The 70% rule, what it actually assumes, and the three deals where it lies to you

The 70% rule says your maximum offer on a flip is seventy percent of the after-repair value, minus the rehab.

On a $300,000 ARV with $50,000 of work, that is $160,000. It fits on a napkin, it takes eight seconds, and it is genuinely useful. It is also an assumption stack pretending to be arithmetic, and the assumptions are all inside the thirty percent you just subtracted.

What the 30% is actually paying for

That gap is not profit. It is profit plus every cost of getting in and out.

Once you see it laid out, the rule stops looking like a law and starts looking like what it is: someone's typical deal, in someone's market, at a rate environment that may not be yours.

The three deals where it lies

1. When the numbers are small. The rule is a percentage, and several of the costs it covers are close to fixed. Title, legal, inspection and lender fees do not halve when the property does.

On a $300,000 ARV, thirty percent is $90,000 and comfortably covers the fixed costs with profit left. On a $90,000 ARV, thirty percent is $27,000, and the same fixed costs eat most of it. The rule is most generous exactly where beginners tend to start.

2. When the hold is long. Holding cost is the one input the rule cannot see, because it is a function of time and the rule has no time in it. A three-month flip and a nine-month flip subtract the same thirty percent while producing completely different results, and the second one is where most first flips actually land.

Permits, a contractor who leaves, a supply delay, a slow market at the end. Each one adds months, and every month is interest, taxes, insurance and utilities on a property earning nothing.

3. When the money is expensive. The rule was popularised in cheaper credit than we have now. Points, origination and monthly interest all come out of that same thirty percent. Move the rate and the gap that used to hold profit stops holding it, without a single number in the rule changing.

The version that survives contact

Keep the rule for what it is good at. It is a filter, not an analysis. Use it to sort thirty listings down to three in an afternoon, then do real work on the three.

For the three, replace the percentage with the costs themselves:

1. Start at ARV
2. Subtract the profit you require, as a figure rather than a percentage
3. Subtract rehab, with a contingency
4. Subtract selling costs: agent commission, title, seller concessions
5. Subtract buying costs: points, origination, title, inspection, legal
6. Subtract holding costs for your realistic timeline, not your hoped-for one

What is left is your maximum offer, and it is built from your market and your money rather than someone else's.

Run both. If your calculated maximum and the 70% figure land close together, the rule is working for the kind of deal you are doing and you can keep using it as a filter with confidence. If they diverge, the gap is telling you which assumption inside the rule does not hold for you, and that is worth more than either number.

Why the rule persists anyway

Because a fast filter that is roughly right beats a careful analysis you never run. Most people looking at their first deal are not choosing between the 70% rule and a full underwrite. They are choosing between the 70% rule and enthusiasm.

Used as a screen it is a good habit. Used as an answer it is a way to lose money that looked fine on a napkin.