The 70% Rule Explained: How to Calculate Maximum Purchase Price

The 70% rule states that an investor should pay no more than 70% of a property's After Repair Value (ARV) minus the estimated repair costs. For example, if a property has an ARV of $300,000 and needs $50,000 in repairs, the maximum purchase price would be $300,000 × 0.70 − $50,000 = $160,000.

This formula builds in a 30% margin to cover holding costs, closing costs on both the purchase and sale, agent commissions, and your profit. In practice, this margin typically breaks down to roughly 10% for transaction and holding costs, and 20% for profit.

However, the 70% rule is a guideline, not a law. In competitive markets with thin inventory, many investors work on tighter margins — sometimes using 75% or even 80% of ARV. Conversely, in higher-risk markets or for properties requiring extensive structural work, a more conservative 65% may be appropriate.

Factors that justify adjusting the percentage include local market velocity (how quickly properties sell), the accuracy of your ARV estimate, the complexity of the renovation, your cost of capital, and your experience level. Newer investors should stick to 70% or lower until they have enough deal flow and renovation experience to accurately forecast costs and timelines.