What is the 70% rule in house flipping?

The 70% rule says a flipper should pay no more than 70% of a property's after-repair value (ARV), minus the rehab budget. The formula is: Maximum Purchase Price = (ARV x 0.70) - Rehab Costs.

Why doesn't the 70% rule work in expensive markets?

The rule assumes there's enough of a discount available on distressed properties to hit that math. In high-cost markets where property values are high relative to renovation costs and competition is strong, sellers rarely accept offers deep enough to clear 70% of ARV — even on genuinely good deals.

What should investors check instead of just the 70% rule?

A margin-of-safety calculation — how far the after-repair value could fall before the deal loses money — combined with the deal's actual profit margin and cash-on-cash return, gives a fuller picture than a single purchase-price heuristic.

70% Rule for House Flipping: Limits & Alternatives

Quick answer: The 70% rule (Max Purchase Price = ARV × 0.70 − Rehab) assumes a steep discount is available on distressed properties. In high-cost markets with strong competition and high land values relative to renovation costs, that discount often doesn't exist — meaning genuinely good deals routinely fail the rule, not because they're bad deals, but because the rule doesn't fit the market.

What the 70% rule actually assumes

The rule originated in markets with plentiful distressed inventory — foreclosures, estate sales, deferred-maintenance properties — where sellers were motivated enough to accept a steep discount. Under those conditions, "pay no more than 70% of ARV minus rehab" is a reasonable filter for leaving enough margin to cover holding costs, selling costs, and profit.

Where it breaks down

In markets where land value makes up a large share of a property's worth — much of coastal Canada, much of the US West Coast, and other high-demand metros — there usually isn't 30% of ARV worth of "distress" to capture in the first place. A well-located property in reasonable condition simply won't trade at a 30% discount to its finished value, no matter how good the renovation plan is. Applying the 70% rule strictly in these markets doesn't filter out bad deals; it filters out nearly everything, including deals that are genuinely profitable once you look at the actual numbers.

What to check instead

Three numbers give a fuller picture than a single purchase-price ceiling:

Profit margin — net profit as a share of total project cost, not just the spread between purchase and sale price.
Margin of safety — how far the after-repair value could fall before the deal breaks even. This answers the question the 70% rule is trying to get at (how much room for error exists) more directly than a fixed percentage of purchase price does.
Cash-on-cash return — what the deal actually returns on the money put in, accounting for financing.

A deal that exceeds the 70% rule but still shows a healthy profit margin, a real safety cushion between ARV and break-even, and a solid cash-on-cash return isn't automatically a bad deal — it just doesn't fit a heuristic built for a different kind of market.

The rule still has a place

None of this means the 70% rule is useless — as a fast first-pass filter in markets where distressed inventory is common, it still does its job. The mistake is treating it as a universal pass/fail test rather than one data point among several, especially for investors evaluating deals across different regions.

Run your own flip numbers, free. CapShark scores your deal across 7 factors — profit margin, ROI, safety margin, holding period, the 70% rule, financing risk, and rehab risk — with hard caps so one great number can't hide a real weakness.

Try the Flip Calculator

Why the 70% Rule Doesn't Work in Every Market

What the 70% rule actually assumes

Where it breaks down

What to check instead

The rule still has a place

Related reading