Does the 70% rule include closing costs?

Not directly. The 30% margin is meant to cover closing, holding and selling costs plus profit, rather than subtracting them separately.

Does the 70% rule work in every market?

No. It's a rough screen. In expensive markets investors often accept a higher percentage; in cheaper or riskier ones, a lower percentage.

Should I use the 70% rule for rentals?

It's built for flips. For rentals, cash flow, cap rate and cash-on-cash return are more useful measures.

Investing

The 70% Rule

Also called 70 percent rule, 70% rule

In short

The 70% rule is a fix-and-flip guideline: pay no more than 70% of a property's after repair value (ARV) minus the cost of repairs. It leaves room for profit, holding and selling costs.

Formula

ARV × 70% − repair costs

Used by

Flippers and wholesalers

Covers

Profit, holding, selling costs

Adjust for

Local prices and risk

The formula

Maximum allowable offer = (ARV × 0.70) - estimated repair costs.

The remaining 30% of ARV is meant to cover closing costs on purchase and sale, agent commissions, financing and holding costs, and profit.

When to adjust it

It's a screening rule, not a law. In high-priced markets, investors may go to 75% or 80% because the dollar margin is larger. On low-priced homes, risky areas or projects with long timelines, 65% or less may be safer. Always follow up with a full budget for the specific deal.

Using it on foreclosures

For a foreclosure auction, the rule helps set a maximum bid, but you must also subtract surviving liens, back taxes, eviction or cash for keys costs, and a reserve for repairs you can't see without interior access. For REO homes, you can inspect, so repair estimates are firmer.

The formula

Maximum offer = (ARV × 0.70) − Repair costs

ARV: After repair value

Try it in the Fix and Flip Calculator →

Example

Setting a maximum offer

A house has an ARV of $250,000 and needs $40,000 in repairs. Maximum offer = $250,000 × 0.70 - $40,000 = $175,000 - $40,000 = $135,000. If the seller wants $150,000, the deal doesn't meet the rule, and the investor either negotiates or passes.

Frequently Asked Questions

Related terms

After Repair Value (ARV)InvestingAfter repair value (ARV) is the estimated market value of a property once planned repairs and renovations are complete. Investors use it to decide how much to pay for a fixer-upper.Comparative Market Analysis (CMA)Buying & closingA comparative market analysis (CMA) is a real estate agent's estimate of a home's value based on recent sales, pending sales and active listings of similar nearby properties.Hard Money LoanMortgages & financingA hard money loan is a short-term loan from a private lender, secured mainly by the property's value rather than the borrower's income. Investors use it to buy and renovate properties quickly.Real Estate WholesalingInvestingReal estate wholesaling is putting a property under contract at a discount and then assigning that contract, or reselling the property, to another investor for a fee, without renovating it.Foreclosure AuctionForeclosure processA foreclosure auction is the public sale of a property after a borrower defaults, where the highest bidder buys it, usually with cash and as-is. If no one outbids the lender, it becomes bank-owned.BRRRR MethodInvestingThe BRRRR method is a rental investing strategy: buy a distressed property, rehab it, rent it, refinance based on the higher value, and repeat with the cash pulled out.Opening BidForeclosure processAn opening bid is the first bid at a foreclosure auction, usually placed by the lender. Other bidders must exceed it to buy the property; otherwise the lender takes it back.Resale (After Foreclosure)InvestingA resale is the last stage of the foreclosure lifecycle: a buyer or investor who bought the property at auction or from the bank repairs it, then lives in it, rents it out or sells it again on the open market.

Learn more in the knowledge base

Auction Day Bidding Strategy for Foreclosure SalesGuide · 6 min readAuction day is where your research turns into a binding purchase, so preparation and discipline matter more than tactics. This guide covers what to do the night before, how bidding works in person and online, how to stick to your maximum and what to do right after you win or lose.Researching a Foreclosure Property Before the AuctionGuide · 6 min readAt a foreclosure auction you usually buy as-is, unseen and without contingencies, so research done before the sale is your only protection. This guide covers how to confirm the sale details, check title and liens, estimate value and repairs from the outside and turn it all into a maximum bid.How to Evaluate a Pre-Foreclosure DealGuide · 6 min readOnce an owner is interested in selling, you can replace rough screening estimates with real numbers. This guide walks through confirming what is owed, finding every lien, assessing condition and repairs, estimating value, and turning those figures into a maximum price you will not go above.

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Disclaimer: The information on this page is for general educational purposes only and is not legal, financial, tax or investment advice. Laws, lending rules and market conditions vary by state and change over time, and any figures shown are estimates. Before you buy, sell, finance or bid on a property, consult a qualified attorney, financial advisor, lender or licensed real estate professional about your situation.