Why the 70% Rule Breaks on $90K and $600K Flips (and How to Set Your Offer Instead)

What the 30% Is Actually Paying For

Run the 70% rule on a $100,000 ARV house and a $600,000 ARV house, and you get two very different businesses. Using typical costs, the cheap flip leaves you about $16,000 in profit, while the expensive one leaves more than $100,000. Same formula, same discipline, wildly different outcomes. To see why, you have to look at what that 30% gap is supposed to cover.

The formula is simple: MAO = (ARV x 0.70) - repair costs. The 30% you hold back is not all profit. It is a budget that has to absorb four things:

• Buying closing costs: title, escrow, lender fees, inspection, appraisal.
• Holding costs: loan interest, property taxes, insurance, and utilities for every month you own it.
• Selling costs: agent commissions, seller-paid closing costs, concessions, and transfer taxes.
• Profit: whatever is left after the first three.

Here is how that plays out. On the $100,000 ARV flip, the gap is $30,000. Subtract roughly $2,500 to buy, $4,500 to hold for six months, and $7,000 to sell, and you keep $16,000. On the $600,000 ARV flip, the gap is $180,000. Buying runs about $9,000, holding about $18,000, and selling about $40,000, which leaves $113,000.

The difference comes from how each cost behaves. Some are roughly fixed: a title search, an inspection, utilities, and a minimum insurance policy cost about the same whether the house is worth $90,000 or $600,000. Others scale directly with price, like commissions, transfer taxes, and interest on a bigger loan. On a cheap house, the fixed costs eat a large share of the 30%. On an expensive house, they barely register, so the leftover profit balloons.

That is the core problem. A flat percentage assumes every cost grows in lockstep with the price, and many of them do not. Once you see the 30% as a set of separate line items, it becomes clear why one number cannot fit every price point.

Worked Example: The $100K ARV Flip Where 70% Is Too Generous

Say you find a small ranch house in a modest neighborhood with an ARV of $100,000 and a $25,000 rehab budget. The 70% rule says your Maximum Allowable Offer is ($100,000 x 0.70) - $25,000 = $45,000. That looks like a $30,000 cushion on paper. The problem shows up when you list every dollar the deal actually costs.

Here is the full cost stack at a $45,000 purchase price:

• Purchase price: $45,000
• Rehab: $25,000
• Buying closing costs: $1,500
• Holding costs: $900/month for 5 months = $4,500
• Selling costs at 8% of ARV: $8,000

That totals $84,000, which leaves you $16,000 in profit on a sale at $100,000. Sixteen thousand dollars sounds fine until you remember that you are carrying five months of risk, managing contractors, and fronting the cash. Most of the fixed costs (closing, holding, agent fees) do not shrink much just because the house is cheap, so they eat a bigger share of a small deal.

Now run a common scenario. The rehab runs $5,000 over because the subfloor under the bathroom is rotted. Your profit drops from $16,000 to $11,000, a 31% cut from one surprise. On a low-priced flip, a single overrun can take nearly a third of your margin, and a second surprise (a slow sale, an extra month of holding) can push the deal close to break-even.

A safer approach starts with the profit you need and works backward. If your minimum is $25,000, the math is $100,000 - $25,000 profit - $25,000 rehab - $1,500 closing - $4,500 holding - $8,000 selling = $36,000. That works out to roughly 61% of ARV minus repairs, not 70%. Offering $36,000 instead of $45,000 feels aggressive, but it is the number that leaves room for the overrun you will probably hit.

Worked Example: The $600K ARV Flip Where 70% Loses Every Bid

Picture a dated four-bedroom in a strong suburban school district. Comps support an ARV of $600,000, and your walkthrough puts the rehab at $80,000 for a kitchen, two baths, flooring, and paint. You run the 70% rule: $600,000 x 0.70 = $420,000, minus $80,000 in repairs, gives an MAO of $340,000. That number feels safe, and on paper it is.

Now look at what that offer actually projects. Add $6,800 in purchase closing costs (about 2% of the price), $27,000 in holding costs (6 months at $4,500 a month for interest, taxes, insurance, and utilities), and $42,000 in selling costs (7% of ARV). Total costs come to $495,800: $340,000 + $80,000 + $6,800 + $27,000 + $42,000. Subtract that from $600,000 and you're looking at roughly $104,200 in profit.

The problem is that nobody will sell you this house at $340,000. At this price point, listing agents field offers from other flippers, well-capitalized buyers, and owner-occupants willing to do some work themselves. A bid 43% below ARV doesn't get countered. It gets ignored, and you can repeat that pattern for months without closing a single deal.

Rerun the numbers at 78%. That's $600,000 x 0.78 = $468,000, minus $80,000, for an offer of $388,000. Closing costs rise to $7,760 (2% of the higher price), while holding and selling stay at $27,000 and $42,000. Total costs land at $544,760, leaving about $55,240 in profit, or 9.2% of ARV. That's a real return on a six-month project, and it comes from an offer a seller will actually take seriously.

This is why testing more than one percentage matters before you submit anything. FlipSmrt returns the ARV from real comps, a line-item rehab budget, and the full deal math as soon as you paste the address. You can compare the 70% and 78% scenarios side by side in seconds instead of rebuilding a spreadsheet for each one.

