House Flipping: The 70% Rule, Maximum Offer, and Profit Sensitivity
October 29, 2026
Investors who buy houses to renovate and resell often use the 70% rule as a quick screen: the maximum allowable offer (MAO) equals 70% of the after-repair value (ARV) minus the cost of repairs. The remaining 30% of the ARV is meant to cover selling costs, holding costs, financing, and the investor's profit.
For a house with an ARV of $300,000 and estimated repairs of $40,000: MAO = 0.70 × $300,000 − $40,000 = $210,000 − $40,000 = $170,000.
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Purchase $170,000 plus repairs $40,000 gives an all-in cost of $210,000, leaving $90,000 of the ARV for other costs and profit. Selling costs (agent commissions and closing, 8% of $300,000): $24,000. Holding costs for 6 months (taxes, insurance, utilities at $800 a month): $4,800. Loan interest on 80% of the purchase price ($136,000) at 11% for 6 months: $7,480. Total of those costs: $36,280. Profit: $90,000 − $36,280 = $53,720. Cash invested: down payment of $34,000 plus repairs of $40,000 plus holding and interest of $12,280 = $86,280, so the return on cash for the 6-month project is $53,720 ÷ $86,280 = 62% (an annualized figure is not guaranteed).
| Item | Amount |
|---|---|
| After-repair value (ARV) | $300,000 |
| Purchase at 70% rule MAO | $170,000 |
| Repairs | $40,000 |
| Selling costs (8%) | $24,000 |
| Holding costs (6 months) | $4,800 |
| Loan interest (6 months) | $7,480 |
| Net profit | $53,720 |
Sensitivity
Real projects rarely go perfectly. If the house sells for 5% less ($285,000), selling costs fall to $22,800 and net proceeds are $262,200; total costs of $170,000 + $40,000 + $4,800 + $7,480 = $222,280 give a profit of $39,920. If repairs run 25% over ($50,000), profit falls by $10,000 to $43,720. If the sale takes 9 months instead of 6, extra holding and interest cost about $6,140. A project hit by all three would earn only about $18,000. The 30% cushion exists for this reason.
Limits of the Rule
The 70% rule is a rough screen, not a valuation. In expensive markets, it can be impossible to find deals that meet it; in cheap markets, the fixed costs make 70% too generous. Adjust the percentage (65%, 75%) according to local conditions, the speed of the market, and your financing costs. The most important number is the ARV, which should come from recent comparable sales of renovated homes, not from hope. Repair estimates should come from contractor bids and include a contingency of 10% to 20%.
Risk Notes
Flipping involves market risk, permitting issues, hidden defects, and financing costs. Short-term gains are taxed as ordinary income in the US, and flipping can be treated as a business. This article is a simplified illustration and not investment advice.
Frequently Asked Questions
What is the 70% rule in house flipping?
Max offer = 70% of after-repair value minus repair costs.
What is the max offer on a $300,000 ARV with $40,000 of repairs?
$170,000.
What does the other 30% cover?
Selling costs, holding costs, financing, and profit.
How do I find the ARV?
From recent comparable sales of renovated homes nearby.
Why include a repair contingency?
Because renovations frequently go over budget.