The Mistake
New flipper finds a house. ARV: $200K. Rehab: $45K. Listed at $130K.
"That's $25K profit!" ($200K - $130K - $45K)
No. Here's what they forgot:
- Agent commission (6%): $12,000
- Closing costs (buy + sell): $8,000
- Holding costs (5 months): $10,000
- Contingency overrun: $5,000
Actual profit: -$10,000. They lost money.
The 70 Percent Rule
The formula that prevents this:
Max Offer = ARV × 70% − Rehab
For the same deal: $200,000 × 0.70 − $45,000 = $95,000 max offer
They paid $130,000. The 70% rule said $95,000. The $35,000 difference is exactly where their profit disappeared.
Why 70% and Not 80%?
The 30% margin covers:
| Cost | Typical % |
|---|---|
| Agent commission | 5-6% |
| Closing costs (both sides) | 3-5% |
| Holding costs (4-6 months) | 4-8% |
| Your profit | 10-15% |
| Total | ~30% |
At 80%, your profit margin is 5%. One surprise wipes it out.
When to Bend It
- Light cosmetic rehab ($10-15K): can go to 75%
- Hot market (<30 days on market): thinner margins work
- BRRRR (not selling): no agent commission, adjust to 75%
Free Calculator
70% Rule Calculator — instant max offer from ARV and rehab.
Full guide
The 70% rule isn't conservative. It's realistic. The 30% covers costs that exist whether you budget for them or not.
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