If you’ve spent any time researching house flipping, you’ve probably come across the 70% rule.
It sounds wonderfully simple.
Take the property’s after repair value, multiply it by 70%, subtract the estimated renovation costs, and you’ve got the maximum price you should pay for the house.
That’s it.
Well… sort of.
The 70% rule in house flipping can be a useful tool for quickly screening potential investment properties, but treating it as an ironclad rule can cause problems. Real estate markets aren’t identical. Financing costs aren’t identical. Renovations aren’t identical. Taxes, insurance, closing expenses, holding periods, selling costs, and desired profits aren’t identical either.
So does the 70% rule work?
Yes, as a quick screening tool. No, as a substitute for a complete house flipping deal analysis.
That’s the important distinction.
At Red Barn Homebuyers, Ken and Anita Corsini have renovated and sold more than 1,000 homes since starting their real estate business in 2005. Through that kind of real-world house flipping experience, you learn pretty quickly that successful investing isn’t built around one magic formula.
It’s built around buying properties at numbers that leave enough room for renovations, expenses, risk, and profit.
If you’re learning how to start flipping houses, understanding the 70% rule is a good place to begin. Understanding its limitations is even more important.
What Is The 70% Rule In House Flipping?
The 70% rule in house flipping is a rule of thumb investors use to estimate the maximum amount they should consider paying for a property.
The traditional formula is:
Maximum Purchase Price = After Repair Value × 70% – Estimated Repair Costs
You’ll also hear the resulting purchase price called the maximum allowable offer, or MAO.
For example, suppose you’re looking at a distressed property that should be worth $300,000 after renovations.
You estimate that the property needs $50,000 in repairs.
Here’s the calculation:
$300,000 × 70% = $210,000
Then subtract the renovation cost:
$210,000 – $50,000 = $160,000
According to the 70% rule, you shouldn’t pay more than approximately $160,000 for the property.
BiggerPockets describes the 70% rule as a formula commonly used by real estate investors to calculate how much they may be able to pay for a distressed property based on the property’s ARV and estimated repairs. You can review its explanation of the 70% rule for house flipping.
Simple enough, right?
The bigger question is what that remaining 30% is supposed to accomplish.
Why Do House Flippers Use 70%?
The logic behind the 70% rule is that approximately 70% of the property’s after repair value goes toward the acquisition and renovation of the property.
That leaves the other 30% available for:
- Financing costs
- Purchase closing costs
- Property taxes
- Insurance
- Utilities
- Maintenance
- Selling expenses
- Real estate brokerage compensation
- Additional closing expenses
- Unexpected costs
- Investor profit
In other words, the remaining 30% isn’t supposed to represent pure profit.
Far from it.
That’s one of the biggest misunderstandings surrounding the 70% rule.
If you buy a property for 70% of ARV minus repairs, you haven’t automatically created a 30% profit margin. Plenty of other expenses still need to be paid.
BiggerPockets explains that the remaining 30% traditionally needs to absorb holding costs, selling costs, taxes, financing expenses, profit, and other charges associated with completing the flip. Its real estate investing rules of thumb guide also points out one of the rule’s weaknesses: combining so many different expenses into one percentage can oversimplify the economics of an individual deal.
That’s exactly why the 70% rule should be your starting point, not your finish line.
What Is After Repair Value?
The after repair value, usually called ARV, is an estimate of what a property should sell for after the planned renovations are completed.
ARV is the foundation of the 70% rule.
And here’s the catch:
If your ARV is wrong, the entire calculation can be wrong.
Imagine you think a renovated house will sell for $400,000.
You apply the 70% rule:
$400,000 × 70% = $280,000
The renovation will cost $60,000.
That gives you:
$280,000 – $60,000 = $220,000
So you buy the property for $220,000.
Then the renovation is finished and the market tells you the house is really worth $360,000.
Your original calculation was built on $40,000 of value that never existed.
That’s a serious problem.
BiggerPockets has similarly warned that investors need to understand the property’s actual resale value before relying on the 70% formula. In its discussion of house flipping and deal analysis, the point is made that getting ARV wrong puts the investor behind from the beginning.
How Do You Calculate ARV Correctly?
