How to Calculate the 70% Rule in Real Estate & House Flipping

In real estate investing, seasoned fix-and-flip investors and wholesalers live by a core adage: "You make your money when you buy, not when you sell."

Overpaying for a distressed property leaves zero margin for construction overruns, holding delays, or sudden market downturns. The 70% Rule is the industry-standard screening equation that establishes the absolute maximum price an investor should offer.

This guide explains how to calculate After Repair Value (ARV), apply the 70% formula, and connects to the CalculatorAll 70% Rule Calculator.

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The 70% Rule Formula (Maximum Allowable Offer)

Maximum Allowable Offer (MAO) = (After Repair Value × 0.70) - Estimated Repair Costs

For real estate wholesalers adding an assignment fee:

Wholesaler MAO = (After Repair Value × 0.70) - Estimated Repair Costs - Desired Wholesale Fee

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What Does the 30% Cushion Cover?

The 30% discount margin is NOT pure profit. It accounts for all transactional and holding frictions:

• Investor Net Profit: ~15% of ARV.
• Financing & Carrying Costs: ~5% to 8% (hard money interest, property taxes, insurance, utilities during 6-month rehab).
• Selling & Buying Closing Costs: ~7% to 9% (realtor commissions, transfer taxes, title insurance).

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Worked Example: Distressed Suburban Home

Suppose you analyze a distressed 3-bedroom property with comparable renovated homes selling for $350,000 (After Repair Value — ARV). Your contractor estimates $55,000 in required renovation repairs:

1. Calculate 70% of ARV: $350,000 × 0.70 = $245,000.
2. Subtract Rehab Costs: $245,000 - $55,000 = $190,000 (Flipper MAO).
3. Wholesaler Offer (with $10,000 assignment fee): $190,000 - $10,000 = $180,000 contract offer to seller.

If the seller insists on $210,000, the deal lacks adequate margin and should be declined or negotiated down.