The 70% Rule

The 70% Rule is the most widely used shortcut in fix-and-flip investing for quickly evaluating whether a deal is worth pursuing. It states that an investor should pay no more than 70% of a property's After Repair Value (ARV), minus the estimated cost of repairs.

The Formula

Maximum Offer = (ARV × 0.70) – Repair Costs

The remaining 30% of ARV is intended to cover all the costs beyond the purchase price and repairs: closing costs on acquisition (1–3%), closing costs on sale (1–3%), real estate agent commissions (5–6%), holding costs during rehab (loan interest, insurance, property taxes, utilities — typically 3–6 months), and your profit (ideally 10–15% of ARV or a minimum dollar amount).

Example in Practice

You find a distressed 3-bedroom house. Comparable renovated homes in the area sell for $220,000 (that is your ARV). You estimate $35,000 in rehab costs. Applying the 70% rule: ($220,000 × 0.70) – $35,000 = $154,000 – $35,000 = $119,000. Your maximum offer should be $119,000.

If you buy at $119,000, spend $35,000 on rehab, and sell for $220,000, your gross proceeds after a 6% agent commission ($13,200) and roughly $8,000 in closing and holding costs would be about $198,800 — leaving approximately $44,800 in profit before taxes. That is a roughly 29% return on your $154,000 total investment.

When to Adjust the 70%

The 70% rule is a starting point, not a commandment. Factors that might lead you to use a higher percentage (75–80%): strong seller's market with fast sales and minimal price risk, low rehab scope (cosmetic only), properties in high-demand neighborhoods, or when you have access to cheap capital. Factors that might push you to use a lower percentage (60–65%): slow or declining market, major structural rehab required, rural or illiquid market, or unknown scope of repairs.

Common Mistakes

New investors sometimes forget that the 30% margin has to cover all costs — not just profit. If your closing costs, commissions, and holding costs eat up 18% of ARV, you are left with only 12% profit margin. On a $200,000 ARV deal, that is $24,000 — which may or may not be enough depending on the risk and effort involved.

How Vortonic Helps

Vortonic's platform goes beyond the simple 70% rule by modeling your actual cost structure — your specific loan terms, projected holding period, local commission rates, and itemized rehab budget. This gives you a precise MAO rather than a rough rule-of-thumb, so you can bid with confidence and avoid both overpaying and passing on profitable deals.