After-Repair Value Rule (70%)
Max purchase price for a flip using the 70% rule.
Formula
Variables
Example
ARV=$300k, repairs=$40k: O_max = $170k
How it works
This rule estimates the highest price a flipper should pay for a property by first taking 70% of the home's expected value after renovations, then subtracting the expected repair budget. The 70% factor is a safety margin that leaves room for holding costs, financing, selling expenses, and profit, so the deal is less likely to fail if repairs run over or the market softens. It is a quick screening tool, not a full valuation method.
When to use it
Use this when evaluating a potential flip or value-add residential property before making an offer. It is most useful in fast-moving deal analysis where you need a conservative ceiling price based on projected resale value and rehab costs.
Worked example, step by step
Suppose a house is expected to sell for $480,000 after repairs, and the rehab is estimated at $62,000. Step 1: Multiply ARV by 70%: 0.7 × 480,000 = 336,000 Step 2: Subtract repair costs: 336,000 − 62,000 = 274,000 Step 3: Maximum offer = $274,000
Common mistakes to avoid
- Using current market value instead of after-repair value (ARV)
- Forgetting to subtract repair costs after applying the 70% factor
- Treating the result as a guaranteed safe bid without checking closing costs, financing, and resale fees
Did You Know?
House flippers use the 70% rule to leave room for costs and profit before making an offer.
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