If you’re new to house flipping—or scaling beyond your first few projects—you’ve likely heard of the 70% rule. While it’s often described as a “rule,” it’s more accurately a profitability guideline used by experienced real estate investors to determine how much they should pay for a fix-and-flip property.
Understanding how the 70% rule works—and how to apply it correctly—can help protect your margins, avoid overpaying, and build a sustainable house flipping business.
What Is the 70% Rule in Real Estate?
The 70% rule suggests that your total investment in a flip should not exceed 70% of the property’s After Repair Value (ARV).
Your total investment includes:
- Purchase price
- Rehab and renovation costs
- Soft costs (financing, holding costs, and selling expenses)
Basic 70% Rule Formula
Maximum Purchase Price = (ARV × 70%) – Rehab Costs – Soft Costs
70% Rule Example
Let’s say:
- Estimated ARV: $100,000
- Rehab costs: $15,000
- Soft costs: $5,000
Calculation:
- $100,000 × 0.70 = $70,000
- $70,000 – $15,000 – $5,000 = $50,000 max purchase price
If executed correctly, this leaves room for profit, market fluctuations, and unexpected expenses.
Step 1: Accurately Determine After Repair Value (ARV)
ARV is the most critical variable in the 70% rule. Overestimating it can destroy profitability.
How to Find Accurate Comps
Comparable properties (“comps”) should:
- Have sold within the last 90 days (up to 12 months in stable markets)
- Be similar in:
- Square footage
- Bedroom and bathroom count
- Lot size
- Construction type and age
Sold listings are far more reliable than active listings. Platforms like Redfin and Zillow provide accessible sales data, but partnering with a local real estate agent often yields the most accurate insights.
When possible, prioritize recently renovated comps, as they best reflect the finished product you’re creating.
Step 2: Set Realistic Rehab Costs
Underestimating rehab costs is one of the most common mistakes new flippers make.
Best practices include:
- Getting estimates from licensed contractors
- Understanding which upgrades deliver ROI vs. vanity improvements
- Adding a 10–15% contingency buffer for unexpected issues
According to Remodeling Magazine, cost overruns are common, especially in older properties.
Step 3: Account for Soft Costs and Holding Expenses
Soft costs can quietly erode profits if they aren’t fully calculated upfront. These typically include:
- Loan interest and financing fees
- Property taxes and insurance
- Utilities during rehab
- Realtor commissions
- Closing costs at resale
The longer you hold a property, the more these costs increase, which is why speed and reliable financing matter in fix-and-flip investing.
When Should Investors Adjust the 70% Rule?
The 70% rule works best for entry-level and mid-priced flips, where margins are tighter and buyer sensitivity is higher.
Experienced investors may:
- Adjust to 75–80% in appreciating markets
- Accept lower margins on high-end flips where absolute profit is still substantial
For example, earning $200,000 on a $1M flip may justify flexibility, even if the percentage margin is lower.
Why the 70% Rule Still Matters in 2026
Even as markets shift, the 70% rule remains valuable because it:
- Forces disciplined acquisition pricing
- Builds in risk protection
- Encourages conservative assumptions
- Helps investors scale sustainably
It’s not about following the rule blindly—it’s about understanding the math behind profitable flipping.
Finance Your Flip With Confidence
At Center Street Lending, we help real estate investors fund both property acquisition and rehab costs with flexible fix-and-flip loan programs designed for speed and scalability.
If you’re evaluating deals using the 70% rule and need competitive financing, contact Center Street Lending to learn how we can support your next project.
Center Street communications are not intended to provide business, legal, tax, investment, or insurance advice. No Center Street communication should be construed as a recommendation for any business or investment strategy by Center Street or any third party. You are solely responsible for determining whether any investment, investment strategy, business strategy, or related transaction is appropriate for you based on your personal investment objectives, financial circumstances, and risk tolerance. You should consult your legal or tax professional regarding your specific situation.
