If you have spent any time around fix-and-flip investors, you have heard the 70% rule thrown around. It is one of those foundational concepts that sounds simple until you start applying it to real deals, and then you realize there is a lot of nuance hiding underneath.
This article breaks down exactly how the rule works, shows you real numbers, and explains when experienced investors adjust it up or down based on market conditions.
What Is the 70% Rule?
The 70% rule is a back-of-the-envelope formula that tells you the most you should pay for a distressed property if you plan to fix and flip it. If you pay no more than 70% of the after-repair value (ARV) minus repair costs, you will have enough room to cover your purchase costs, holding costs, financing, and still walk away with a reasonable profit.
It is not a law. It is a rule of thumb. But it is one that has kept a lot of investors out of trouble over the years.
The rule works because fix-and-flip deals have a lot of built-in costs beyond just buying and renovating. You have closing costs on both ends, carrying costs while you hold the property, agent commissions when you sell, and unexpected repairs that always seem to show up. The 30% buffer accounts for all of that.
The MAO Formula
ARV (After Repair Value) is what the property will be worth after you complete renovations, based on comparable recently sold properties in similar condition.
Estimated Repairs is the total cost to bring the property to that ARV condition. This includes everything from structural work to cosmetic finishes.
MAO (Maximum Allowable Offer) is the highest price you can pay and still hit your profit target.
Getting your ARV calculator right is the most important step in this formula. If your ARV is inflated, your MAO will be too high, and you will get squeezed on the back end.
A Worked Example with Real Numbers
You are looking at a 3-bedroom, 2-bathroom house in a suburban neighborhood. You pull comps and determine the ARV is $280,000 after a solid renovation. Your contractor estimates repairs at $45,000.
Here is the math:
- ARV: $280,000
- ARV x 0.70: $196,000
- Minus Repairs ($45,000): $151,000
- MAO: $151,000
Now let's say your contractor comes back and says the roof needs to be replaced, adding another $12,000. Your new MAO drops to $139,000. That is why accurate repair estimates matter so much. A house flip calculator can help you stress-test these numbers before you make an offer.
When to Use 65% vs. 75%
The 70% number is not sacred. Savvy investors adjust it based on conditions.
Use 65% (or lower) when:
- You are in a slow or declining market where selling takes longer
- The property has significant unknown variables (deferred maintenance, older systems, potential structural issues)
- You are using hard money with higher interest rates and points
- The neighborhood has limited comparable sales, making ARV less certain
- You are newer to flipping and need a wider cushion for mistakes
- You are in a hot, fast-moving market with strong buyer demand
- You have a reliable contractor with a locked-in bid (not an estimate)
- You are using cheap capital like private money or cash with no interest costs
- The property has minimal repairs and the ARV is very well supported by recent comps
- You have a buyer lined up before you even close
Common Mistakes Investors Make with the 70% Rule
Mistake 1: Using list price as ARV. The ARV is based on what similar renovated homes have actually sold for, not what they are listed at. Pending sales and active listings are not the same as closed comps.
Mistake 2: Underestimating repairs. This is the most common way investors blow their margin. A quick walk-through with a cheap contractor is not enough. Get multiple bids on bigger projects.
Mistake 3: Forgetting holding costs. The 30% buffer has to cover your financing costs, property taxes, insurance, utilities, and agent commissions. If you are flipping in six months with a hard money loan at 12% plus points, those costs add up fast.
Mistake 4: Applying the rule to rental properties. The 70% rule is designed for flips. For buy-and-hold deals, you need different metrics like cash-on-cash return and cap rate.
How DealBeast Calculates MAO Automatically
Running this math manually every time is fine for one deal, but when you are screening 20 properties a week, it gets tedious and error-prone. DealBeast handles the entire formula for you in seconds.
When you enter an address, DealBeast runs its 10-step comping algorithm to establish the ARV. It pulls recent comparable sales, adjusts for size and condition, and applies time-based weighting to give you a defensible number, not just a Zestimate. Then it layers in estimated rehab costs based on property condition and age, and calculates your MAO automatically.
The 70% Rule Calculator lets you input your own ARV and repair estimates to see exactly where your offer needs to land.
Run Your MAO in Seconds with DealBeast
FAQ
What is the 70% rule?
The 70% rule is a formula used by fix-and-flip investors to determine the maximum price they should pay for a property. The formula is: MAO = ARV x 0.70 - Estimated Repairs. It is designed to ensure enough margin to cover all costs and still generate a profit.
Can I use 75% instead of 70%?
Yes, in certain conditions. If you are in a strong seller's market, using cash or cheap capital, have locked-in contractor bids, and have high confidence in your ARV, going to 75% can be reasonable. Just understand that your margin for error gets thinner. Most experienced investors only stretch the percentage when multiple favorable conditions line up at the same time.
What if repair costs are unknown?
If you cannot get a reliable repair estimate, that is a red flag. Use conservative placeholders (at minimum $25/sqft for a full renovation) until you can get proper bids. Do not make an offer on a property with major unknowns unless you are pricing in that uncertainty by dropping your percentage well below 70%.
Does the 70% rule work in expensive markets?
It gets harder to hit in high-cost markets like San Francisco or New York because the dollar amounts are larger and the margin for error is tighter. Some investors in expensive markets work at 60-65% to protect themselves. The concept still applies, but you have to be more deliberate about it.
What is MAO (Maximum Allowable Offer)?
MAO stands for Maximum Allowable Offer. It is the highest price an investor can pay for a property and still achieve a targeted return. For fix-and-flip deals, MAO is typically calculated using the 70% rule. It is a ceiling, not a target. If you can buy below your MAO, your deal just got better.