A reasonable ARV should be supported by recently sold comparable properties.
Look for homes that are similar in:
- Location
- Square footage
- Bedrooms
- Bathrooms
- Property type
- Age
- Lot size
- Garage and parking
- Floor plan
- Condition
- Renovation quality
Location deserves extra attention.
A beautifully renovated house three miles away isn’t necessarily a good comparable.
Sometimes values can change from one neighborhood to the next.
Sometimes they can change from one side of a major road to the other.
School districts, taxes, housing styles, lot sizes, buyer demand, nearby commercial areas, highways, and neighborhood reputation can all influence home values.
That’s why experienced real estate investors don’t simply search for the highest recent sale in the ZIP code and call it ARV.
The comparable properties should actually be comparable.
Why ARV Should Be Conservative
Let’s say comparable renovated homes support values between $375,000 and $400,000.
You could put $400,000 into your house flipping calculator.
It certainly makes the deal look better.
But what happens if the finished house sells for $380,000?
That’s $20,000 less revenue than your original projection.
A more cautious investor might analyze the deal at $380,000 or $385,000 and then treat a higher sale price as upside.
This matters because your ARV affects every part of the 70% rule.
An inflated ARV creates an inflated maximum allowable offer.
The formula can be mathematically perfect and still lead you straight into a bad house flipping deal if the number you put into it is wrong.
The Second Critical Number Is Your Repair Budget
The 70% rule requires you to subtract renovation expenses.
That means your repair estimate needs to be accurate too.
Suppose your ARV is $350,000.
Using the 70% rule:
$350,000 × 70% = $245,000
You estimate $45,000 in renovations.
Maximum purchase price:
$200,000
Now imagine the renovation actually costs $70,000.
You’ve missed your budget by $25,000.
That $25,000 doesn’t magically disappear because you followed the 70% rule.
It comes out of the economics of your deal.
What Should Be Included In A House Flipping Rehab Estimate?
Your renovation budget might include:
- Roofing
- Foundation repairs
- Electrical work
- Plumbing
- HVAC
- Water heater
- Windows
- Doors
- Kitchen cabinets
- Countertops
- Appliances
- Bathroom renovations
- Flooring
- Drywall
- Interior paint
- Exterior paint
- Lighting
- Plumbing fixtures
- Trim
- Siding
- Gutters
- Landscaping
- Driveway repairs
- Decks and porches
- Permits
- Dumpster costs
- Cleaning
Then you’ve got potential surprises.
Maybe you remove drywall and find old wiring.
Maybe a bathroom leak has damaged the subfloor.
Maybe the HVAC system works during your inspection but dies halfway through the renovation.
Maybe a contractor opens a wall and finds something nobody expected.
That’s house flipping.
Renovation estimates need enough detail and enough margin to deal with real life.
Should You Include A Rehab Contingency?
Usually, yes.
The appropriate amount depends on the project.
A newer property needing mostly paint, flooring, fixtures, and cosmetic updates doesn’t carry the same renovation risk as an older house requiring structural work, plumbing replacement, electrical upgrades, and major layout changes.
The important point isn’t that every house needs the exact same contingency percentage.
The point is that your analysis shouldn’t assume everything will go perfectly.
Because it probably won’t.
Does The 70% Rule Account For All House Flipping Costs?
Not directly.
That’s one of its biggest limitations.
The 70% rule takes ARV and renovation expenses and compresses almost everything else into the remaining 30%.
But actual house flipping expenses can include much more than the purchase price and construction budget.
Let’s look at some of them.
Financing Costs
If you’re using borrowed money, you might pay:
- Interest
- Origination points
- Underwriting fees
- Appraisal fees
- Extension charges
- Other lender expenses
An investor using expensive short-term financing may have a very different cost structure from an investor using their own cash.
Holding Costs
Every month you own the property can create expenses such as:
- Loan interest
- Property taxes
- Insurance
- Utilities
- Lawn care
- Snow removal
- Homeowners association fees
- Maintenance
- Security
Time matters.
According to ATTOM’s Q1 2026 U.S. Home Flipping Report, the typical flipped home took 165 days from purchase to resale during the first quarter of 2026.
That’s roughly five and a half months.
