The 70% Rule in Real Estate: How to Calculate Maximum Allowable Offer

What Is the 70% Rule?

The 70% rule is the most widely used formula in fix-and-flip investing. It tells you the maximum price you should pay for an investment property to ensure a profitable flip.

MAO = ARV x 70% - Repair Costs

Where:

MAO = Maximum Allowable Offer (your highest purchase price)

ARV = After Repair Value (what the property will sell for after renovation)

Repair Costs = Total estimated renovation expenses

Why 70%? Breaking Down the Math

That 30% buffer covers your major expense categories:

Real-World Example

Subject Property:

ARV: $300,000

Estimated Repairs: $50,000

MAO = $300,000 x 0.70 - $50,000 = $160,000

This means you should pay no more than $160,000 for this property to maintain a healthy profit margin.

When to Adjust the Rule

Tighter Markets (65% Rule)

In competitive, high-cost markets like San Francisco or New York:

Higher holding costs

Longer renovation timelines

More competition for contractors

Use 65% instead of 70%

Hot Markets (75% Rule)

In rapidly appreciating markets:

Homes sell faster (lower holding costs)

ARV may increase during renovation

Lower risk of market correction

Can stretch to 75%

Wholesale Deals

Wholesalers typically use 65% to leave room for the end-buyer's profit: Wholesale MAO = ARV x 65% - Repairs - Assignment Fee

Common Mistakes

Overestimating ARV — Use conservative comps, not the highest sales

Underestimating repairs — Always add a 10-15% contingency buffer

Ignoring holding costs — Every month costs you money (mortgage, utilities, insurance, taxes)

Applying the rule blindly — Market conditions matter. Adjust for your specific market

Forgetting selling costs — Agent commissions alone are typically 5-6%

Beyond the 70% Rule: Advanced Analysis

The 70% rule is a great starting point, but serious investors go deeper:

Cash-on-cash return: Measures your actual cash invested vs. profit

Cap rate: Essential for rental property analysis

Internal rate of return (IRR): Accounts for time value of money

Break-even analysis: When does the deal start making money?

Use PropertyARV for Instant MAO Calculation

Instead of manual calculations, PropertyARV's Quick Analyzer lets you paste any listing URL from Zillow, Redfin, or Realtor.com and instantly calculates your MAO using the 70% rule, plus flip profit, rental cash flow, and ROI.

Try the Quick Analyzer →