The direct answer
The 70% rule is a screening formula: ARV times a chosen target percentage, less repairs and other investor costs. Seventy percent is an editable assumption, not a universal pricing rule or a guaranteed margin.
Understand what the percentage reserves
Taking 70% of ARV leaves 30% of that gross value outside the acquisition share before the explicitly deducted repairs and other costs. That remainder is not automatically net profit. Selling expenses, holding time, financing and uncertainty may consume it. A target share is meaningful only when you know which costs are deducted separately and which the percentage is intended to cover.
To apply the approach to an editable scenario, use the Maximum Allowable Offer Calculator. For the neighboring question, explore House Flipping Calculator.
Use supported ARV and repair assumptions
A precise formula cannot repair weak comparable evidence or a missing project cost. Start with a renovated-condition value and an explicit scope for repair spending. Additional investor costs should have a defined purpose and should not duplicate an item already inside the reserve implied by the target percentage. The screening result can be negative when costs exceed the chosen share of ARV.
Check the offer with a complete project model
After screening, run the proposed purchase through a flip or another relevant strategy model. That second step exposes the actual cost allocation and expected cash outcome. Different transaction costs and holding periods can justify different screening assumptions. The calculator does not negotiate an offer, set an appraisal value or establish that a project should be acquired.
Worked example
At $400,000 ARV, a 70% target gives $280,000. Deduct $60,000 repairs and $10,000 other investor costs for a $210,000 maximum allowable offer scenario. Raising the target to 75% increases that formula result to $230,000, without improving the underlying property evidence.
Open Maximum Allowable Offer Calculator and test your assumptions →
Common mistakes and limitations
Calling the remaining 30% guaranteed profit ignores costs and risk. Do not apply a default percentage before defining what the deductions cover.
Rule-of-thumb calculator only. Market conditions, financing, taxes and required return vary by investor.
Frequently asked questions
Can I change the 70% assumption?
Yes. The target percentage is editable, and changing it should reflect a deliberately defined cost and profit framework.
Does the formula replace a full flip budget?
No. It is a screening relationship; a complete project scenario is needed to expose selling, holding and financing effects.
Sources and further reading
The article’s examples are illustrative arithmetic. The references below provide context for operating, valuation or transaction concepts; they do not endorse the assumptions or the calculator.
- Appraisal Institute — Basic Formulas — Income CapitalizationIncome/cap-rate/value relationships, gross income multiplier and debt-coverage formula references.
Read our editorial policy for the scope of these educational methods.