The 70% Rule and ARV: Flip Math That BRRRR Investors Borrow

The 70 percent rule says to pay no more than 70 percent of a property's after-repair value (ARV), minus the cost of repairs. On a house that would be worth $250,000 fixed up and needs $55,000 of work, the most you should offer is $120,000. It is the fastest acquisition filter in real estate investing. Run it in 30 seconds, and you know whether a distressed property deserves two hours of deeper analysis or a polite pass. Flippers built the formula; BRRRR investors borrowed it and turned it into something more precise, because their exit depends on a bank appraiser agreeing with their ARV number.

The concrete number that grounds this whole conversation: the typical gross return on investment for house flips dropped to 25.1% in Q2 2025, the lowest since 2008, according to ATTOM Data. When margins are that thin, the price you pay going in is the one lever you fully control.

The 70 percent formula: ARV, repair costs, and maximum offer

The 70 percent rule states that investors should not pay more than 70 percent of a property's after-repair value (ARV) minus the costs of repairs when purchasing a property to flip.

Written as a formula:

Maximum Allowable Offer (MAO) = (ARV × 0.70) - Estimated Repair Costs

Two inputs, one output. Every variable matters.

ARV is the price a fully renovated version of the property would command on the open market right now. ARV is determined by referring to comparable recently sold nearby properties that are in the same general condition as the property you want to purchase, considering size, style, and age. For comparable properties, find three to six that have sold within the last 90 days. Use sold prices, not list prices. Always calculate 70 percent of the ARV. The current asking price is irrelevant. You are buying based on future value, not current emotions.

Repair costs are your all-in construction budget: labor, materials, permits, and a contingency. Get an estimate from a qualified contractor before using this formula, instead of relying on a seller's or real estate agent's estimate. The number you put into the formula is the number you have to live with.

MAO is the ceiling. Not a target, a ceiling. Submit below it whenever the seller and market allow.

What the 70 percent rule means in plain terms

If you see the rule on a licensing quiz or hear it called the quick and dirty 70 percent formula, the meaning is simple: the purchase price should not be more than 70 percent of the repaired value, less what the repairs cost. It does not mean 70 percent of renters leave within two years, that 70 percent of rent goes to expenses, or that you must earn a 70 percent return. The expense shortcut people confuse it with is the 50 percent rule, which is a different test for a different question.

70 percent rule calculator: a quick reference table

You do not need software for the first pass. Multiply ARV by your percentage and subtract repairs. The table shows the maximum offer at 65, 70 and 75 percent for a few example combinations (all figures illustrative).

Notice how much the answer moves with the percentage. On the $300,000 house, the gap between 65 and 75 percent is $30,000 of offer price, which is why the section on adjusting the percentage matters as much as the formula itself.

Why 70 percent: the costs the 30 percent margin has to absorb

The 70 percent rule does not promise a 30 percent net profit. That 30 percent equity cushion gets eaten up by the friction costs of buying, holding, and selling real estate.

Here is where the 30 percent goes on a typical financed flip:

Financing costs. Hard money is priced well above bank debt. Interest somewhere between 8 and 15 percent has been a common range, with experienced fix-and-flip borrowers often quoted 9 to 12 percent, and lenders typically charge 1 to 4 origination points on top. Treat those as ballpark figures and get a live quote before you underwrite. As an example, a $150,000 loan at 10.5 percent for 5 months plus 2 points costs roughly $6,600 in interest and $3,000 in points, or about $9,600 before you swing a hammer. The hard money versus private money cost comparison shows how that bill changes by lender type.

Acquisition and disposition closing costs. Closing costs typically run between 3 and 6 percent of the purchase price, covering appraisal, title search, lender fees, and attorney fees. On the sell side, real estate agent commissions run 5 to 6 percent of sale price, plus seller closing costs of 1 to 3 percent including title, escrow, and transfer taxes.

Holding costs. On a typical single-family flip, holding costs run $500 to $1,000 per month, not counting financing. Over an average 4 to 5 month project, that works out to roughly $2,500 to $5,000 in total. Every month the project runs long adds to that bill.

Profit. What remains after all of the above is your actual return. On a thin deal, it can compress to 5 to 8 percent of ARV before anything goes wrong. On a deal with a contractor overrun or a slow sale, it goes to zero or negative.

This margin has to cover all the soft costs beginners often forget: closing costs, lender fees, holding costs (insurance, taxes, utilities), and selling commissions. The 30 percent is not slack. It is a budget.

A worked example on a $250,000 ARV house

Example with illustrative round numbers.

A property needs a full kitchen renovation, both bathrooms updated, new HVAC, and exterior paint. Contractor bids come in at $55,000 with a 10 percent contingency already included.

Step 1: Calculate the ceiling.

• $250,000 × 0.70 = $175,000
• $175,000 - $55,000 = $120,000 MAO

Step 2: Map the 30 percent margin.

The 30 percent margin = $75,000 (30 percent of $250,000 ARV).

Check it from the other direction: $120,000 purchase plus $55,000 rehab plus $35,250 in soft costs is $210,250 all in, against a $250,000 sale. That $39,750 gross profit is about 16 percent of the $250,000 ARV before taxes. That is the number the 70 percent rule was designed to protect. Push the purchase price $20,000 above MAO and your gross profit drops to about $19,750. Add a 6-week construction delay and it is gone.

