The 70% Rule, Actually Explained
Everyone quotes the formula. Here is what the 30 percent actually pays for, three worked deals, and when to bend the number.
The formula: maximum allowable offer = ARV x 70% minus rehab costs. As a wholesaler you subtract your assignment fee too, because the formula produces your BUYER'S ceiling, not yours.
What the 30 percent pays for
Beginners read the 30 percent as the flipper's profit and conclude cash buyers are greedy. Here is where it actually goes on a $200,000 ARV flip:
- Purchase closing costs: about 2 percent, $4,000
- Holding costs for 5 to 6 months (loan interest, taxes, insurance, utilities): $8,000 to $15,000 with hard money
- Resale costs (agent commissions, concessions, closing): 7 to 8 percent, about $15,000
- Profit that makes the risk worth taking: $20,000 to $25,000
Total: right around 30 percent. The rule is not a discount for greed; it is the actual cost structure of flipping with borrowed money, compressed into one number.
Three worked deals
Deal 1: the clean one
ARV $220,000, rehab $40,000, your fee $10,000. Buyer max: $220,000 x 0.70 minus $40,000 = $114,000. Your MAO: $104,000. Seller wants $95,000. Contract at $95,000, assign at $105,000, everyone wins with margin to spare.
Deal 2: the trap
Same house, but you eyeballed the rehab at $25,000 and it really needs $40,000 (the roof you did not price). You contract at $115,000 expecting a $14,000 fee. Every real buyer runs their own numbers, arrives at $114,000, and offers you less than you contracted for. This is the single most common way beginners die: the formula was fine, the rehab input was fantasy. Price the rehab first, from evidence, with our estimating guide or the AI estimator.
Deal 3: the market adjustment
ARV $450,000 in a hot metro, rehab $60,000. At 70 percent your buyer max is $255,000, and every offer at that number loses. Buyers in appreciating markets accept 75 to 80 percent because $50,000 profit on one flip beats zero flips. At 78 percent: $291,000 buyer max. Know your market's real number by asking buyers what they paid on their last three.
When to bend the percentage
- Hot or expensive markets: 75 to 80 percent.
- Sub $100k houses: 65 percent, because fixed costs eat thin spreads.
- Rental buyers: they price on cash flow, not the 70 percent rule, and will often pay more than flippers for the same house.
Run your own numbers in the free MAO calculator, and remember the direction of safety: it is always easier to come UP from a low offer than to walk back a high one.
Frequently asked questions
What is the 70 percent rule formula?
Maximum allowable offer equals the after repair value times 70 percent, minus estimated rehab costs. Wholesalers subtract their assignment fee as well, since the formula gives the end buyer's ceiling. Example: $200,000 ARV and $35,000 rehab gives a buyer max of $105,000; with a $10,000 fee your offer ceiling is $95,000.
Do cash buyers really use the 70 percent rule?
As a screen, yes, then they build a real budget: purchase and resale closing costs, financing, holding time, and target profit. That full stack lands near 30 percent of ARV in normal markets, which is why the shortcut survives. In hot metros many buyers accept 75 to 80 percent, and on cheap houses some require 65.
Type any address into WholesalerPro and get the ARV, a photo based rehab estimate, sold comps on a map, and a ready to send cash offer in about 20 seconds.