The 70% Rule in House Flipping: What It Is, and When It Flexes

Ask any experienced house flipper for a quick way to screen a deal and you will hear about the 70 percent rule. It is the most widely repeated formula in fix-and-flip investing, and for good reason: it is fast, it is simple, and it keeps beginners from overpaying. But it is a screening tool, not a law of physics. This guide explains what the 70% rule is, how to use it to find your maximum allowable offer, where it breaks down, and when disciplined Phoenix investors let it flex.

What the 70% rule says

The rule states that you should not pay more than 70% of a property’s After Repair Value (ARV), minus your estimated repair costs. Written as a flipping formula:

Maximum Allowable Offer (MAO) = (ARV × 0.70) − repair costs

The 30% you are holding back is meant to cover everything the formula does not name explicitly: your financing costs, holding costs, selling costs, and — critically — your profit. In one clean line, the rule bakes in a margin so that a beginner does not accidentally offer their way into a loss.

Everything here starts with a credible ARV, which is why estimating after repair value accurately is the prerequisite to using this rule at all. Garbage in, garbage out.

A worked example

Say you are looking at a home in Glendale. You pull comps and conclude a realistic ARV of $400,000. Your contractor scopes the renovation at $60,000. Applying the rule:

• ARV × 0.70 = $400,000 × 0.70 = $280,000
• Minus repairs: $280,000 − $60,000 = $220,000

So the rule suggests a maximum offer of about $220,000. If you can buy at or below that, the deal is worth a closer look. If the seller wants $260,000, the rule is waving a flag: at that price, your margin is probably too thin to absorb surprises.

Notice what the rule does well here — it gives you an instant yes/no/maybe in under a minute, using only two inputs. That speed is the entire point. When you are screening ten properties a week, you need a filter before you invest hours in a full analysis.

What the 30% is actually paying for

To understand when the rule flexes, you have to understand what that 30% buffer really covers. On a typical flip it absorbs:

• Financing costs — points and interest, often from a hard money loan.
• Holding costs — property taxes, insurance, utilities, and loan interest for every month you own the property.
• Selling costs — commissions, title, and closing costs on the resale.
• A contingency for the surprises that show up once demolition starts.
• Your profit — the reason you took the risk in the first place.

When you see the 30% this way, it becomes obvious that it is a rough average of many variable costs. And whenever a rule is an average, there are specific situations where the average is wrong.

Where the 70% rule breaks down

The rule quietly assumes a “typical” mid-priced flip with typical costs. Push away from that center and it distorts:

Higher-value homes

On a $700,000 or $800,000 property, holding 30% off the top can hold back far more than the deal actually needs. Fixed costs like title and inspection do not scale linearly with price, and a 30% margin on a high ARV can be an enormous dollar figure. Many experienced investors flex to 75% or even higher on higher-value homes — but only with a true line-item budget to back it up.

Lower-value homes

The opposite happens on inexpensive properties. Fixed costs — the same commission floors, closing fees, and holding minimums — eat a bigger share of a small ARV. On a $150,000 flip, 70% may actually be too generous, and disciplined investors sometimes tighten to 65% or lower.

Light or heavy rehabs

The rule folds repairs in as a single subtraction, but it does not adjust the percentage for how risky the renovation is. A cosmetic refresh carries far less surprise risk than a full gut with foundation or systems work. The heavier and more uncertain the rehab scope, the more buffer you want — which argues for a lower percentage, not a higher one.

Hot vs. slow markets

In a fast-appreciating Phoenix market, some investors accept slimmer margins because they expect quick resales and rising comps. In a cooling or uncertain market, the smart move is the reverse: widen the margin to protect against longer hold times and softer prices. The percentage should reflect the market you are actually selling into, not the one you wish you were in.

When it flexes — and the rule for flexing

Here is the discipline that separates professionals from gamblers: you only flex the 70% rule when a real, line-item budget justifies it. The rule is a fast screen. Once a property passes the screen, you replace the shortcut with actual math — every cost layer, itemized. If that detailed analysis shows the deal still hits your profit target at 74% or 76% of ARV, flexing is a reasoned decision. If you are flexing the percentage just to make an offer competitive, you are no longer using a tool — you are talking yourself into a bad deal.

Our free flip profit calculator is built for exactly this second step. It takes your ARV, itemized rehab, financing, holding, and selling costs and shows your true profit and margin, so you can see whether a deal supports a flex or not. Use the 70% rule to filter fast, then let the full numbers make the final call.

Common mistakes with the formula

• Inflating ARV to make the MAO work. The most damaging error, because it corrupts the input the whole formula depends on.
• Lowballing repairs. A too-low repair estimate produces a too-high MAO. Always scope the rehab realistically before trusting the output.
• Treating the output as your target price, not your ceiling. MAO is the most you should pay, not what you should offer. Room below it is margin.
• Forgetting it excludes profit already. The 30% includes your profit; do not subtract profit again on top and then wonder why every deal looks impossible.

How Desert Wolf Developers helps

We are a licensed Arizona general contractor (ROC #364568, KB-2 dual residential and small commercial) that lives in these numbers every week across Phoenix, Surprise, Glendale, and Peoria. We can walk a property with you, produce the realistic repair estimate the formula depends on, and help you decide whether a specific deal justifies flexing the rule or walking away.

If you are screening a property right now, run it through the flip calculator, then submit the project and we will help you confirm the numbers. Investors looking to partner on Valley flips can learn more about working with us.

This article is general educational information, not financial or investment advice. The 70% rule is a rule of thumb, not a guarantee of profit; confirm every deal with a full, current cost analysis before acting.