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House flipping has become one of the most popular strategies for short-term real estate investing. Investors purchase distressed or outdated properties, renovate them, and resell for a profit. To avoid overpaying, many flippers rely on a simple calculation known as the 70% rule.
This guideline helps buyers estimate the maximum price they should offer based on the after-repair value and renovation expenses. While useful, the formula is not perfect and must be adapted to today’s competitive 2026 housing market.
How the 70% Rule Works
The 70% rule states that an investor should pay no more than 70 percent of a property’s after-repair value minus estimated repair costs. After-repair value, commonly called ARV, is the projected market value once renovations are complete. BiggerPockets provides detailed explanations of ARV calculations and comparable sales analysis.
Example calculation:
A home is expected to sell for $200,000 after renovations. Repairs are estimated at $30,000.
$200,000 x 0.70 = $140,000
$140,000 – $30,000 = $110,000 maximum purchase price
This approach builds in a cushion for holding costs, financing, and unexpected expenses.
Why Investors Use It
The rule offers a quick way to evaluate deals without complex spreadsheets. It helps new investors avoid emotional decisions and reduces the risk of paying retail prices for wholesale properties.
The Limits of the 70% Rule
Markets change over time, and in many high-demand cities, buying at 70 percent of ARV is unrealistic. Competitive markets with low inventory often require more aggressive offers.
Every Property Is Different
Repair estimates can be inaccurate, and some homes require more than cosmetic updates. Foundation problems, roof damage, or outdated electrical systems can destroy projected profits. Guidance from the National Association of Realtors highlights how renovation scope affects resale value:
Long-Term Strategies Need Flexibility
Investors who plan to hold properties as rentals may accept thinner margins than short-term flippers. The 70% rule focuses on quick resales and does not account for cash flow or appreciation.
How to Use the Rule in 2026
Start With Accurate ARV
Use recent comparable sales from reliable sources such as Realtor.com and Redfin to determine realistic resale prices:
Include All Costs
Beyond repairs, investors must budget for permits, insurance, utilities, staging, agent commissions, and financing fees. The National Association of Home Builders tracks remodeling cost trends that can improve estimates:.
Adjust for Competition
In hot neighborhoods, investors may need to use a 75% or 80% threshold to win deals. In slower markets, sticking closer to 65% may be safer.
Financing Matters as Much as the Formula
Even the best calculation fails without the right funding. Fast, flexible capital allows investors to act quickly and control renovation budgets. Center Street Lending provides fix-and-flip loans based on ARV and project scope, helping investors compete with cash buyers:
A Guideline, Not a Guarantee
The 70% rule is a helpful starting point, but it should never replace experience and local market knowledge. Successful flippers evaluate each deal from multiple angles, including neighborhood demand, renovation complexity, and exit strategy. Learning when to follow the rule and when to adapt is what separates profitable investors from the rest.
Center Street communications are not intended to provide business, legal, tax, investment, or insurance advice. No Center Street communication should be construed as a recommendation for any business or investment strategy by Center Street or any third party. You are solely responsible for determining whether any investment, investment strategy, business strategy, or related transaction is appropriate for you based on your personal investment objectives, financial circumstances, and risk tolerance. You should consult your legal or tax professional regarding your specific situation.
