What is the 70% rule?

The 70% rule states that a real estate investor should pay no more than 70% of a property's after-repair value (ARV) minus the cost of repairs needed to reach that value.

Formula: MAO = (ARV × 0.70) − Rehab costs

Example: ARV of $300,000, rehab of $40,000 → MAO = ($300,000 × 0.70) − $40,000 = $170,000.

Where does the 30% margin go?

The 30% buffer on a $300,000 ARV deal equals $90,000. That money is allocated across:

Closing costs (buy + sell): typically $14,000–$25,000
Holding costs: $500–$3,000 per month × hold time
Financing costs: hard money points + interest, often $8,000–$15,000
Rehab contingency: 15–20% of base estimate
Your profit: what remains after all costs

When to use 65% or 60% instead of 70%

The 70% rule is a starting point, not a law. Adjust based on your situation:

Use 65% for higher financing costs, slower markets, or longer hold times
Use 60% for large or complex rehabs where cost overruns are likely
Use 75% only for cosmetic flips in hot markets with a buyer already lined up — and only after a full cost analysis

Common mistakes when applying the 70% rule

Overestimating ARV. If your ARV is inflated, your MAO will be too high. Pull tight comps — same neighborhood, similar size and condition, sold within 90 days.
Underestimating rehab. Always add a 15% contingency. Unexpected issues are the rule, not the exception.
Forgetting soft costs. Permits, architectural drawings, staging, landscaping, and utility hookups add up fast.
Not including financing costs. A 12% hard money loan on $150,000 for 6 months = $9,000 in interest alone.