Understanding the 70% Rule in Wholesaling
The 70% rule is the fastest way to check whether a flip is worth a closer look. Here's how the formula works, what the 30% actually pays for, a worked wholesale example, and when you should use a different percentage.
The 70% rule is the most common shortcut in flipping and wholesaling. It gives you a quick maximum price for a property so you can decide in a minute whether a deal deserves a full analysis. Used correctly, it saves hours. Used blindly, it leads to overpaying in some markets and missing good deals in others.
The formula
Maximum allowable offer (MAO) = (ARV × 70%) − repair costs
ARV is the after-repair value: what the property should sell for once it's fully fixed up, based on recent closed sales of similar homes nearby.
Example:
- ARV: $200,000
- Repairs: $30,000
- 70% of ARV: $140,000
- MAO: $140,000 − $30,000 = $110,000
A flipper using the rule shouldn't pay more than about $110,000 for this house.
What the other 30% pays for
The 30% isn't all profit. On a $200,000 ARV, it's $60,000, and it has to cover every cost of the flip besides the purchase and the rehab. An illustrative breakdown:
| Cost | Amount |
|---|---|
| Selling costs (agent commissions and closing, about 8%) | $16,000 |
| Buying and closing costs | $2,200 |
| Holding costs (about 5 months) | $10,000 |
| Loan points and fees | $3,000 |
| Left as profit | about $28,800 |
That remaining profit, about 14% of the sale price, is the flipper's reward for the risk of a rehab going over budget or the market softening. Squeeze the 30% down to 20% and the profit nearly disappears.
How wholesalers use the rule
If you're a wholesaler, the 70% rule tells you what your end buyer can pay, which tells you what you need to contract the property for.
Using the same house:
- Your buyer's MAO is about $110,000.
- If you want a $10,000 assignment fee, you need the property under contract for about $100,000 or less.
Work backward like this before you make an offer to a seller. If you contract at $115,000, no flipper who uses the rule can buy it from you, no matter how good the house looks.
When 70% isn't the right number
The rule is a rule of thumb. The right percentage changes with price range and market conditions.
Lower-priced houses often need a lower percentage. Many costs, like closing fees, insurance, and a minimum profit worth the effort, don't shrink much with price. On a $100,000 ARV, 30% is only $30,000, which may not cover costs and still leave a profit. Investors often use 60% to 65% at that level.
Higher-priced houses can sometimes support a higher percentage. On a $450,000 ARV, 30% is $135,000, more than enough to cover costs. Competitive buyers may go to 75% or even 80%, because the dollar profit is still large.
Hot markets push percentages up. When many buyers compete for few deals and homes sell quickly, investors accept thinner margins because holding times are short.
Heavy rehabs deserve a lower percentage. A full gut or structural work carries more risk, so experienced investors leave extra room for surprises.
Common mistakes
Inflating the ARV. The formula is only as good as the ARV. Using the highest sale in the neighborhood, or active listings, makes every deal look good. Use conservative closed comps.
Underestimating repairs. Photo-based estimates routinely miss roofs, sewer lines, electrical, and foundation issues. Walk the property or get a contractor's estimate, and add a contingency.
Using it for rentals. The 70% rule is built for flips. For a rental, what matters is whether the rent covers the mortgage, taxes, insurance, maintenance, and vacancy with money left over. Run rental math instead.
Treating it as the final answer. The rule tells you whether a deal is worth analyzing. Before you commit, run a full breakdown with your actual financing, holding time, and selling costs.
A quick way to apply it
- Verify the ARV with recent closed sales.
- Build a realistic repair estimate with a contingency.
- Apply the percentage that fits the price range and market.
- Subtract repairs to get your MAO.
- Compare it to the asking price. If the asking price is well above your MAO, move on or counter.
On PropPipeline, every listing shows the wholesaler's ARV, asking price, repairs, and an estimate of how much of the ARV the deal costs all-in, so you can apply the rule at a glance and spend your time on the deals that pass.