The 70% rule says an investor should not pay more than 70% of a property's after-repair value (ARV) minus the cost of repairs. In one formula: Maximum Allowable Offer (MAO) = (ARV × 0.70) − repair costs. It is the fastest sanity check in the business, and it is a rule of thumb, not a standard. Here is how to use it, a worked example, and what it is honestly worth.
Educational information only. Not investment, legal, tax, or appraisal advice, and nothing here is a promise that any number produces a profit.
The formula
MAO = (ARV × 0.70) − Repairs
Be clear about what that 30% is doing. It is not profit. It absorbs everything a beginner forgets to subtract: closing costs on both ends, agent commission on the resale, holding and financing costs while the work happens, and the gap between the repair estimate and the repair bill. What survives those is the margin, and it is smaller than 30% every time.
Where the 70% comes from, honestly
Nowhere we can cite. We went looking for a primary source and found none. No statute, no regulation, no federal agency handbook and no mortgage selling guide sets a maximum-offer multiplier, at 70% or at any other number. The figure circulates in investor and lender marketing content, and repetition is not authority. Anyone who calls it an industry standard has not checked.
What the primary sources do say is more useful, and it pushes in the same direction:
- A lender starts from the as-is value, not the after-repair value. The federal bank regulators tell an institution it "should understand the real property's 'as is' market value" and should consider the prospective (after-repair) value "that corresponds to the credit decision and the phase of the project being funded" (Interagency Appraisal and Evaluation Guidelines, 75 Fed. Reg. 77450). That is supervisory guidance for federally regulated banks and credit unions, not a statute, and it does not bind a private hard-money lender.
- Overpaying does not raise what you can borrow against. In the same guidelines, for a loan to purchase an existing property, "value" means "the lesser of the actual acquisition cost or the estimate of value." Regulated institutions again, but the lesson travels.
- The one program that does put a percentage on ARV sets it as a ceiling, beside an as-is test. FHA insures a 203(k) purchase at the applicable loan-to-value ratio times the lesser of the adjusted as-is value plus financeable repair costs, or 110% of the after-improved value (100% for condominiums), capped by the Nationwide Mortgage Limits (HUD Handbook 4000.1, II.A.8.a.ix). That is FHA's owner-occupant rehab program, not an industry rule, and 110% sits at the opposite end of the dial from 70%.
So use the rule of thumb for what it is good at, which is throwing out bad deals in ten seconds. Do not present it as a rule somebody wrote down.
A worked example
A house will be worth $200,000 fixed up (that is your ARV) and needs $30,000 in repairs.
- ARV × 0.70 = $200,000 × 0.70 = $140,000
- Minus repairs = $140,000 − $30,000 = $110,000
Your maximum offer is $110,000. Pay more than that and you are spending the cushion that was supposed to cover the costs listed above. Same house, same numbers, same answer as how to decide what to offer on a house ... one worked example across the whole site, on purpose.
Wholesalers, subtract your fee too
If you are wholesaling, your cash buyer needs the deal to still work after they pay you. So carve your assignment fee out of the MAO:
Wholesaler's offer = (ARV × 0.70) − repairs − your fee
With the numbers above and a $10,000 fee, ($200,000 × 0.70) − $30,000 − $10,000 = $100,000. You offer the seller up to $100,000 and assign at $110,000 ... your buyer still lands on the same 70% number.
The multiplier moves, and that is convention too
Operators do not all run 0.70. In practice the multiplier gets set anywhere from about 0.60 to 0.80, and that range is practitioner convention, not a rule. No source sets it, nobody enforces it, and the honest version is that each operator picks a number and has to defend it. What is worth carrying is the direction of each adjustment and the reason behind it:
- Expensive markets get run higher, toward 0.75 or 0.80. The argument is that a thinner slice of a high-priced resale is still a workable amount of money, while the buy side is competitive enough that holding back a full 30% loses the deal.
- Cheap markets get run lower, toward 0.60 or 0.65. Closing costs and commissions are close to fixed in dollars, so they eat a much bigger share of a small ARV and the multiplier has to absorb the difference.
- A different exit changes the question entirely. A buy-and-hold or BRRRR investor is underwriting cash flow and refinance value, not a fast resale, so the 70% frame may not apply at all.
- A cosmetic refresh and a full gut carry different risk, so some operators move the multiplier for scope instead of padding the repair line.
Pick your number before you look at the property, write down why, and refuse to move it because a seller pushed back.
The two inputs that actually matter
The rule is only as good as its two numbers:
- ARV ... build it from sold comps, conservatively. See How to Calculate ARV. And keep in mind what an after-repair value is. FHA's rehab program defines the after-improved value as one determined "based on a hypothetical condition that the repairs or alterations have been completed," with the appraiser working from the written scope (HUD Handbook 4000.1, II.D.11.c.ii). That is program text, not a universal rule, but the logic travels. Change the scope and the ARV has to change with it.
- Repairs ... estimate from a written scope and pad for what you cannot see yet. Optimistic repair numbers are how a deal that "passed the 70% rule" still loses money. See How to Estimate Rehab Costs.
Be conservative on both. A deal that only works if everything goes perfectly is not a deal ... it is a bet.
The come-up move
The 70% rule turns a gut feeling into a number in ten seconds, (ARV × 0.70) − repairs. Use it to filter fast, hold it as a convention rather than a law, then do the real work on the few deals that survive it.
Start free on Squatters ... our tools run ARV and max-offer math on real off-market properties, so you can practice the discipline before real money is on the line. Squat it. Fund it. Own it. 🦝