The 70% Rule Explained: Real Estate Flip Calculator Formula
Understand the 70% rule for house flipping. Learn when to use 60%, 70%, 75%, or 80% based on your market, and see real examples of MAO calculations.
The 70% rule is the most widely-used formula in house flipping to determine Maximum Allowable Offer (MAO). But here's what most beginners don't know: the "70%" isn't a universal constant - it should be 60-80% depending on your market. This guide shows you exactly when to use which percentage, how to calculate MAO correctly, and real examples.
What is the 70% Rule?
The 70% rule is a quick formula to calculate the maximum you should pay for a flip property to ensure profitability.
The Formula
Max Offer = (ARV × 0.70) - Rehab Costs
The 30% margin covers all your non-rehab costs (holding, selling, buying) and your profit.
Where Does the 30% Go?
- Holding Costs (3-5%): Taxes, insurance, utilities, loan interest
- Selling Costs (8-10%): Agent commissions, closing costs
- Profit (10-15%): Your reward for the risk and work
Step-by-Step Calculation
Example Property: 123 Main St
Inputs:
ARV: $300,000
Rehab Costs: $50,000
Calculation:
$300,000 × 0.70 = $210,000
$210,000 - $50,000 = $160,000
Maximum Offer: $160,000
The Cost of Overpaying
If you ignore the rule and pay $190,000 instead of $160,000, your profit drops from ~$50k to ~$20k. A $30k mistake wipes out most of your reward for 6 months of work.
When to Adjust the 70% Rule
One size does NOT fit all. Adjust the percentage based on market conditions:
Conservative (60-65%)
- • Slow market (>90 days DOM)
- • Declining prices
- • Luxury homes ($500k+)
- • Heavy rehab projects
Standard (70%)
- • Balanced market
- • Stable prices
- • Standard cosmetic rehabs
- • Mid-range homes
Aggressive (75-80%)
- • Hot market (<30 days DOM)
- • Rising prices
- • Light rehab ("lipstick")
- • Experienced flippers only
Common Mistakes
Forgetting Contingency
Always multiply your rehab estimate by 1.15. Surprises happen.
Bad ARV
Garbage in, garbage out. If ARV is wrong, the 70% rule won't save you.
Ignoring Holding Time
If renovations take 9 months instead of 4, holding costs double. Adjust percentage down.
Negotiation Strategy
Your MAO is your ceiling, not your opening bid.
MAO: $160,000
Initial Offer: $145,000 (90% of MAO)
Counter Range: $150k - $155k
Walk Away: Anything over $160,000
"Never fall in love with a property. Fall in love with the numbers."
Conclusion
The 70% rule is a powerful tool for quick screening and discipline. Use it to filter deals rapidly, but always verify with a detailed line-item budget before closing.
About the Author
Flip Analyzer Pro Team
Real estate investors and software engineers helping flippers, wholesalers, and BRRRR investors analyze deals faster and more accurately.
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