Use the single-family calculator to map each line item against your actual deal. Estimating in your head is how investors end up at $5,000 gross profit on a 5-month project.

Adjusting the percentage: when 75 or 65 is the right number

The 70 percent figure is not sacred. It is calibrated for a financed investor using an agent on both sides of the deal. Change the cost structure, change the percentage.

Move to 75 percent when you have a cheaper cost structure. A cash investor who also has a real estate license can save money on expensive loan payments and save 3 percent commission on the sale, and may be able to offer more aggressively at 75 to 80 percent of ARV. Eliminating hard money interest (call it $5,250 in the example above) and one agent commission ($15,000) frees up $20,250. That headroom supports a higher offer.

In stable markets with decent inventory, seasoned investors often bump their offer to 75 percent of ARV to be more competitive while still maintaining a 10 to 12 percent net profit margin.

Move to 65 percent when your costs or risks run high. An investor using a hard money lender and a real estate agent to sell may need to buy the property at 65 to 75 percent of ARV to account for higher fixed costs. Add a high-cost market, a property with structural unknowns, or a rehab scope that could expand, and 65 percent is the only number that leaves you room to be wrong.

Higher price points cut both ways. While the rule is a helpful guideline, it can be adjusted based on various factors. For higher-priced properties, investors may have more flexibility: a house with a $600,000 ARV bought at 80 percent still leaves a $120,000 margin for costs, surprises and profit. Bigger absolute margin, but also bigger absolute downside on a bad rehab.

All real estate is local, but major market areas influence the formula, and it needs to be adjusted based on the market it is in. Know your local soft costs before you pick a percentage.

How BRRRR investors use the rule differently than flippers

The math is identical. The purpose is different.

Flippers sell. BRRRR investors keep the asset, collect rent, and reuse their capital. The result, when it works, is a growing rental portfolio where each deal helps fund the next one.

For a flipper, the 30 percent margin pays for soft costs and then converts to cash at closing. The deal is over.

For a BRRRR investor, the 30 percent margin has a second job: it has to survive the refinance. When you go to a bank to refinance your rental property, they will typically only lend you 70 to 75 percent of the appraised value (ARV). This is called the loan-to-value (LTV) ratio, and the BRRRR method guide walks through how it drives the whole strategy.

The 70 percent rule applies to the BRRRR strategy as well. If your all-in costs (purchase plus repairs) are 70 percent or less of the ARV, you can refinance and get most or all of your money back. The math is the same, but the goals are different.

The key reframe: a BRRRR investor measures the rule against all-in cost, not just purchase price.

• Flipper reads: MAO = (ARV × 0.70) - repairs
• BRRRR investor reads: (Purchase + Rehab) ÷ ARV ≤ 0.70

Both formulas produce the same ceiling. The BRRRR framing makes the refinance outcome explicit. The 70 Rule for BRRRR means that when evaluating a property, you should only be doing deals where the costs are projected to be 70 percent or less than the ARV.

A flipper who misses MAO by $10,000 takes a smaller profit at closing. A BRRRR investor who misses the same target ends up with capital trapped in the deal, because the refinance proceeds at 70 to 75 percent LTV will not cover the full all-in cost. That stranded equity does not produce a paycheck. It sits in the property until you sell. The same thing happens when the bank's number lands under yours, which is the scenario covered in what to do when a BRRRR appraisal comes in low.

The most common problem in BRRRR is going over budget on renovations. A 2024 report found that 63 percent of home renovation projects go over their original budgets by an average of 18 percent. For BRRRR investors with small margins, a $40,000 renovation that costs $50,000 kills their chances of making money. The 70 percent screen at acquisition is the only place you can build in a buffer against that stat.

From maximum offer to full BRRRR model

The 70 percent rule is your acquisition screen. It tells you whether to look harder. It does not tell you whether the deal pencils as a rental, whether the rent covers the payment on the new loan (lenders measure that with the debt service coverage ratio), or how much equity stays in versus gets pulled out.

To answer those questions, you need to run the full model: what you pay, what you spend on rehab, what the property appraises for, what the refinance terms look like, and what the resulting cash flow is after the permanent loan is in place. That is where the picture either holds together or falls apart. See the deeper refinance math in BRRRR refinance: money left in the deal, and the contractor overrun scenario in analyze a BRRRR deal when contractors go over budget.

Many lenders require a seasoning period, commonly 6 to 12 months, before they allow a cash-out refinance based on the new appraised value. Ask your lender for its current rule before you buy. That timeline is part of the hold cost math, and it runs the clock on your bridge financing. Model it in advance, not after closing.

The practical sequence:

1. Pull 3 to 6 recent comps, set a conservative ARV.
2. Get a contractor bid with a 10 to 15 percent contingency baked in.
3. Apply the 70 percent formula to get your MAO.
4. Adjust the percentage up or down based on your cost structure.
5. Run the full rental model: post-rehab rent, post-refinance DSCR, cash-on-cash return, and equity remaining.

The single-family calculator's BRRRR mode runs purchase, rehab, and refinance in one model, so the 70 percent screen becomes a real number tied to actual loan terms and rent projections, not a back-of-envelope guess. Start there before you make an offer.