower number for your analysis. Avoid assuming your property will sell at a premium just because you plan nicer finishes—buyers generally will not pay significantly more than what other renovated homes in the area have sold for.

What are the biggest mistakes that kill house flip profits?

The most common profit-killers are falling in love with a property and overpaying, using optimistic ARV projections instead of actual comparable sales data, underestimating renovation timelines which increases holding costs, and forgetting to account for carrying costs entirely. Each extra month of holding a property adds mortgage payments, taxes, insurance, and utility costs that eat directly into your margin.

The Bottom Line

The 70% rule exists because flipping houses is harder than it looks on TV shows. Estimates are always imperfect. Surprises always happen. Timelines always stretch. The investors who profit are the ones who build in enough margin to absorb these realities.

Pay no more than 70% of ARV minus repair costs. It’s simple, it’s proven, and it keeps you from becoming another flipper who “did everything right” but still lost money.

When you’re starting out, treat the 70% rule as law. Later, with experience, you can make informed adjustments. But that experience comes from profitable deals executed with conservative margins—not from aggressive bets that didn’t work out.

Find deals that work at 70%. Do the work well. Sell at a profit. Repeat. That’s house flipping done right.

Disclaimer: LendCity Mortgages is a licensed mortgage brokerage, and our team includes experienced real estate investors. While we are qualified to provide mortgage-related guidance, the broader financial, tax, and legal information in this article is provided for educational purposes only and does not constitute financial planning, tax, or legal advice. For matters outside mortgage financing, we recommend consulting a Chartered Professional Accountant (CPA), licensed financial planner, or qualified legal advisor.

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LendCity

Published

January 26, 2026

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8 min read

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The 70% Rule for House Flipping: Profit Formula