When the 70% Rule Kills a Deal (and When It Should)

The 70% rule gives you a maximum offer price in four words: after-repair value times your percentage, minus repair costs. Run it on a deal in thirty seconds and you know whether to keep reading the listing or move on. The problem is that "70%" is not a law of physics. It is a margin assumption baked into a formula, and when your market's transaction costs, holding periods, or typical profit targets differ from the assumption behind that number, the rule will either kill deals worth doing or wave through deals that will lose money.

Understanding what the percentage actually represents — and how to adjust it — is what separates the rule from a useful filter.

What the Percentage Is Actually Encoding

The formula is:

Maximum offer = ARV × rule percentage − repair costs

The gap between the rule percentage and 100% is meant to cover three things: selling costs (agent commissions, transfer taxes, closing costs on the sale side), holding costs (loan interest, insurance, utilities, property taxes during the rehab), and profit. If those three buckets total roughly 30% of ARV in a given market, the 70% rule produces the right maximum offer. If they total more or less than that, the rule needs a different percentage.

Before you adjust anything, you need your ARV. If you haven't already built that number from comparable sales, the ARV Calculator walks through the comp-based calculation step by step.

Selling Costs

A standard dual-agent commission plus title, transfer taxes, and seller-side closing costs varies by state and by price point. In some markets those costs are closer to the low end of a normal range; in others — particularly states with significant transfer taxes or mandatory attorney fees — they run higher. Whatever your actual number is, it belongs in your version of the formula, not a national average.

Holding Costs

Holding costs scale with time. A market where permits move slowly, where contractors are booked out, or where your scope of work is heavy will stretch your hold period and push holding costs higher. A tight rehab in a permit-friendly jurisdiction can run much leaner. Neither situation fits the same percentage.

Profit Target

This is the variable most investors treat as fixed when it isn't. A flipper working with private money at a high interest rate needs a wider margin than one using a low-rate hard money line. A first-time flipper carrying more execution risk should demand more cushion than a team with fifty closings behind them.

How to Calibrate the Percentage to Your Market

Start with your actual numbers from recent local flips — your own if you have them, or from conversations with active flippers in your market. Build the percentage from the bottom up:

1. Estimate selling costs as a percentage of ARV based on your state's typical commission and closing cost structure.
2. Estimate holding costs as a percentage of ARV based on your average hold time, your financing rate, and carrying expenses.
3. Add your minimum acceptable profit as a percentage of ARV.
4. Subtract the total from 100%. That is your adjusted rule percentage.

If selling costs, holding costs, and profit together add up to more than 30% of ARV in your market, your rule percentage should be lower than 70% — meaning you need to offer less to hit your margin. If they add up to less than 30%, you have room to go higher and still hit your target.

The 70% Rule Calculator lets you input a custom percentage rather than locking you to the standard number, which is exactly the right way to use it once you've done this calibration exercise.

When the Rule Kills a Deal It Shouldn't

The rule is a screen, not a verdict. There are deal structures where a property that fails the standard rule is still worth running the full numbers:

High-ARV properties with flat transaction costs. Selling costs like transfer taxes are often flat dollar amounts or capped, not pure percentages. On a high-value property, those costs represent a smaller share of ARV, which means the 30% gap overstates the actual cost burden. A deal that fails at 70% may pass at 73% or 75% once you model the real costs.

Properties with unusually low repair costs. The rule subtracts repair costs after applying the percentage, so a deal with cosmetic-only work and a low repair number can produce a workable margin even at a slightly higher offer. The percentage matters less when the absolute repair figure is small relative to ARV.

Markets with fast absorption. Holding costs are a function of time. In a market where renovated properties sell in days rather than months, your actual hold period may be short enough to cut holding costs significantly below the assumption embedded in the standard rule.

In any of these cases, the right move is not to override the rule with gut feel — it's to build a full deal model. The Flip Profit Calculator runs the complete accounting: purchase price, repair costs, holding costs line by line, selling costs, and projected sale price, producing a profit figure and return on cost you can actually evaluate.

When the Rule Kills a Deal It Should

The rule is also correct to kill deals, and the most dangerous outcome is finding a reason to ignore it without doing the underlying math. Common rationalizations that don't hold up:

• "The ARV will be higher once the market moves." ARV is based on today's comps. Future appreciation is speculation, not analysis.
• "I'll do the work myself and cut rehab costs." Sweat equity has a real cost — your time — and it introduces execution risk that a margin buffer exists to absorb.
• "The seller is motivated and I got a great price." A great price relative to asking price is not the same as a great price relative to ARV minus costs.

If a deal fails your calibrated rule percentage — not the generic 70%, but the number you built from your actual local costs and profit target — that failure is meaningful. The full deal model may confirm it, but it rarely reverses it.

A Note on Related Screens

The 70% rule is a flip-specific filter. If you're evaluating whether a property that doesn't sell as a flip could work as a rental hold instead, the analysis shifts entirely — you'd be looking at cash flow, not margin. The guide on why cap rate alone will cost you money covers why a single metric is never enough on the rental side either.

Frequently Asked Questions

Is the 70% rule a hard limit or a starting point?

It is a starting point. The percentage encodes assumptions about selling costs, holding costs, and profit margin — assumptions that vary by market, deal structure, and investor profile. Treat the output as a quick screen that tells you whether to keep analyzing, not as a final offer price.

What percentage should I use instead of 70%?

There is no universal answer. Build your percentage from the actual selling costs, holding costs, and minimum profit margin that apply to your specific market and financing structure. Flippers in high-cost, slow-permit markets often work with a lower percentage; those in low-cost, fast-absorption markets may have room to go higher.

Can a deal fail the 70% rule and still be profitable?

Yes, in specific situations — particularly on high-ARV properties where transaction costs are flat rather than percentage-based, or on deals with unusually short hold periods. The right response is to model the full deal rather than override the rule without analysis.

Does the rule account for financing costs?

Only indirectly. Holding costs in the rule's gap assumption include loan interest, but the rule doesn't let you input your actual rate or loan term. That's another reason to run the full flip profit model once a deal clears the initial screen — financing terms have a direct effect on whether the deal works.

Should I use the same percentage for every deal?

No. The percentage should reflect the cost structure of each deal. A heavy gut-rehab with a long expected hold period warrants a lower percentage than a cosmetic flip in a fast market. Calibrate per deal, or at minimum per deal type within your market.

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This guide is for informational purposes only and does not constitute investment, legal, or tax advice. Consult qualified professionals before making real estate investment decisions. Last reviewed: August 2026.