The fastest way to lose money on a flip is to pay too much for the property. Emotion, competition, and optimism all push investors to overbid — and a bad purchase price can wipe out your profit before the first nail is hammered. That is why experienced flippers rely on a simple formula called the 70% rule. At Real Estate Sales LLC, we teach this rule as the foundation of every profitable flip.
What the 70% Rule Says
The 70% rule states that you should pay no more than 70% of a property’s after-repair value (ARV) minus the cost of repairs. In formula form: Maximum Offer = (ARV × 0.70) − Repair Costs. That built-in 30% cushion covers your profit, holding costs, closing costs, and the inevitable surprises every rehab throws at you.
Working a Real Example
Say a home will be worth $300,000 after renovation and needs $40,000 in repairs. Multiply $300,000 by 0.70 to get $210,000, then subtract $40,000 in repairs. Your maximum offer is $170,000. Pay more than that, and you start eating into the margin that protects you when things go wrong — and they often do.
Nailing Your ARV
The rule only works if your ARV is accurate. Pull comparable sales of similar, recently sold homes within a mile that have the finishes you plan to deliver. Do not use active listings or wishful pricing. A single optimistic comp can inflate your ARV and turn a winner into a loser.
Estimating Repairs Honestly
Underestimating rehab costs is the second most common flipping mistake. Walk the property with a contractor, budget for the systems you cannot see — roof, plumbing, electrical, HVAC — and always add a 10-15% contingency. It is better to be pleasantly surprised than dangerously short.
When to Adjust the Percentage
The 70% rule is a starting point, not a law. In hot, competitive markets with low inventory, seasoned investors may stretch to 75%. On expensive homes or risky rehabs, they tighten to 65%. Adjust the percentage to match your market and your appetite for risk — but never abandon the discipline.
Why Discipline Wins
The investors who survive downturns are the ones who refuse to overpay. Walking away from a marginal deal is not a missed opportunity — it is risk management. There is always another house. Protecting your capital keeps you in the game long enough to catch the great deals.
Flip Smarter with Real Estate Sales LLC
At Real Estate Sales LLC, our Flip Cheap Houses™ program teaches you how to run the numbers on every deal so you buy right and profit every time. The money is made when you buy, not when you sell.
Visit FlipCheapHouses.com to learn how to analyze deals like a pro!