If your original analysis assumes a three-month project but the property actually takes six months to renovate and sell, you’ve created three additional months of carrying costs.
Selling Costs
Once the renovation is completed, you’re still not finished paying expenses.
Selling costs could include:
- Brokerage compensation
- Title expenses
- Transfer taxes
- Attorney fees
- Seller concessions
- Staging
- Photography
- Cleaning
- Landscaping
- Repairs requested by a buyer
- Other closing costs
Those numbers vary from market to market and transaction to transaction.
Again, the 70% rule doesn’t calculate them individually.
It assumes the remaining margin can absorb them.
Why The 70% Rule Isn’t A Profit Formula
This point deserves extra attention.
Suppose:
ARV: $400,000
70% of ARV: $280,000
Repairs: $60,000
Maximum purchase price: $220,000
At first glance:
$400,000 – $220,000 – $60,000 = $120,000
Wow.
Did you just make $120,000?
No.
That’s the spread before other expenses.
Suppose you also incur:
- $18,000 in financing expenses
- $12,000 in holding costs
- $28,000 in selling and closing expenses
Now:
$120,000 – $18,000 – $12,000 – $28,000 = $62,000
Your estimated profit before taxes is now $62,000.
Still potentially attractive, but it’s nowhere near $120,000.
That’s why smart house flipping deal analysis goes beyond the 70% rule.
Does The 70% Rule Still Work In 2026?
The 70% rule can still work in 2026 as a quick property screening tool.
It’s especially useful when you’re reviewing a large number of potential deals and need a fast way to decide which ones deserve closer analysis.
But current market data shows why blindly applying 70% across every city doesn’t make much sense.
ATTOM reported that 64,348 homes were flipped during Q1 2026, representing 8% of all U.S. home sales. The typical gross return was 25.4%, while the typical gross flipping profit was $66,000. You can see the full numbers in ATTOM’s Q1 2026 Home Flipping Report.
Those numbers sound encouraging.
But profitability varied tremendously by location.
Among metropolitan areas with populations above 1 million, ATTOM reported typical gross flipping margins of:
- Pittsburgh, Pennsylvania: 85.9%
- Buffalo, New York: 84%
- Virginia Beach, Virginia: 74.9%
- Baltimore, Maryland: 65.9%
- Philadelphia, Pennsylvania: 62%
Meanwhile:
- Austin, Texas: 2%
- Dallas, Texas: 4.3%
- San Antonio, Texas: 5.1%
- Houston, Texas: 7.2%
- Salt Lake City, Utah: 9.5%
Those figures come from the same ATTOM Q1 2026 flipping analysis.
That’s a massive difference.
As ATTOM CEO Rob Barber put it, “Success still depends heavily on local market dynamics.”
That’s one of the strongest arguments against treating 70% as a universal law.
Why A 70% Rule Might Be Too Conservative
There are situations where paying more than 70% of ARV minus repairs could still produce an attractive house flipping deal.
Imagine you’re evaluating a higher-value property.
ARV: $800,000
Renovations: $100,000
The 70% rule gives:
$800,000 × 70% = $560,000
Minus $100,000 in renovations:
$460,000 maximum purchase price
But suppose detailed analysis shows that purchasing the house for $500,000 would still produce an attractive return because:
- Your financing costs are low
- The renovation is straightforward
- The property should sell quickly
- Your selling expenses are controlled
- The neighborhood has strong demand
- You have enough margin to meet your profit requirement
Would you automatically walk away because the house violates the 70% rule?
Not necessarily.
BiggerPockets makes a similar point, noting that investors should think of the percentage as variable rather than assuming 70% is appropriate for every property. Its 70% rule discussion specifically recommends considering the local market, property type, and investment strategy.
The detailed numbers matter more than the slogan.
Why 70% Might Also Be Too Aggressive
The opposite can happen.
Suppose:
ARV: $150,000
70% of ARV: $105,000
Repairs: $30,000
Maximum purchase price: $75,000
The formula says $75,000 works.
But imagine your transaction has:
- High financing costs
- $10,000 in unexpected foundation work
- High insurance expenses
- A long holding period
- Significant selling costs
The deal might not produce enough profit even though it passes the 70% test.
