The 70% Rule Is Just a Ballpark (Here's How to Go Deeper)

TLDR

The 70% rule gives you a fast offer number, not a real deal analysis. It bakes in a generic 30% cushion that is supposed to cover interest, points, closing costs, utilities, insurance, taxes, and your profit. Run a real calculator with your actual return on cash, and you get a number you can defend.

Table of Contents

• What the 70% Rule Actually Says
• What the 30% Cushion Is Hiding
• Who Actually Uses the 70% Rule
• Going Deeper: Return on Cash
• When the 70% Rule and Real Math Agree
• How to Use Both on Every Deal
• FAQ

What the 70% Rule Actually Says

Here is the whole formula.

Take the arv, which is what you think the house will sell for after it is fixed up. Multiply by 70%. Subtract the rehab. That is your maximum purchase price.

Example on a house with a $300,000 ARV and a $50,000 rehab:

Max offer: $160,000.

That’s it. You can do it in your head on a walkthrough. That’s why the rule exists. It’s a shortcut for quick offers, not a final answer.

Even I can read that, mostly.

What the 30% Cushion Is Hiding

The 30% you shaved off the ARV is $90,000 in this example, and it has to cover a lot of stuff. The rule acts like that 30% is one big profit number, but it is really several costs stacked together.

Here is what is actually inside the 30%:

• Interest on your purchase loan
• Points on the loan
• closing costs on the buy side
• closing costs on the sell side
• Real estate fees when you sell
• Utilities for the holding period
• insurance during the flip
• property taxes during the flip
• Your actual profit

Every one of those numbers is different for every flipper and every house. Somebody paying cash has no interest or points. Somebody with a high interest rate eats way more of the 30%. Property taxes vary by county. Insurance varies by age, roof, and location. A vacant house in winter burns more utilities than a vacant house in July.

In the recording, I described the allowance with a roughly four-to-six-month hold. Financing, tax, insurance, utility, and sale costs still come from the actual deal. Change those assumptions and the shortcut changes.

Common Mistake

A longer hold or higher taxes changes the math. The rule does not know about your situation; it only uses a broad allowance.

Who Actually Uses the 70% Rule

The people who lean hardest on the 70% rule are wholesalers, not flippers. Here is why.

A wholesaler runs a team of acquisition people who do not know construction. They need a way to send offers without blowing up the pipeline. The 70% rule is perfect for that. It is fast, it is simple, and it protects the wholesaler from new hires offering too much.

I have used the rule for the same reason. When I need a quick offer number, 70% of ARV minus rehab gets me in the ballpark.

But when I am actually underwriting a deal I plan to buy, I run the real numbers. Every time.

Use the rule to start the conversation. Use the spreadsheet to close it.

Going Deeper: Return on Cash

The real math starts with one question the 70% rule never asks: what return am I getting on the cash in the deal?

That is what a flip actually is. You park cash in a house for a few months. You want the cash to come back bigger.

Here is what goes into the cash you actually put in:

• Acquisition price
• Rehab budget
• Points on the loan
• Interest during the hold
• Other carrying costs (utilities, insurance, taxes, misc)

Closing costs on the back end come out of the sale, so they do not count as cash you need up front. But they still reduce your profit.

Now you can set a target rate of return on that cash and work backwards.

Cash buyers have a choice that loan-using flippers do not. They can keep the same target return and offer more, or keep the same acquisition price and earn a higher return because they are not paying a lender. The source leaves that choice to the investor.

Pro Tip

Cash changes the financing inputs. Run the required return on the actual cash in the deal instead of forcing the shortcut to produce the answer.

When the 70% Rule and Real Math Agree

Here is the interesting part. With the worked inputs in this lesson, the 70% rule lines up closely with the detailed calculator.

The conditions where they match:

• Interest rate around 12%
• Points on the loan around 4%
• Hold time around 6 months
• Target return on cash around 15%

Plug those into a deal calculator and the acquisition price comes out within a few thousand dollars of 70% of ARV minus rehab. On a $300,000 ARV with a $50,000 rehab, the 70% rule gives $160,000. A real calculator with those inputs gives about $164,000.

Those are the conditions where the shortcut and detailed math happen to line up.

Change one of those inputs and the shortcut can diverge from the detailed result.

Change the inputs and you need to run the math again.

How to Use Both on Every Deal

The source gives a simple sequence:

1. Use the 70% rule to make a quick first decision.
2. Open the Flippin' Calculator.
3. Enter the ARV, rehab, interest rate, points, hold time, other costs, sale costs, and target return.
4. Compare its acquisition price with the shortcut.
5. Make the buying decision from the refined numbers, not the pocket rule alone.

The 70% rule is a filter. It tells you which houses are worth underwriting. The real math tells you which houses are worth buying.

Key Concept

Pocket rules get you in the ballpark and help you decide quickly. The detailed inputs refine the decision before you buy.

FAQ

I am brand new. Should I even use the 70% rule?

Yes, but only as a sanity check. The shortcut still depends on a rehab estimate and broad assumptions. Run the actual rehab, financing, holding, and sale inputs before treating the result as an offer price.

Does the 70% rule work in hot markets?

The source does not tell you to change the rule for a hot market. It says the rule is only a ballpark, so run the real costs and your required return before deciding what you can offer.

What if I am paying cash? Do I drop the 30% cushion?

Put the actual financing terms into the calculator. A cash buyer has no interest or lender points, but still has acquisition, holding, selling, and profit requirements.

How do I figure out my hold time?

Count the whole period your cash is tied up, from purchase through resale. The worked example uses six months, but the real input is the time you expect for that deal.