The 70% Rule in BRRRR and House Flipping: Max Offer Formula
Learn how the 70% rule sets a maximum offer from ARV and repair costs, why it aligns with BRRRR refinancing, and when to adjust the percentage.
Last reviewed: 2026 · 7 min read
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What the 70% Rule Calculates
Maximum Allowable Offer = (ARV x 0.70) - Repair Costs
The 70% rule sets a ceiling on what to pay for a property that needs work. Multiply the after-repair value by 70%, subtract the repair budget, and the result is the most you should offer.
The 30% margin is not pure profit. It has to absorb purchase and sale closing costs, holding costs, financing costs, and the profit itself.
Worked Example
A property should be worth $260,000 after repairs and needs $40,000 of work. The maximum allowable offer is $260,000 times 0.70, which is $182,000, minus $40,000, giving $142,000.
If the seller wants $165,000, the rule says the margin is too thin at that ARV and repair budget. Either the ARV must be defensibly higher, the repair estimate lower, or the price has to come down.
Why It Fits BRRRR So Well
BRRRR refinance lenders typically lend 70% to 75% of the appraised after-repair value. If your total cost basis sits at or below 70% of ARV, the refinance can return most or all of the cash invested.
That alignment is the entire capital-recycling engine of BRRRR: buy and rehab at 70% of value, refinance at 75% of value, and the loan proceeds repay the project. Overpay at 80% of ARV and the refinance permanently traps the difference in the deal.
When to Adjust the Percentage
- Higher-priced properties can support 75% to 80% because fixed costs are a smaller share of the deal.
- Cheap properties often need 65% or less, since closing and holding costs eat a larger fraction of a small margin.
- Slow markets, uncertain ARVs, or first-time rehab budgets argue for a lower percentage.
- For a BRRRR hold, the property must also cash flow after refinance, a test the 70% rule does not perform.
Limits of the Rule
The rule is only as good as its two inputs. An optimistic ARV or an underestimated rehab budget silently converts a 30% margin into 10%. Base ARV on sold comparables, not asking prices, and add a contingency to every contractor bid.
Once the offer passes the screen, model the full deal: purchase, rehab, holding costs, refinance LTV, post-refinance payment, cash flow, and DSCR.
Frequently Asked Questions
Is the 70% rule the same for flipping and BRRRR?
The formula is identical, but BRRRR adds a second test: the property must produce acceptable cash flow and DSCR after the refinance loan is in place. A deal can pass the 70% rule and still fail as a rental.
What does the 30% margin cover?
Closing costs on purchase and sale or refinance, financing and holding costs during the rehab, an error buffer, and the investor’s profit. It is not a 30% profit margin.
Educational Disclaimer
All calculations are estimates for educational and planning purposes only. PropertyFlowTools.com does not provide financial, tax, legal, lending, or investment advice. Verify calculations and consult qualified professionals before making property or financing decisions.