Interestingly, ATTOM’s Q1 2026 data showed that properties originally purchased for less than $50,000 generated a typical 14% loss, while flipped homes acquired for $100,000 to $200,000 generated the strongest typical ROI at 32%. Those figures are available in ATTOM’s 2026 home flipping research.
That doesn’t mean inexpensive properties are bad investments.
It shows why purchase price alone doesn’t tell the whole story.
Cheap doesn’t automatically mean profitable.
Why Property Price Changes The Math
Some house flipping expenses aren’t perfectly proportional to property value.
Suppose you compare a $150,000 ARV flip with a $750,000 ARV flip.
Certain expenses may be much higher on the expensive house.
Others may not increase fivefold.
The title work isn’t necessarily five times harder.
Photography isn’t five times more expensive.
A dumpster doesn’t suddenly cost five times as much.
Some fixed and semi-fixed expenses represent a larger percentage of a low-price deal than a high-price deal.
That’s another reason an investor might use a different acquisition percentage depending on the price point and project.
When Should You Use The 70% Rule?
The 70% rule works best during the early screening stage.
Imagine your marketing produces 20 potential house flipping leads this week.
You don’t want to spend three hours preparing a detailed financial model for every property.
First, determine an approximate ARV.
Estimate the renovation.
Apply the 70% rule.
If the seller wants $300,000 and your rough 70% calculation suggests a maximum price of $180,000, the deal probably isn’t worth an immediate deep analysis unless there’s something you’re missing.
If the seller wants $195,000?
Now it may deserve a closer look.
That’s the value of the formula.
It’s fast.
When Shouldn’t You Rely On The 70% Rule?
Don’t make a final purchase decision using the 70% rule alone.
Before actually buying the property, analyze:
- Realistic ARV
- Detailed repair costs
- Purchase closing expenses
- Financing costs
- Expected holding period
- Property taxes
- Insurance
- Utilities
- Maintenance
- Selling expenses
- Desired profit
- Expected return
- Renovation contingency
- Downside scenarios
- Backup exit strategies
That’s actual house flipping deal analysis.
The 70% rule merely gets you through the front door.
How To Analyze A Deal After Using The 70% Rule
Let’s take a real-world-style example.
You find a property with an estimated ARV of $350,000.
Renovation estimate: $55,000.
Apply the rule:
$350,000 × 70% = $245,000
Subtract repairs:
$245,000 – $55,000 = $190,000
The 70% rule suggests a maximum purchase price of $190,000.
The seller is willing to accept $185,000.
Looks promising.
Now build the actual project budget.
- Purchase price: $185,000
- Renovation: $55,000
- Purchase and loan costs: $10,000
- Holding expenses: $12,000
- Selling expenses: $25,000
- Total estimated investment: $287,000
- Estimated resale price: $350,000
Expected profit before taxes:
$63,000
Now you’ve got something meaningful to evaluate.
Stress-Test The Deal
Next, assume things don’t go perfectly.
What if renovations cost $65,000 instead of $55,000?
Profit falls to $53,000.
What if the finished house also sells for $340,000?
Profit falls to $43,000.
What if you then have an extra $5,000 in holding costs because the project takes longer?
Now your profit is approximately $38,000.
Would you still buy the property?
Maybe.
That’s a business decision.
But now you’re making it with much better information.
Don’t Forget ATTOM’s Gross Profit Isn’t Net Profit
You’ll frequently see house flipping statistics showing impressive-looking gross profits.
Understand what those statistics actually measure.
ATTOM’s Q1 2026 report showed a typical gross profit of $66,000.
However, ATTOM explains that its gross flipping profit calculation is simply the difference between the property’s purchase price and resale price. It doesn’t include rehab costs and other expenses. ATTOM notes that experienced flippers estimate those additional costs commonly run between 20% and 33% of the property’s after repair value. The methodology appears directly in the ATTOM report.
That’s important.
A $66,000 gross spread doesn’t mean an investor pocketed $66,000.
Real expenses still have to come out.
What Percentage Should You Use Instead Of 70%?
There’s no universal answer.
Sometimes 65% might make sense.
Sometimes 70%.
Sometimes 75%.
The percentage should reflect the actual economics of the project.