The Better Formula: Work Backward From Your Target Profit

Instead of applying a fixed percentage, build your offer from the actual costs of the deal. The reverse formula is: Offer = ARV - selling costs - holding costs - buying closing costs - rehab - contingency - target profit. Every line is a real dollar figure you can estimate for a specific property. When a number changes, your offer changes with it, instead of hiding inside a blanket 30%.

Set your target profit two ways and use whichever is higher. First, pick a dollar floor that makes the project worth your time and risk, such as $30,000. Second, pick a percent of ARV, often 10% to 15%, so your cushion grows on bigger deals where a small mistake costs more. On a $150K flip the dollar floor usually wins. On a $600K flip the percentage usually wins.

Here is a $250K ARV deal. Selling costs at 8% are $20,000. A $160K hard money loan at 11% for six months is $8,800 in interest, plus 2 points ($3,200) and $3,000 for taxes, insurance, and utilities, so holding costs total $15,000. Buying closing costs are $3,500. Rehab is $50,000, with a 10% contingency of $5,000. Target profit is the greater of $30,000 or 12% of ARV ($30,000). The math: $250,000 - $20,000 - $15,000 - $3,500 - $50,000 - $5,000 - $30,000 = $126,500. The 70% rule gives $125,000, which shows why the rule holds up in the middle of the market.

Several situations push the number down. Rehab-heavy projects often run nine to twelve months, which can double your interest and carrying costs, so price the real timeline. Use a 10% contingency on cosmetic jobs and 15% when you are opening walls, touching foundations, or working on older homes. Points and interest should come from your actual lender quote rather than a rule-of-thumb guess.

In a softening market, haircut the ARV before you run the formula. If comps show $250K but prices are slipping, calculating from $240K builds protection into every line that follows.

Mistakes Flippers Make When They Adjust the Percentage

Raising to 80% to win bids without rerunning costs. On a $500K ARV with $60K in rehab, 70% gives an MAO of $290K, while 80% gives $340K. That extra $50K comes straight out of your profit, but your selling commissions, closing costs, and loan interest stay the same or grow because you borrowed more. Many flippers bump the percentage and never check what is left after those fixed costs. Fix: before raising your number, subtract selling, holding, and closing costs at the new price and confirm the profit still clears your floor.

Keeping 70% on cheap houses and assuming the margin is safe. A $100K ARV with $25K in rehab gives a $45K MAO and a $30K spread. Take out about $6K in agent fees, $3K in buy-side closing, and $4K in holding costs, and you are down to roughly $17K. One $8K foundation surprise cuts that in half. Fix: on low-ARV deals, drop to 60-65% or add a 15% rehab contingency before you calculate MAO.

Ignoring that expensive homes take longer to finish and sell. A $600K flip often runs 8 or 9 months instead of 5, because rehabs are bigger and the buyer pool is smaller. On a $450K hard money loan at 11%, interest alone is about $4,125 a month. Four extra months adds $16,500, plus taxes, insurance, and utilities on top. Fix: model holding costs for your realistic timeline plus two months, not the best-case schedule.

Anchoring to a percentage instead of a dollar minimum. A percentage tells you nothing about whether the profit is worth your time and risk. Earning $17K on a cheap flip and $90K on a pricey one can both come from "70%," yet one might not justify six months of work. Your lender, your crew, and your stress level care about dollars, not ratios. Fix: set a minimum profit (for example, $30K or 10% of ARV, whichever is higher) and walk away from any offer that falls below it.

FAQ: Adjusting the 70% Rule by Price Point

Is the 70% rule still useful? Yes, as a fast screen. If a seller's asking price lands well above (ARV x 0.70) minus repairs, you can usually pass in thirty seconds without opening a spreadsheet. The trouble starts when you send that number as your actual offer without checking what it leaves you in real dollars. Use it to decide which deals deserve twenty more minutes of analysis, not to decide what you'll pay.

What percentage should I use at my price point? Don't guess. Calculate it backward from the deal itself. Start with ARV, subtract rehab, holding, financing, and selling costs, then subtract your target profit. On a $250,000 ARV with a $40,000 rehab, $30,000 in combined costs, and a $35,000 profit target, your MAO is $145,000. Add the rehab back ($185,000), divide by ARV, and your effective percentage is 74%. That figure belongs to this deal only, and it will shift on the next one.

What is a reasonable minimum profit on a flip? Many flippers set a dollar floor first, often in the $25,000 to $30,000 range on smaller projects, and raise it as the price and risk climb. A useful gut check: would you accept six months of contractor delays, a softening market, and one surprise repair for this amount? A $30,000 profit on a $600,000 flip is a thin cushion that one bad month can erase. Pick your floor in dollars, then confirm it holds up against the ARV.

How do I quickly test a deal at multiple percentages? Run the same property at 65%, 70%, and 75%. Using the example above, those give offers of $122,500, $135,000, and $147,500, which leave profits of $57,500, $45,000, and $32,500 after full costs. Seeing all three side by side shows you how much room you have to compete. FlipSmrt pulls the ARV and rehab budget from the address, so you can compare these scenarios in a few minutes instead of rebuilding a spreadsheet.

The percentage is a shortcut for getting to a number. The dollar profit you walk away with, measured against the risk you're carrying, is what tells you whether the deal is worth doing. Set that target first and let the percentage come out of the math.