The Formula
Maximum Allowable Offer (MAO) = (ARV × 70%) − Estimated Repair Costs
If a property's after-repair value is $650,000 and it needs $75,000 in rehab, the 70% rule caps your offer at ($650,000 × 0.70) − $75,000 = $380,000. Pay more than that and the deal is, by this rule of thumb, too thin to be worth the risk.
Why the 30% Buffer Exists
The 30% gap between ARV and your maximum offer isn't profit alone — it's meant to absorb everything else the deal has to pay for: financing costs, holding costs, buy-side and sell-side agent fees, closing costs, and only then your actual profit margin. On a typical deal, that 30% might break down roughly as 8-10% in financing and holding costs, 6-8% in combined transaction fees, and the remainder as target profit.
Why 70% Isn't Fixed Across Price Tiers
| ARV Range | Typical Target % |
|---|---|
| Under $250,000 | 60–65% |
| $250,000–$700,000 | 68–72% |
| $700,000–$1,500,000 | 72–76% |
| $1,500,000+ | 75–80% |
Fixed transaction costs (agent fees, closing costs, financing points) take a bigger percentage bite out of a lower-priced deal than a higher-priced one, so the safe target percentage shifts by tier rather than staying pinned at exactly 70% everywhere.
Want the full breakdown, worked example, and a calculator that applies the right percentage for your deal? See the dedicated maximum offer guide.
See How Much to Pay for a FlipA Worked Example: Two Deals, Same Rule, Opposite Outcomes
The 70% rule gives the same green light or red light regardless of how accurate the inputs behind it are. Two deals with an identical $650,000 ARV can pass or fail the rule for reasons that have nothing to do with whether the deal is actually good.
| Metric | Deal A | Deal B |
|---|---|---|
| ARV | $650,000 | $650,000 |
| Estimated repairs | $75,000 (guessed) | $95,000 (contractor bids in hand) |
| 70% rule ceiling | $380,000 | $360,000 |
| Purchase price | $375,000 | $362,000 |
| Passes 70% rule? | Yes | No, by $2,000 |
| Actual repair cost once work starts | $108,000 (scope crept) | $96,000 (bids held) |
| Real outcome | Thin or negative margin | Solid profit |
Deal A cleared the rule because the repair estimate was a guess made before anyone opened a wall. Once the scope grew, as it usually does on older Southern California housing stock with deferred maintenance, the real numbers no longer supported the price paid. Deal B failed the rule by a small margin, but the rehab number came from actual contractor bids, so the deal performed as underwritten and outperformed Deal A despite technically "failing" the screen.
The lesson isn't that the 70% rule is wrong — it's that the rule is only as reliable as the repair estimate feeding it. A rough guess passed through the formula produces a rough answer, dressed up as a precise-looking dollar figure. Before walking away from a deal that misses by a few thousand dollars, or committing to one that clears comfortably, get an actual scope of work and at least one contractor bid rather than trusting a per-square-foot rule of thumb for the rehab line.
Where the Rule Breaks Down
- It's a screening tool, not a profit calculation. It tells you a rough ceiling, not your actual expected profit.
- It doesn't separate financing scenarios. A cash buyer and a hard money borrower face very different actual costs baked into that same 30%.
- It can reject good deals with a short timeline or accurate low rehab estimate, and it can approve bad deals if your rehab estimate is wrong.
Use the 70% rule as your first, fast filter on a new lead. Before you actually make an offer, run the real numbers — purchase price, actual financing terms, actual months held, actual agent fee structure — through a full profit calculator.