A better question is:
What price can I pay while still earning an acceptable return after accounting for every realistic expense and a reasonable margin for problems?
That’s not as catchy as “the 70% rule.”
But it’s a better way to invest.
What Profit Margin Should A House Flipper Target?
There isn’t one correct profit target for every investor.
Consider:
- Dollars of expected profit
- Return on invested capital
- Cash required
- Financing structure
- Renovation complexity
- Length of project
- Market risk
- Management time
- Alternative opportunities
Suppose one property could produce $40,000 over four months with a relatively simple renovation.
Another might produce $50,000 over 10 months while requiring far more capital and significant structural work.
The second property has a larger dollar profit.
That doesn’t automatically make it the better deal.
The 70% Rule Doesn’t Protect You From Bad Data
This might be the biggest lesson of all.
The formula could be:
100% correct mathematically
and
100% wrong financially.
How?
Bad ARV.
Bad renovation estimate.
If you enter bad assumptions, the formula produces a bad answer.
That’s why learning how to evaluate comparable sales and renovation costs is more valuable than memorizing a percentage.
Our First Deal Roadmap is designed to help new investors think through the actual process of moving toward their first deal instead of relying on shortcuts alone.
Why Beginners Like The 70% Rule
There’s a reason this rule has been around so long.
It’s easy.
When you’re new to real estate investing, you’re learning dozens of concepts at once.
ARV.
Comps.
Rehab budgets.
Hard money.
Closing costs.
Holding costs.
Seller leads.
Contractors.
Title.
Insurance.
The 70% rule gives you a simple framework:
Value × 70% – Repairs = Rough Maximum Purchase Price
That’s useful.
The mistake is staying there.
As your experience grows, your analysis should become more precise.
Can You Learn This While Working A Full-Time Job?
Absolutely.
You don’t need to own a property to practice analyzing house flipping deals.
Pull recently sold properties.
Estimate ARV.
Find distressed listings.
Estimate repairs.
Apply the 70% rule.
Then build a full deal analysis and compare the two answers.
Over time, you’ll start seeing why some properties work at 70%, others don’t, and some could still make sense above that threshold.
For aspiring investors who aren’t ready to immediately leave their careers, our From Job to Investor resource explains how real estate investing can begin while you’re still working.
Why A House Flipping Franchise Can Help
You can certainly learn house flipping independently.
Many successful investors have.
The challenge is that trial and error can become expensive when each lesson involves real estate, contractors, financing, and six-figure transactions.
That’s part of why Red Barn Homebuyers was created.
Ken and Anita Corsini have been investing since 2005 and have renovated and sold more than 1,000 homes. That experience helped shape the systems used within the Red Barn Homebuyers franchise.
Franchise owners receive resources including motivated seller leads, training, coaching, technology, financing resources, vendor relationships, and ongoing support.
That doesn’t guarantee profitable flips.
No legitimate real estate investment business can guarantee that.
It gives franchisees an established framework for making decisions rather than having to create every part of the business on their own.
A Better Way To Think About The 70% Rule
Instead of asking:
“Does this property meet the 70% rule?”
Ask:
“Does this property produce an acceptable return after I’ve realistically accounted for purchase price, renovation costs, financing, holding expenses, selling costs, risk, and time?”
That’s the real question.
Use the 70% rule to quickly identify potential opportunities.
Then do the work.
Verify the ARV.
Build the renovation budget.
Calculate your financing.
Estimate your holding period.
Add selling costs.
Include a contingency.
Run a downside scenario.
Determine your profit.
Then decide what you’re willing to pay.
At Red Barn Homebuyers, that’s the kind of thinking that matters when helping entrepreneurs start flipping houses as a real business.
Because successful house flipping isn’t about blindly following a percentage.
It’s about knowing your numbers well enough to know when the percentage makes sense.
So, does the 70% rule in house flipping work?
Yes, when you use it for what it actually is: a quick rule of thumb.
It’s a filter.
It’s a starting point.
It’s a way to quickly ask, “Could there be a deal here?”
But when hundreds of thousands of dollars are on the line, you shouldn’t stop there.
The calculator may start with 70%.
Your investment decision should end with the actual numbers.
