Question 1

What is the 70% rule in real estate?

Accepted Answer

The 70% rule states that an investor should pay no more than 70% of the after-repair value (ARV) minus repair costs. For example, a $200,000 ARV with $30,000 in repairs yields a maximum allowable offer of $110,000 ($200,000 × 0.70 − $30,000). The 30% buffer covers selling costs, holding costs, and a flipper profit margin.

Question 2

Why 70% specifically?

Accepted Answer

The 30% gap is designed to absorb roughly 8–10% in selling costs, 5–7% in holding costs, and leave 15% profit margin on ARV. It is a rule of thumb, not a law, in hot markets wholesalers often use 65%, in slower or appreciating markets 75% still leaves room.

Question 3

When should I use a percentage other than 70%?

Accepted Answer

Use 65% when competing with other investors or when your holding costs are high (hard money, long timeline). Use 75% only when you have unusually low costs, a strong exit (owner-occupier flip, rent-hold conversion), or you’re in a market where 70% MAO simply does not produce deals.

Question 4

What happens if the MAO is negative?

Accepted Answer

A negative MAO means repair costs exceed ARV × your rule percentage. The deal does not work at those numbers, either your rehab estimate is too high, your ARV is too low, or the market has no room for a flipper’s margin on that property. Walk away or renegotiate dramatically.

Question 5

Is the 70% rule useful for BRRRR or long-term rentals?

Accepted Answer

It is a flipper’s rule. BRRRR investors often use a stricter modified version where MAO also backs into a refinance LTV that pulls all their cash out. For long-term rentals, cap-rate and cash-flow underwriting matter more than the 70% rule.

Question 6

How accurate is my ARV estimate?

Accepted Answer

ARV is the biggest lever in this calculation, a 5% error in ARV is a 3.5% error in MAO. Pull three sold comps within a half-mile, similar in square footage and bed/bath count, from the last 90 days. Adjust for differences. Then discount by 5% for conservatism.

Maximum Allowable Offer Calculator (70% Rule): Free Tool for Wholesalers and Flippers