The 70% Rule Masterclass: Never Overpay for a Flip Again

Every experienced flipper knows this formula: MAO = ARV x 70% minus Repair Costs. MAO stands for Maximum Allowable Offer. ARV is After Repair Value. And the 70% is your margin of safety.

Here is why 70% and not some other number. That 30% gap covers three things most new investors forget to budget:

1. Holding costs. Every month you own a flip, you pay the mortgage, insurance, utilities, taxes, and lawn care. On a $200,000 property, that is $1,500 to $2,500 per month. A 6-month flip costs $9,000 to $15,000 in holding alone.

2. Closing costs. You pay closing costs twice. Once when you buy (1-2% of purchase price) and once when you sell (8-10% of sale price including agent commissions). On a $200,000 sale, that is $16,000 to $20,000 out the door.

3. Profit. After all expenses, you need to actually make money. The 70% rule bakes in roughly 10-15% profit margin.

Let us run a real example. You find a house with an ARV of $250,000. Repairs will cost $40,000.

MAO = $250,000 x 0.70 minus $40,000 MAO = $175,000 minus $40,000 MAO = $135,000

Your maximum offer is $135,000. If you buy at $135,000, spend $40,000 on rehab, and sell at $250,000, here is what happens:

Sale price: $250,000 Purchase: $135,000 Rehab: $40,000 Holding (5 months): $10,000 Closing costs (buy + sell): $22,000 Total costs: $207,000 Profit: $43,000

That is a 17% return on the ARV. The formula works.

Now here is where beginners get burned. They see that $135,000 offer and think it is too low. The seller wants $160,000, so they stretch to $155,000. That extra $20,000 comes straight out of their profit. Instead of $43,000, they make $23,000. One unexpected repair, and they break even. Two surprises, and they lose money.

The 70% rule is not a suggestion. It is the line between making money and hoping you make money.

The 70% rule works in most markets most of the time. But real estate is local. A flip in Phoenix with 20 days on market is different from a flip in rural Ohio sitting for 6 months.

Here is when to adjust up to 75% or even 80%:

Hot markets where homes sell in under 30 days. If your holding period drops from 6 months to 3 months, your holding costs get cut in half. That savings lets you pay more and still profit. In a market where flips move in 21 days, an 80% rule might give you a 12% profit margin.

Let us do the math. ARV is $300,000. Repairs are $30,000.

At 70%: MAO = $300,000 x 0.70 minus $30,000 = $180,000 At 80%: MAO = $300,000 x 0.80 minus $30,000 = $210,000

At 80%, you can offer $30,000 more. If the property sells in 3 weeks, your holding costs drop from $12,000 to $3,000. You still clear $35,000 to $40,000.

Here is when to tighten to 65% or even 60%:

Slow markets where average days on market is 90 or more. Every extra month adds holding costs. If you budget for 4 months but the flip takes 8, that $8,000 in extra holding eats your profit.

High-rehab projects with unknowns. Older homes (pre-1960) often hide expensive problems. Foundation issues. Knob-and-tube wiring. Lead paint. Asbestos. A $40,000 rehab budget can balloon to $65,000 fast. Using 65% gives you a buffer.

Luxury flips above $500,000 ARV. Higher price points mean longer marketing periods and a smaller buyer pool. That $800,000 flip might sit for 4 months before the right buyer shows up.

Here is a simple framework:

Days on market under 30: Use 75-80% Days on market 30-60: Use 70% Days on market 60-90: Use 65-70% Days on market over 90: Use 60-65%

The key is knowing your local market data. Check recent flip sales in your area. How long did they take? What were the actual holding costs? That data tells you exactly where to set your percentage.

One more adjustment: your experience level. If this is your first flip, use 65% even in a hot market. The learning curve costs money. Experienced flippers who have their contractor crews dialed in and know exactly how long a kitchen reno takes can push to 75% because their execution is faster and tighter.

The 70% rule is simple math. But getting accurate inputs is the hard part. If your ARV is off by $20,000 or your repair estimate misses $15,000, the formula gives you a wrong answer. FlipMantis solves this by pulling real data into the formula automatically.

