The 70 Percent Rule, And Why It Is A Floor Not A Formula
The 70 percent rule says a flipper should pay no more than 70 percent of ARV minus the rehab budget. On a property with a $260,000 ARV and a $38,000 rehab, that puts the maximum offer around $144,000. The 30 percent gap is not profit margin sitting untouched, it is the space that absorbs holding costs, selling costs, financing costs and the contingency that always shows up once demolition starts.
The rule breaks the moment the ARV feeding it is optimistic. If the true ARV is $240,000 instead of $260,000, the same 70 percent math should have produced a $128,000 max offer, and a deal bought at $144,000 against that real number is already underwater before a single nail gets pulled. The rule is only as good as the range behind it, which is why ARV needs to be treated as a range with a defensible ceiling, not a single hopeful figure.
Some markets and some deal types support a tighter margin than 70 percent, wholesalers competing for a listing sometimes push to 75 or 80 percent on a fast turn property. That is a risk decision, not a formula error, and it should be made with eyes open on the holding and selling costs below, not by assuming the standard rule does not apply to you.
Why ARV Is A Range, Not A Number
ARV depends on comparable sales, and comps themselves are a range. Three similar sales on the same street in the last six months might show closed prices of $248,000, $256,000 and $271,000 for properties with slightly different lot sizes, finish levels and days on market. Picking the highest comp as your ARV is optimism, not analysis. Picking the lowest is overly conservative and can cause you to pass on a workable deal.
The rehab quality you plan also shifts where in that range you land. A rehab that matches the finish level of the $271,000 sale supports pricing near that top comp. A rehab that lands at rental grade finishes in a retail neighborhood will underperform even the lowest comp, because buyers in that price band expect updated kitchens and bathrooms and will discount a property that falls short.
This calculator expresses ARV as a low and high figure tied to your rehab spend and condition, and lets you enter a comp ceiling to cap the top end. If your rehab budget implies a value above what the street has actually supported in a recent sale, the calculator caps the range there, because no amount of granite countertop changes what a buyer's appraiser will find on the block.
Improvements That Return, And Improvements That Do Not
Kitchens and bathrooms consistently return the highest share of their cost in resale markets because they are the rooms buyers judge a property by on a walkthrough. A well executed kitchen remodel in a retail flip market frequently recoups 80 to 100 percent of its cost in added sale price, sometimes more when it corrects an obviously dated or non functional layout. Fresh paint and flooring recoup well too, because they are the cheapest way to make a property show as move in ready.
Structural and mechanical work, a new roof, updated electrical panel, HVAC replacement, rarely returns its full cost directly in sale price, but it is not optional. Buyers and their inspectors will find deferred maintenance on these systems and either walk away or demand a credit that costs more than doing the work upfront. Think of this spend as removing a deal killer, not as a value add line item.
Over improving for the block is the most common way flippers destroy their own margin. A $70,000 kitchen and primary suite addition on a street where every comp tops out at $290,000 will not sell for $340,000 no matter how good it looks in photos, because the appraisal and the buyer pool are both anchored to the street, not to your finish level.
- Kitchens and bathrooms: highest return, buyers judge on these first
- Paint and flooring: cheap, high return, makes a property show move in ready
- Roof, electrical, HVAC: low direct return, but removes inspection deal killers
- Additions and top end finishes above the block ceiling: return the least
Holding Costs And Selling Costs, The Numbers Everyone Forgets
Holding costs accumulate every month a property sits between purchase and closed sale: loan interest, property taxes, insurance, utilities and basic maintenance. On a $185,000 property with hard money financing, six to seven months of holding costs commonly runs $8,000 to $13,000, and every month a rehab runs long adds directly to that total. This is why a realistic timeline matters as much as a realistic rehab budget.
Selling costs are the second forgotten line: realtor commissions typically run 5 to 6 percent of sale price, plus closing costs, transfer taxes and any buyer concessions negotiated at the table. Combined, selling costs commonly land at 8 to 10 percent of the final sale price. On a $260,000 resale, that is $20,000 to $26,000 leaving the deal before the flipper sees a dollar of profit.
Both of these belong in the deal math from the start, not as a surprise at closing. A flipper who budgets rehab and purchase price carefully but ignores six months of carrying costs and a 9 percent selling cost hit will consistently find their actual margin runs thousands below what the 70 percent rule implied on paper.
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