For years, the 70% rule has been the gospel of house flipping.

You know the formula:

Maximum Allowable Offer (MAO) = (ARV × 70%) – Repair Costs

It’s clean. Simple. Easy to memorize.

And wrong.

Well, not wrong in theory. But in today’s market? It’s outdated. Misapplied. And often downright dangerous for newer flippers chasing deals in competitive zip codes.

In this article, we’ll break down:

• Why the 70% rule was created

• Where it fails in today’s real-world flips

• What professional flippers use instead

• How to calculate safer, smarter MAOs with real margins

• A new framework you can apply to your next deal

Let’s get to it.

The Origin of the 70% Rule

The 70% rule became popular for one reason: simplicity.

It was designed for beginner investors who needed a quick rule of thumb to avoid overpaying. The formula assumes you need to leave 30% of the After Repair Value (ARV) for all non-renovation costs, closing costs, holding costs, financing, and profit.

Simple, right?

It looks like this:

MAO = (ARV × 0.70) – Repairs

For example, if a house has an ARV of $300,000 and needs $40,000 in work:

MAO = ($300,000 × 0.70) – $40,000 = $170,000

You’d aim to buy it at $170K or less.

In theory, this gives you enough margin to:

• Cover financing and holding costs

• Pay closing and agent fees

• Earn a profit of $30K–$40K

But in practice, this rule starts to crumble.

Why the 70% Rule Doesn’t Work Anymore

Let’s break down where the 70% rule falls short in the real world.

1. It Ignores Local Market Nuance

A 30% margin might be required in a high-cost, high-risk market, but it’s overkill in areas with quick turnover and low holding risk.

In hot zip codes, flippers can operate with tighter margins because:

• Homes sell faster

• Cash buyers are abundant

• Days on market are low

In cold or rural markets? 30% might not even be enough.

The rule doesn’t account for this nuance.

2. It Assumes Cash

The 70% rule was designed for cash buyers.

But many flippers use hard money or private loans. These come with:

• Origination fees (2–3 points)

• High interest (10–12%)

• Monthly payments during hold

These costs can eat into your 30% “safety cushion” fast.

3. It Doesn’t Reflect True Costs

Every flip has:

• Closing costs (both sides): ~6–10%

• Holding costs (utilities, insurance): $1,000–$5,000+

• Financing fees: 2–5%+

• Unexpected repairs: Always

In reality, many flippers spend 15–18% of ARV on everything outside of the rehab budget.

If your formula only leaves 30%, your actual profit might be just 12–15%, and that’s assuming nothing goes wrong.

4. It Kills Deals in Competitive Areas

Good flip deals don’t linger on the MLS.

In markets with institutional buyers or fast-moving investors, a 70% rule makes you:

• Too conservative

• Too slow

• Easy to beat

You’ll miss out on deals where an 80% or even 85% MAO still yields healthy profit (especially with lower rehab risk).

What Experienced Flippers Use Instead

Smart flippers know that the margin percentage doesn’t matter as much as the actual dollar profit.

In other words, profit matters more than the rule.

They ask:

• What’s my all-in cost?

• What’s my resale price (ARV)?

• What’s my net profit, after everything?

If that number hits their minimum acceptable profit (MAP), the deal works.

For many pros, that MAP is:

• $25K–$40K in lower-cost markets

• $50K–$75K+ in higher-cost markets

Even if that means buying at 80–85% of ARV, because they know how to control costs.

A Better Framework: The True Margin Method

Forget percentages.

Use this method instead:

Step 1: Determine the ARV

Use real comps. Not best-case Zillow guesses.

Step 2: Estimate Repairs

Use a conservative budget, include permits, contractor fees, and 10–15% buffer.

Step 3: Calculate All Soft Costs

Include:

• Agent fees (5–6%)

• Closing costs (2–3% buy side, 2–3% sell side)

• Holding costs (utilities, insurance, taxes)

• Financing (interest, origination points, draw fees)

Step 4: Set Your Minimum Profit Target

Know your number before you offer.

Step 5: Add it All Up

MAO = ARV – (Repairs + Soft Costs + Profit Target)

This is real deal math.

Real Example: The MAO Breakdown

Let’s say you’re evaluating a property with a $400,000 ARV.

Repair Estimate: $60,000
Agent + Closing Fees (8%): $32,000
Holding + Financing Costs: $18,000
Profit Goal: $40,000

Total Costs (excluding purchase): $150,000

MAO = ARV – Total Costs = $400,000 – $150,000 = $250,000

That’s your real Maximum Allowable Offer. Even though it’s 62.5% of ARV, the margin is solid.

Now, let’s say the seller wants $265,000. You’re at $250,000. Can you stretch?

Maybe. If:

• The rehab is light

• You can list off-market

• You know you’ll sell in <14 days

But now you’re making real decisions, not playing by a one-size-fits-all rule.

When Is It OK to Break the 70% Rule?

Flippers buy above 70% all the time.

Here’s when it makes sense to break the rule:

• Cosmetic-only flips

• Extremely fast resale markets

• Private money at low interest

• “Wholetail” opportunities

• You have a buyer lined up before close

Here’s when to be cautious:

• Unfamiliar zip code

• Full gut reno required

• Foundation or roof issues

• You’re relying on hard money and long hold

• No clear comps for ARV

Quick Cheat Sheet: New MAO Guidelines by Flip Type

Use this as a starting reference:

Cosmetic Flip in Hot Zip:
Target MAO: 80–85% of ARV minus repairs

Light Reno in Stable Suburb:
Target MAO: 75–78% of ARV minus repairs

Full Rehab in Moderate Market:
Target MAO: 70–75% of ARV minus repairs

Heavy Rehab in Slow Market:
Target MAO: 65% or lower of ARV minus repairs

These are not hard rules, but they reflect what today’s flippers actually close deals at.

What Matters More Than Your Formula

Speed. Relationships. Certainty.

Sellers and wholesalers care about:

• Confidence you can close

• No drama during escrow

• Clear expectations

• Fast timelines

If you have those and know your true cost structure, you can win deals even when you're not the highest offer.

Think Like a Business, Not a Rule Follower

The best flippers aren’t spreadsheet warriors.

They’re entrepreneurs who:

• Understand risk

• Adjust to market shifts

• Make fast, confident decisions

The 70% rule is a crutch.

You don’t need it.

You need to know your numbers, set your margins, and work backward from reality.

That’s how you stay in business, and beat the investors still stuck quoting formulas from 2015.