process · 7 min read
The 70% rule explained — how flippers actually calculate offers
The formula behind most cash-buyer offers: max offer = (ARV × 0.7) − repair cost. Why it exists, when it bends.
The formula
Max purchase price = (ARV × 0.7) − estimated repair cost. ARV = After-Repair Value, what the property would sell for retail after renovation. The 30% margin covers: rehab contingency, financing cost, holding cost, transaction costs (both buy and resale), and target profit.
Why 70% specifically
It's an industry rule-of-thumb that emerged because the actual margins (financing + holding + closing × 2 + contingency + profit) usually total ~30% in normal market conditions. Not a law — a heuristic.
When it bends
Hot markets compress the rule to 75-80% (more competition). Slow markets push it to 65%. Rental-portfolio buyers don't use this rule at all — they use cap-rate math. Wholesalers price below 70% to leave room for their assignment fee.
What you can do
Get a real-comp estimate of ARV from a local realtor (free, no obligation). Get a realistic repair estimate from a contractor ($300-$500 for a written estimate, or use online estimators). Plug into the formula. That's the highest a flipper can pay before losing money.
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