The 70% Rule Calculator: Where the Rule Works and Where It Breaks

The 70% Rule Calculator: Where the Rule Works and Where It Breaks

The 70% rule is renovation investing's most famous shortcut: never pay more than 70% of the after-repair value, minus the rehab cost. One multiplication, one subtraction, and any deal screens in seconds — which is exactly what the rule is for, and exactly as far as its authority extends. The rule is a screen, calibrated to one kind of deal at one kind of price point, and applied outside that calibration it rejects good deals and blesses bad ones with equal confidence.

The free calculator on this page runs the rule — and then does what the rule cannot: shows you what the 30% margin actually contains, so you can recalibrate it to your deal, your market, and your strategy. All figures are illustrative examples.

The Formula, Run

Maximum offer = (ARV × 70%) − rehab cost

Worked: a house with a $320,000 after-repair value needing $45,000 of work screens to a maximum offer of $320,000 × 0.70 − $45,000 = $179,000. (Deliberately, this is the deal from our BRRRR full-cycle pillar, which bought at $180,000 — right at the rule's line, which is part of why that deal's economics are as tight as the pillar shows.)

Both inputs carry the usual burdens: the ARV must come from adjusted renovated comps — the ARV calculator's grid method, not a wish — and the rehab figure must be a scoped budget, because the rule subtracts it dollar-for-dollar and an underestimated scope inflates the offer by exactly the miss.

What the 30% Actually Contains

The rule's margin is not profit — it is a bundle, and unbundling it is what makes the rule usable. On the worked deal's $320,000 ARV, a typical flip's bundle (illustrative):

• Selling costs — commissions, closing, concessions: ~8% of ARV ≈ $25,600
• Holding and financing costs — hard-money interest, taxes, insurance, utilities across the project: ≈ $16,000 on a six-to-seven-month cycle
• Target profit — the reason to do the deal: ~15% of ARV ≈ $48,000

Total: about $89,600, or 28% of ARV — which is the entire secret of the number 70. The rule is just this bundle, rounded, at the price point and cost structure of a mid-priced flip. Which immediately explains everything about where it breaks.

Where the Rule Breaks

Cheap markets: fixed costs don't scale down. Run a $100,000-ARV house needing $30,000 of work: the rule offers $40,000. But closing costs, utilities, and months of holding are largely fixed dollars, not percentages — on this deal the margin's $30,000 must cover roughly $8,000 of selling costs, $6,000 of closing, and $8,000 of holding before profit, leaving perhaps $8,000 for the risk of the entire project. At low price points the rule is too generous, and practitioners there compensate by using 65% or harder — or by pricing in dollars instead.

Expensive markets: the margin overshoots. At an $800,000 ARV with $60,000 of work, the rule offers $500,000 and reserves a $240,000 margin — far more than selling, holding, and a healthy profit require in absolute terms. Nobody wins bids at 70% in high-priced competitive markets, because everyone else has done this arithmetic; effective offers there run meaningfully higher, priced from the actual cost bundle rather than the folk percentage.

Long timelines: the holding line is a variable wearing a constant's clothes. The bundle above priced six months of carry. A twelve-month project (permits, structural scope, a slow market) roughly doubles the holding and financing line — a recalibration the flat 70% never sees, and one of the quietest ways the rule blesses deals that then bleed.

And BRRRR: a different exit, a different bundle. The rule was built for flips — its largest single component is selling costs, and a BRRRR deal never sells. But before concluding the rule is too conservative for BRRRR, note what replaces the sale: a refinance with its own costs, an appraisal that may miss, seasoning months of carry, and — as the companion pillar's deal demonstrates at length — a coverage constraint that can cap the cash-out regardless of ARV. The honest statement: the 70% rule is miscalibrated for BRRRR in both directions, and the strategy's real screen is the one the full model runs — capital left in the deal at the governing refinance, not a percentage of ARV.

Deriving Your Own Percentage

The upgrade from rule-follower to rule-maker is one rearrangement. Instead of inheriting 70%, build the offer from the bundle:

Max offer = ARV × (1 − selling% − profit%) − rehab − holding & financing $

Four inputs you actually control and can localize: your market's real selling costs, your required profit (as a percentage or a floor dollar amount — the floor matters at low price points), your scoped rehab, and your carry priced from your timeline and financing. Run it once for your market and the output is your personal rule — perhaps 74% in your submarket, perhaps 66% — with the enormous advantage that you know which assumption to change when conditions do. The calculator on this page runs both versions side by side precisely so the gap between the folk number and your number is visible on every deal.

The Rule's Proper Job

Used correctly, the 70% rule is a funnel stage: a five-second filter that discards the deals not worth an hour, so the hour goes to the deals that survive. What survives the screen then gets the real analysis — the comps-grid ARV, the scoped budget, the timeline-driven carry, and (for BRRRR) the dual-constraint refinance — because a screen that becomes the underwriting is a shortcut promoted beyond its competence. The rule finds candidates; the model prices them.

Frequently Asked Questions

What is the 70% rule in real estate? A screening formula for renovation deals: maximum purchase price = 70% of after-repair value minus rehab costs. The 30% margin bundles selling costs, holding costs, and profit — which is why it needs recalibration wherever those components differ from the mid-priced-flip profile it was built on.

Is the 70% rule accurate? It is accurate as a screen for the deals it was calibrated to, and systematically wrong at low price points (too generous), high price points (too conservative to win anything), long timelines, and non-flip exits. The fix is deriving your own percentage from your actual cost bundle.

Should I use the 70% rule for BRRRR deals? As a first-pass screen, cautiously; as underwriting, no. BRRRR's exit is a refinance, not a sale — the margin protects different risks (appraisal miss, coverage cap, seasoning carry), and only the full-cycle model prices them.

Does the 70% rule include closing costs? Implicitly and imprecisely — buy-side closing costs are one more resident of the 30% bundle, alongside selling, holding, and profit. At low price points their fixed-dollar character is part of why the rule breaks there; the derived-percentage formula prices them explicitly instead.

Does the rule work for wholesaling? Wholesalers use it constantly — as the end buyer's screen, minus the assignment fee: the wholesale offer must sit far enough below the rule's number that the flipper buying the contract still clears it. Which makes the rule's local calibration doubly important, since a wholesaler using 70% in a market where buyers pay 78% is leaving spread on the table on every deal.

What percentage should I use instead of 70%? Whatever your bundle says: your market's selling costs, your profit requirement, your carry. The derivation formula above produces it in one pass — and unlike the folk number, yours updates when rates, timelines, or your market move.

From the Screen to the Model

The free calculator on this page runs the classic rule and your derived version side by side. When a deal survives the screen, The BRRRR Calculator runs the analysis the screen defers: the comps-based ARV consumed in context, timeline-driven carry, the dual-constraint refinance with the governing test flagged, and ARV stress scenarios — fully unlocked, formula-transparent, versioned, with a documented methodology PDF. For the guided web version, the YieldSheets platform is in development — join the waitlist.

This article is for educational purposes only and does not constitute investment, legal, or tax advice. All figures are illustrative examples, not market data. Consult qualified professionals before making investment decisions.