The 70% Rule in Real Estate: What It Is and When to Use It

If you've spent five minutes in any real estate investing forum, you've seen the 70% rule mentioned. New investors treat it like gospel. Experienced investors use it as a quick screen. Here's the difference — and why it matters for your offers.

The Northern Virginia Market Context

The 70% rule was developed when financing was cheaper and markets were slower. Understanding current market conditions helps you know whether to tighten or loosen the threshold.

The 70% Rule Formula

That's it. Multiply the after-repair value by 70%, then subtract your estimated renovation cost. The result is the maximum price you should pay for the property as a flip.

Example

• ARV: $350,000
• Rehab: $60,000
• Max offer: ($350,000 × 0.70) − $60,000 = $185,000

If you pay $185,000 or less, you're inside the rule. If the seller wants $220,000, the deal fails the screen.

What the 30% Margin Is Supposed to Cover

• Buying closing costs: title, transfer taxes, lender fees — typically 1–3% of purchase price
• Holding costs: hard money interest, insurance, utilities, property taxes during renovation — typically 6–12 months
• Selling costs: agent commissions (5–6%), staging, closing costs — typically 8–10% of ARV
• Profit: whatever's left after all of the above

At 12% hard money and a 9-month hold, your financing cost alone can eat 9% of ARV. Add 8% in selling costs and you're already at 17% before you make a dollar. The 30% margin is tighter than it looks.

When to Tighten to 65%

• High hard money rates (12%+) or long expected hold times (9+ months)
• Soft or declining market where ARV may slip before you sell
• High selling costs (6% agent commissions in competitive markets)
• Uncertain rehab scope — if you're not sure what's behind the walls, pad the margin

When 75% Can Work

• Private money at low rates (6–8%) significantly reduces holding costs
• Short renovation timeline (under 90 days) reduces total holding cost
• Strong appreciation market where ARV may increase during the hold
• Experienced operator with tight rehab estimates and proven contractor relationships

The Biggest Mistake New Investors Make

Applying the 70% rule to the wrong number. The rule applies to ARV — the post-renovation value — not the current value or list price. I've seen investors take a seller's stated ARV at face value and run the formula on it. If that ARV is inflated, every number downstream is wrong.

Pull your own comps before you run the formula. Three comparable sales within one mile, similar size and condition, sold within 90 days. That's your ARV — not what the wholesaler tells you.

The 70% Rule Is a Screen, Not a Decision

A deal that passes the 70% rule isn't automatically a good deal. A deal that fails it isn't automatically a bad one. I've walked away from deals that passed the 70% rule because the full analysis showed thin margins. I've done deals that failed the rule because the wholetail strategy made the math work differently.

Use the rule to filter fast. Then run the full analysis before you make an offer.

Dan White is a licensed Virginia real estate agent at Pearson Smith Realty and founder of FreeDealCalc.com. He has been fixing and flipping houses in Northern Virginia for 20+ years.