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The 70% Rule in House Flipping (With MAO Calculator and Real Examples)
By The FlipVerdict Team · June 21, 2026 · 9 min read
If you only learn one piece of math in real-estate investing, learn the 70% rule. It's the single line that decides whether a flip will be profitable — calculated before you make an offer, not after the rehab. Here's how it works, why 70% is the magic number, and the exact 2026 cases when smart flippers tighten or loosen it.
What the 70% rule actually says
The 70% rule (sometimes called the "70 percent ARV rule") states:
Maximum Allowable Offer (MAO) = (ARV × 0.70) − Rehab
In English: never pay more than 70% of After Repair Value, minus the cost of rehab. The 30% gap is what absorbs financing, holding costs, selling costs, surprises — and what's left over is your profit.
Worked example: how the rule plays out in real numbers
Target property in a median market:
- ARV (after rehab, from 5 closed comps): $320,000
- Rehab budget (line-itemed + 10% contingency): $55,000
MAO = ($320,000 × 0.70) − $55,000 = $224,000 − $55,000 = $169,000.
If you can buy this house for $169,000 or less, the flip pencils. If the seller won't go below $185,000, the deal is dead — even if "it feels like a great house." That's the discipline 99% of failed flippers lack.
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Why 70% — where the number actually comes from
The 30% you're carving out covers everything that isn't purchase or rehab. Here's the breakdown on a typical $320K-ARV flip:
| Cost bucket | % of ARV | Dollars |
|---|
| Selling costs (commission + closing + concessions) | 7%–9% | ~$25,000 |
| Financing (points + interest, 6 mo) | 5%–8% | ~$20,000 |
| Holding (taxes, insurance, utilities, 6 mo) | 2%–4% | ~$10,000 |
| Acquisition closing costs | 1.5%–3% | ~$7,000 |
| Contingency for surprises | 3%–5% | ~$13,000 |
| Investor profit (target) | 8%–12% | ~$32,000 |
| Total "30%" | ~30% | ~$107,000 |
The 70% rule isn't arbitrary — it's the smallest discount that consistently produces a target 8%–12% net ROI after every other cost. Pay 75% of ARV and you're working for free. Pay 80% and you're paying the seller to flip your house.
When to tighten the rule (use 65% or even 60%)
- First-time flippers. You don't yet know what you don't know. 65% buys margin for the inevitable mistakes.
- Markets with falling prices. If comps are softening 0.5%/month, ARV at sale will be lower than ARV at offer. Bake that in.
- Heavy gut rehab or additions. Bigger projects = more surprises and longer timelines. Tighter buy = more cushion.
- Auction or as-is purchases with no inspection. You can't see what's behind the walls. Discount for the risk.
- Slow markets (DOM > 60 days). Each extra month of carry shaves margin. Buy cheaper to compensate.
When to loosen the rule (use 72% – 75%)
- Hot, low-DOM market with comp appreciation. Your ARV at sale may be 3%–5% higher than today's comps suggest. Less than 90-day flip and you can stretch.
- Light cosmetic rehab only. Less rehab risk → less contingency needed.
- You're paying cash. No financing cost saves 4–6 points of the 30% budget.
- You're a licensed agent. Saving the 2.5%–3% buyer-side commission gives you more room.
Even when loosening, cap at 75%. Beyond that, you're not flipping — you're gambling.
The 70% rule applied — 4 quick MAO calculations
| ARV | Rehab | MAO (70%) | MAO (65% conservative) |
|---|
| $200,000 | $35,000 | $105,000 | $95,000 |
| $320,000 | $55,000 | $169,000 | $153,000 |
| $450,000 | $80,000 | $235,000 | $212,500 |
| $650,000 | $140,000 | $315,000 | $282,500 |
The 3 mistakes that break the 70% rule
- Inflated ARV. The single most common failure mode. Pull 3–5 closed comps within 0.5 mi and 90 days. Take the median, not the highest. If you can't find 3 clean comps, you can't calculate ARV — and you can't apply the 70% rule.
- Sandbagged rehab. A 1,600 sqft kitchen-and-bath flip is rarely $25K. Walk the property with a real contractor or use the per-sqft benchmarks ($25–$45 cosmetic, $45–$70 mid-grade, $80–$120 full gut) and add 10% contingency.
- Emotional decision overrides math. Falling in love with the house. "I'll just make $5K less." Five thousand less today is fifteen thousand less after surprises. The discipline is to walk.
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How professionals modify the rule for premium markets
The 70% rule was calibrated on median-priced ($150K–$400K ARV) cosmetic-to-mid-grade flips, which is the bulk of the U.S. market. In premium markets ($600K+ ARV) selling costs grow disproportionately (more concessions, longer DOM, higher staging spend) so many high-end flippers use:
- "68/12" rule: MAO = (ARV × 0.68) − Rehab, targeting a 12% net ROI floor
- "Fixed-dollar profit" rule: MAO = ARV − Rehab − Selling − Holding − Financing − $50K (the $50K is your minimum acceptable profit)
Both produce a similar number in practice. The fixed-dollar version is easier to defend to lenders.
Why this matters more than any other skill in flipping
Anyone can swing a hammer or hire a contractor. Almost no one can walk away from a deal that looks great but doesn't pencil. That discipline — calculating MAO honestly and only making offers at or below it — is what separates flippers who clear $40K per project from flippers who lose $20K. The 70% rule is your shield against your own optimism.
Use it on every deal. Trust the math. Walk when it says walk.
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Frequently Asked Questions
How do you calculate Maximum Allowable Offer (MAO)?
MAO = (ARV × 0.70) − Rehab. Multiply your After Repair Value by 0.70, then subtract your total rehab budget (including a 10% contingency). The result is the highest price you should pay to maintain a healthy flip margin.
Why is it called the 70 percent rule and not 80 percent or 60 percent?
Because 30% of ARV is the consistent average a flip needs to absorb selling costs (7%–9%), financing (5%–8%), holding (2%–4%), acquisition closing (1.5%–3%), a contingency reserve (3%–5%), and still leave the investor an 8%–12% net profit. Tighter than 70% leaves no profit; looser than 70% means losing money on surprises.
Does the 70% rule still work in 2026?
Yes — and it's arguably more important than during the 2020–2022 boom because margins are tighter and interest carry is higher. Many disciplined flippers have moved to 65% in 2026 to give themselves more cushion against rate volatility and timeline overruns.
Is it ever okay to pay more than 70% of ARV?
Occasionally — for an all-cash purchase, in a hot rising market, on a light cosmetic flip you can close in under 90 days — but cap it at 75% of ARV. Beyond that, the math simply doesn't have room for the unexpected, which on a flip is essentially guaranteed.
How do I know if my ARV estimate is accurate enough to trust the 70% rule?
You need 3–5 closed comparable sales within 0.5 miles and 90 days, similar in size (±25%), beds, baths, and finish level. Take the median price per sqft, multiply by your subject's sqft, then sanity-check with a partner agent. If you can't find 3 clean comps, you can't trust the ARV — and the 70% rule won't save you.
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