Calculate maximum allowable offer (MAO) for BRRRR and fix-and-flip deals
The 70% rule is a screening filter used by BRRRR investors and house flippers to decide whether a deal is worth pursuing. The formula:
MAO = (ARV × 0.70) − Rehab Budget
The logic: if you can buy + rehab for ≤ 70% of ARV, the remaining 30% covers closing costs (~6%), holding costs (~4%), refinance/sale costs (~3%), and either profit (for flippers) or a margin of safety for refinance LTV haircut (for BRRRR investors).
Markets with clear comp data, properties priced under $200K, and renovation projects with predictable scope. The rule is calibrated for the bread-and-butter flipper and BRRRR market — single-family homes in working- and middle-class neighborhoods where ARVs are well-supported by comps and rehab is mostly cosmetic-to-moderate.
Use 65% in hot markets where ARVs are inflated by recent peak sales and could correct. The extra 5% cushion absorbs price softening.
Use 65% on heavy rehabs (foundation, full gut, structural). Rehab budget overruns of 20-30% are normal on these projects; the bigger cushion absorbs them.
Use 75% in higher-priced markets ($300K+ ARVs) where the absolute dollar margin at 70% is large enough that competitive offers require accepting a tighter percentage. Just understand you've eaten into the safety margin.
Use 75-80% for BRRRR-only deals where you're refinancing rather than selling. You skip the realtor commissions on the eventual sale (saves ~6%), so the math can support a tighter all-in.
Bad ARV estimates. If your ARV is wrong by 10%, the rule's entire margin disappears. Use only verified comp sales, not Zestimates or wholesaler claims.
Rehab budget overruns. Most first-time investors underestimate rehab by 20-40%. Get firm contractor quotes before underwriting, and add a 15-20% contingency line.
Holding cost underestimation. BRRRR projects routinely take 6-12 months from purchase to refinance. Holding costs (taxes, insurance, utilities, loan interest) compound — model 6 months minimum.
The 70% rule is a starting point, not a substitute for honest deal underwriting. Use it to quickly screen out deals that obviously don't pencil, then run the full numbers on what survives. See our BRRRR calculator for the complete capital-recovery math.