The 70% Rule, Explained With 2026 Numbers

TL;DR

• The 70% rule: MAO = ARV × 0.70 − rehab. It targets ~30% gross margin after rehab, fees, and holding.
• In 2026 hot markets, the rule is too strict and most flippers use 72–75%. In soft markets, 65% is the real threshold.
• The rule assumes rehab is known. Garbage in, garbage out — you need a real scope, not a guess.
• Always stress-test MAO against worst-case ARV (−8%) and worst-case rehab (+20%) before you lock in.

If you have spent ten minutes on real estate Twitter, you have seen the 70% rule quoted like scripture. Plug in ARV, subtract rehab, multiply by 0.70, and you have a maximum allowable offer. Clean, fast, famous. It is also wrong in at least four specific markets right now. Here is how the rule actually works, why it breaks, and what serious flippers use instead in 2026.

What the 70% rule actually says

Formula:

MAO = (ARV × 0.70) − Rehab

Where:

• MAO = Maximum Allowable Offer (what you pay for the house)
• ARV = After-Repair Value (what the finished flip sells for)
• Rehab = Total rehab cost including permits and waste

The 30% skim off ARV is supposed to cover:

• Your target profit (~10–15%)
• Closing costs on purchase (~2%)
• Holding costs over 4–7 months (~3–5%)
• Realtor + closing on sale (~7–8%)
• Contingency (~3%)

Add that up and you are at ~30%. That is where the 0.70 comes from. It is not magic; it is a shorthand for all the line items you would otherwise calculate one by one.

2026 worked example: Columbus, Ohio

Property: 1970s ranch, 1,550 sq ft, 3/2, on a quiet street in a C+ suburb.

• ARV: $285,000 (based on 4 comps sold in last 90 days, all within 0.4 mi)
• Rehab: $48,000 (kitchen mid-grade, one bath full, HVAC, roof, paint, flooring)

MAO = ($285,000 × 0.70) − $48,000
    = $199,500 − $48,000
    = $151,500

You cannot pay more than $151,500 and still hit 30% gross margin. The listing is at $168K. The rule says walk away — or negotiate $16K+ off.

Why the rule is too strict in hot markets

Take the same house in a 2026 Phoenix submarket with 11% annual appreciation and 8-day average DOM:

• ARV: $385,000 (appreciation since comps is tailwind you expect to capture)
• Rehab: $48,000

At 0.70: MAO = $221,500. But every comparable property sold in the last 30 days went 3–5% over asking after 1 day. No one is selling at $221K. The real threshold serious flippers use in that market is 72–75% because:

1. Holding costs are shorter (6–8 weeks to resell, not 5 months).
2. ARV is drifting up 0.8–1% per month during your rehab — so your "stale" ARV understates reality.
3. Your competition is bidding the same logic.

Hybrid rule in hot markets: MAO = ARV × 0.73 − rehab, and back-test against 3 comps sold in the last 30 days rather than 90.

Why the rule is too generous in soft markets

Flip it. Rust Belt secondary market, 2026, DOM averaging 95 days and comps flat to down 2% YoY:

• ARV: $145,000
• Rehab: $38,000

At 0.70: MAO = $63,500. But holding costs eat you alive here. You will hold 8–11 months easy. Every month of holding costs ~$900. That is an extra $5–7K you did not bake in.

Hybrid rule in soft markets: MAO = ARV × 0.65 − rehab.

The four places the 70% rule quietly lies to you

1. ARV is wrong

Most new investors use a Zestimate or pull the first three comps they see. Both fail. ARV vs Zestimate: Why Your Deal Analysis Keeps Being Wrong walks through how comps get selected and adjusted by people who underwrite 50 deals a year.

2. Rehab is a guess

If your rehab number is "$40K probably," your MAO is fantasy. Get a real scope. See How to Estimate Rehab Costs Without Getting Burned for the four-bucket framework.

3. Holding costs are invisible in the formula

The 30% skim assumes 4–6 months. If you hold 9 months, you just burned another 4% of ARV. On a $300K ARV, that is $12,000 of profit gone.

4. High-end markets do not play

On a $2.1M flip in Palisades or Austin Hills, the buyer pool is tiny and realtor commissions often negotiated. The static 0.70 is wrong. Model it line-by-line instead.

How to stress-test your MAO

Before you write an offer, run three scenarios:

• Base: ARV as calculated, rehab as bid.
• Sour: ARV × 0.92 (8% haircut), rehab × 1.20 (20% overrun).
• Disaster: ARV × 0.85, rehab × 1.35, timeline × 1.5.

If sour case still turns a small profit, the deal is solid. If disaster case bankrupts you, size down.

Where this fits in your process

The 70% rule is a screening filter, not an underwrite. Use it to triage 50 listings down to 5 in an hour. Then do real comp selection, real rehab scoping, and real holding cost math on those 5. That is how flippers who keep flipping stay in business.

Skip the hand math

Vricko's Deal Wizard runs the 70% rule, the 65% rule, and full underwriting side by side. It pulls comps, adjusts them, prices rehab from photos or scope, and shows you MAO under base / sour / disaster scenarios in one screen. No more Excel tabs, no more wrong comps, no more pretending rehab is $40K because the podcast said so.

Run your next deal through the Deal Wizard — stop guessing whether the 70% rule even applies to your market.