Step 1: Pull comps for ARV. Open the Deal Analyzer and enter the property address. FlipMantis pulls comparable sales from the last 6 months within a half-mile radius. You will see sale prices, square footage, bed/bath counts, and days on market. Select 3 to 5 comps that match your subject property after rehab. The tool averages them for your ARV.

Say you are analyzing 1847 Oak Street. The comps show: - 1923 Elm: $248,000 (3/2, 1,450 sqft, sold 45 days ago) - 1801 Pine: $255,000 (3/2, 1,520 sqft, sold 30 days ago) - 1910 Maple: $242,000 (3/2, 1,380 sqft, sold 60 days ago)

Average ARV: $248,333. Round to $248,000.

Step 2: Build your rehab estimate. The Rehab Estimator lets you add line items by category. Kitchen ($12,000). Bathrooms ($8,000). Flooring ($6,000). Paint ($4,000). HVAC ($5,500). Roof ($0, already good). Landscaping ($2,500). Total: $38,000.

Step 3: The Deal Analyzer runs the MAO formula automatically.

MAO = $248,000 x 0.70 minus $38,000 MAO = $173,600 minus $38,000 MAO = $135,600

You can adjust the percentage right in the tool. Slide it to 75% for a hot market or 65% for a slow one. The MAO updates instantly.

Step 4: Compare to the asking price. If the seller wants $140,000, you are $4,400 over your MAO. That is close enough to negotiate. If they want $165,000, you are $29,400 over. Walk away or counter at your number.

The Deal Analyzer also shows your projected profit, holding cost estimate, and closing cost estimate. You see the full picture before making an offer.

Every deal you analyze gets saved to your pipeline. You can compare multiple properties side by side and see which ones actually hit your numbers. No more spreadsheets. No more guessing.

The fastest way to lose money flipping houses is to break the 70% rule because you "felt good" about a deal. Here are three scenarios that play out every day across the country.

Scenario 1: The Emotional Buy

ARV: $200,000. Repairs: $25,000. MAO at 70%: $115,000.

The investor loved the neighborhood. Offered $140,000 because "it just felt right." That is $25,000 over MAO.

Actual numbers after the flip: Purchase: $140,000 Rehab: $25,000 Holding (6 months): $9,000 Closing costs: $18,000 Total: $192,000 Sale price: $200,000 Profit: $8,000

Six months of work, $140,000 in capital deployed, for $8,000. That is a 4% return. A savings account pays more. And this assumes nothing went wrong.

Scenario 2: The Rehab Surprise

ARV: $300,000. Estimated repairs: $50,000. MAO at 70%: $160,000. Purchased at $160,000. Right on the number.

But the contractor opened walls and found termite damage. Foundation needed $18,000 in work. The $50,000 rehab became $72,000.

Purchase: $160,000 Rehab: $72,000 Holding (8 months, because foundation work added 2 months): $16,000 Closing costs: $27,000 Total: $275,000 Sale price: $300,000 Profit: $25,000

Still made money. Barely. If they had paid $175,000 instead of $160,000 (breaking the 70% rule by just $15,000), they would have profited $10,000 for 8 months of stress. One more surprise and they would have lost money.

Scenario 3: The Market Shift

ARV: $350,000 (based on comps from 3 months ago). Repairs: $45,000. MAO at 70%: $200,000. Purchased at $225,000 because the investor used 78%.

During the 5-month rehab, mortgage rates jumped. Buyer demand dropped. The property sat for 90 days. Price cut to $325,000. Then $310,000.

Purchase: $225,000 Rehab: $45,000 Holding (8 months total): $20,000 Closing costs: $28,000 Total: $318,000 Sale price: $310,000 Loss: negative $8,000

That investor lost $8,000 plus 8 months of their time. If they had stuck to 70% and bought at $200,000, they would have cleared $17,000 even with the market dip.

The lesson is the same every time. The 70% rule does not exist to help you find deals. It exists to protect you when things go wrong. And things always go wrong eventually.

Buy right, or do not buy.